Structuring a New Business Venture
Solar Charge Limited
Solar Charge Ltd is a business focused on creating solar-fueled chargers used to charge multiple products such as mobile phones and other electronic devices.
Mission statement: To inspire eco-friendly products that utilize solar energy to improve lives for persons worldwide.
The company’s name was chosen based on the product being manufactured, i.e., “Solar Charge” is just a cute name to the solar energy-fueled charger. The mission statement was selected to reflect on its goals of promoting environmental conservation and social responsibility. The business wants to eliminate electricity usage produced from fossil fuel instead of using natural and renewable energy sources.
Limited Liability Company
Creation and Maintenance
LLCs are created by filing articles with the secretary of state based on the location of the business. An LLC is formed based on the regulations of the states and authorities to ensure regulatory maintenance. The business should choose an appropriate name, choose a registered representative, compose, and file with relevant authorities. Companies must also file a statement of information, write an operating agreement, file a fictitious name statement, and obtain business licenses. Besides, the business is supposed to get an employer identification number (EIN), bring a sales tax permit, and open a bank account (Fishman, 2020). The business is maintained by paying the required LLC fees and taxes, updating the company’s statement of information, amending articles of organization, renewing business licenses, renewing the fictitious business statements, and maintaining the required documentation.
Continuity, Ownership, and Control
In LLCs, dissolving the company is required to achieve continuity. Thus, all stakeholders must agree to dissolve the company. Secondly, notices need to be sent to creditors. Thirdly, wind up the business by rendering accounts, paying all bills, liquidating assets, and distributing the remaining assets to creditors. Lastly, a notice of cancellation is issued, and final tax returns are filed. LLCs are owned by shareholders who can only lose the amount of capital they injected (Salvioni & Gennari, 2016). Thus, it can have or more owners; however, it is a separate entity from the shareholders. The shareholders control the LLC regarding the number of shares they have in the company. The shareholders can choose a board of directors (management) who act according to state laws.
Personal Liability, Compensation, and Sharing of Profits
Personal liability in LLCs denoted to show that persons can be liable to offenses they commit while serving as shareholders. In this regard, persons are responsible for negligent actions that implicate them against creditors and other external entities. Also, shareholders are accountable for their debts, actions of their co-owners and employees, and members’ debts. LLC owners are compensated and rewarded for their efforts through “sweat” equities (Anderson, 2012). Profits are deposited in shareholders’ capital accounts as dividends. Capital interest shows the member owns assets within the company. The capital interest is issued without the requirement to return.
Taxation
Taxation in LLCs depends on whether one or more members choose to be treated as different entities for tax purposes. Thus, a single-member LLC is not considered as a separate entity and taxed the same way as a sole proprietorship. A multiple-member LLC is taxed as a partnership where members pay taxes regarding their proportion of shares. Lastly, some LLCs choose to be taxed as corporations, which are separate entities from the owners.
Advantages and Disadvantages of Limited Liability Company (LLC)
Firstly, there is less paperwork and documentation due to lack of or minimal board a meeting. Secondly, there is a flexible tax treatment since it is elected to conform to partnership, sole proprietorship, S, and C corporation tax paradigms (Hymson, 2007). Thirdly, shareholders can only lose invested capital instead of private assets. Lastly, there is no double taxation since the LLC, and not the shareholders are not taxed. From a negative perspective, it is not easy to raise capital for its massive operational costs. Also, LLCs’ management can be unfamiliar to external entities due to a lack of managerial authorities’ knowledge.
Partnership
Creation, Maintenance, and Continuity
Partnerships are created by verbal agreement with no documentation between two persons who want to conduct business for profits. The partners can also have a written account of the oral agreement that governs the relationship. Maintenance is carried out by implementing agreed-upon activities, evaluating outcomes and outputs, reviewing partnership guidelines, regular communication, defining partners’ roles, and establishing long-term goals (Wildridge, Cawthra, & Madge, 2008). Continuity of partnerships is based on provisions encompassed in a partnership agreement. Thus, partners can transfer their partnership interests as stipulated in the contract.
Ownership, Control, Personal Liability, Compensation, Division of Profits, and Taxation
In partnerships, two or more persons own with equal rights regarding managerial authority. Thus, the partners have direct control over the business. In general partnerships, each owner has unlimited personal liabilities. Therefore, they are responsible for the payment of business debts. Partners are compensated based on their roles and functions or services to the business in salaries. Profits are shared based on the partnership agreement stipulations taking into account their proportion of capital equity. Capital gains from the sale of assets and interests accrued by partners are taxable under capital gain and income taxation structures.
Sole Proprietorship
Creation, Maintenance, Continuity, Ownership, Control, Personal Liability, Compensation, Division of Profits, and Taxation
Sole proprietorships require selecting a business name, deciding on the location, and filing for a local authority’s business license. Sole proprietorships do not require maintenance. (Intellectual Property and Transactional Law Clinic, 2020). Also, they do not have continuity of life since they are not separate entities from the owners. Sole proprietorships are owned and controlled by the business owner. The owner has unlimited personal liabilities since creditors can reach both their private and business assets. The owner is the one entitled to all compensations and profits. Sole proprietors are required to report their incomes and losses for personal income taxation.
Advantages and Disadvantages
Sole proprietorships are beneficial since owners have complete control in decision-making, sale and transfer are comfortable, no corporate taxation payments, minimal legal costs, and formal business requirements. However, they are disadvantageous since they have unlimited liability, limited financial resources, overwhelming commitment, managerial difficulties, and a limited life span. On the other hand, partnerships are advantageous since they are easy to form, fewer legal obligations, burden-sharing among partners, better decision-making, combined ownership and capital, as well as increased capital (Onojaefe & Leaning, 2007). They have tradeoffs of unlimited liability; owners’ incomes are taxable, risks of disagreements, and limited lifespan.
Choice
The best business for Solar Charge is an LLC. The choice was based on the reasons mentioned below. Firstly, there is less paperwork and documentation due to lack of or minimal board a meeting. Secondly, since it elected to conform to a partnership, sole proprietorship, S, and C corporation tax paradigms, there is flexible tax treatment. Thirdly, shareholders can only lose invested capital instead of private assets. Lastly, there is no double taxation since the LLC, and not the shareholders are taxed.
Organizational Chart
The CEO title was chosen to include the position of an overall manager of the company. Sales and marketing positions were selected to handle related activities. Human resources, research and development, finance and accounting, advisor, and angel investor positions were chosen due to the need of the departments in the organization. The CEO is responsible for carrying out oversight of the business’s overall operations and being central to decision-making. The angel investor will be tasked with conducting essential business decisions and financing business projects. The sales and marketing personnel will sell and advertise the company’s products on different platforms. The human resource department will be responsible for the selection and recruitment of employees. The finance and accounting personnel will handle all the financial activities of the business. Research and product development will use innovation and technology to improve the company’s products. The advisor will aid in the strategic planning of the business.
The CEO will report to the angel investor while the sales, marketing, advisor, research, development, accounting, and finance teams will report to the CEO. The business is considering outsourcing human resources. The pros include saving on costs for a startup that cannot justify hiring a full-time employee, a more strategic staff paradigm alluding to succession management, counseling, and coaching (Kodwani, 2008). Outsourcing also promotes vertical expertise that aligns with legal compliance for a company expected to grow in a few years. On the con side, it will reduce human touch, loss of in-house competency, and less availability. The business structure will be decentralized over different departments to promote accountability and transparency within the workplace. Decentralization will also allow the proper workflow to achieve maximal productivity.
References
Anderson, H. (2012). Challenging the Limited Liability of Parent Companies: A Reform Agenda for Piercing the Corporate Veil. Australian Accounting Review, 22(2), 129–141. https://doi.org/10.1111/j.1835-2561.2012.00168.x
Fishman, S. (2020, June 3). LLC California: Starting and Maintaining an LLC in California. Hyke. https://www.hyke.me/guides/business-formation/llc-california/
Hymson, E. (2007). A Comparison of the Advantages of Forming a Limited Liability Company Versus and S Corporation. https://www.nmbar.org/NMBARDOCS/PubRes/Reports/LLCvsPartnership.pdf
INTELLECTUAL PROPERTY AND TRANSACTIONAL LAW CLINIC. (2020). Sole Proprietorship: Introduction Overview. https://law.richmond.edu/academics/clinics-skills/in-house/ip-clinic/pdf/business-sole-proprietorship.pdf
Kodwani, A. D. (2008). Human Resource Outsourcing: Issues and Challenges. Journal of Nepalese Business Studies, 4(1), 38–46. https://doi.org/10.3126/jnbs.v4i1.1028
Onojaefe, D., & Leaning, M. (2007). The Importance of Partnerships: The Relationship between Small Businesses, ICT and Local Communities. Issues in Informing Science and Information Technology, 4(1), 725–737. https://doi.org/10.28945/983
Salvioni, D. M., & Gennari, F. (2016). CORPORATE GOVERNANCE, OWNERSHIP AND SUSTAINABILITY. Corporate Ownership and Control, 13(2). https://doi.org/10.22495/cocv13i2c3p9
Wildridge, V., Childs, S., Cawthra, L., & Madge, B. (2008). How to create a successful partnerships-a review of the literature. Health Information & Libraries Journal, 21(2), 3–19. https://doi.org/10.1111/j.1740-3324.2004.00497.x