Business Entity Matrix Paper

Business Entity Matrix

Selecting the type of business entity is an important decision for any business that determines the liability of owners and structure of the business. The business is looking to sell pet treadmills domestically and eventually internationally. Using market research on the potential demand as a determining factor, the business will look to assess the sales capabilities of the company. Every company must evaluate all the advantages and disadvantages of each type of business to select the most appropriate for a business venture. A Limited Liability Company (LLC) is the best option for forming a new pet treadmill business because of the liability concerns and the advantages of the LLC over other types of business.

Type of Business Entity

A LLC is the best type of business entity for this new business venture. The advantages of forming of an LLC are members receive limited liability and have pass-through taxes where earnings are treated like those in partnerships or S Corporations. Forming an LLC instead of a corporation provides the benefits of forming a corporation but limits a few of the disadvantages. A primary benefit is LLC members are not responsible for the debts and liabilities of the company. In this situation, one can invite two rich friends to be the members of the LLC and will not have to personally guarantee the debts incurred by the business. Moreover, forming a LLC may help a new business establish credibility with potential customers, employees, vendors, and partners. Based on the plans and projections for the business, the most suitable type of business entity is an LLC.

Liabilities of Limited Liability Company

Members of Limited Liability Companies have limited liability for the obligations of the LLC. However, some states do permit so-called professionals to organize LLC’s. Owners have financial liability protection like corporations, thus making an LLC a separate entity from owners like corporations. Members of the LLC cannot be held responsible for the company’s debts. With the pet treadmill company, each member has no individual liability to the company’s contracts unless they have signed the contract in a personal capacity. The problem is, most lending institutions will require personal guarantees to obtain credit for new companies. Though a removal or personal financial liability exists, each member remains liable for any torts they commit while acting on behalf of the company.

Advantages and Disadvantages of Hiring Employees

The company plans to use traditional marketing and sales methods in addition to ecommerce to generate sales for the company. An advantage to hiring employees is a dedicated workforce for the company. The company will have more control over the time of each employee as opposed to working with independent contractors. The distribution and allocation of work between employees will remain the responsibility of management within the company. Another advantage of hiring employees for the company is the loyalty the employees will provide. Employees often take more pride in the work produced for their company than those who work as independent contractors.

Though hiring employees has many advantages, the company still has to face the disadvantages associated with hiring employees as opposed to independent contractors. The biggest disadvantage of hiring employees is the additional financial costs incurred from hiring employees. The additional financial obligations from hiring employees include payroll taxes, insurance premiums, and employee benefits. These additional costs are expensive and require additional staff to calculate and track the financial obligations. Another disadvantage of hiring employees is the training of employees, which is time consuming and costly. Smaller companies often require staff to multitask and assume multiple responsibilities and not all employees come with this ability.

Advantages and Disadvantages of Independent Contractors

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