For a would-be entrepreneur, s
For a would-be entrepreneur, selecting the proper form ofbusiness organization is a very important first step in theprocess. After some consideration and an assessment of your skillsand education, you have decided to start a medical billing servicethat will provide services to providers in the local geographicalarea. Ideally, you would like to service physicians, dentists andhospitals.
Determine which of the three forms of business organization(sole proprietorship, partnership or corporation) would be the mostappropriate for your new business. Why did you select the form ofbusiness organization that you chose? Identify at least threethings that should be taken into consideration when making thisselection. (4 points)
Based on the form of business organization that you selected,answer the following questions:
a. How easy or difficult is it to set upthis form of business organization? (4 points)
b. What type of liability do you have inthis form of business organization? (4 points)
c. What tax implications do you need toconsider for this form of business organization? (4 points)
d. What will happen to the business ifsomething happens to you, the business owner? (4 points)
Answer:
Sole proprietorship would be ideal for such a business. Since,the services would be provided in local area it is quite evidentthe scale of operations will be small and hence, you can rule outcorporation. Also, as there are no other enterpreneurs involvedpartnership can be ruled out too. Only one person is willing to runthe business so, sole proprietorship is suitable.
3 things which should be considered while making such a decisionare:
1) Scale ofoperations: If scale of operations of business ishuge corporation must be preferred otherwise soleproprietorship/partnership should be preferred.
2) Liability: Ina corporation the liability is limited to the amount invested inthe company whereas in general partnership and sole proprietorshipthe person(s) concerned have unlimited personal liability.
3) Existence: Incase of corporation the business will continue to exist even ifsomething happens to a CEO or a shareholder or a Board of director.But if something happens to sole proprietor or the partners theexistence of the business can be in doubt.
A) Sole proprietorship is the easiest to set up. There are veryfew legal requirements to be made. Corporation is the most complexform of business organization. It is very difficult to start acompany and even more difficult to wind up its operations.
B) Liability is unlimited in sole proprietorship. He/she wouldbe personally liable for all the liabilities/debts of the business.Creditors can also bring lawsuits against him/her to settle thedebts.
C) Sole proprietor can file his business income with hispersonal income tax return. Business income is not taxed separatelyin sole proprietorship.
D) The existence of business can be in jeopardy if somethinghappens to the proprietor as he/she is the only owner/operator ofthe business. Sometimes the business may cease to exist if ownerdies or gets permanently injured.
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