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What form of ownership should be used in this scenario?John and Bill Jones started a...

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paboo2007 | Student, College Freshman | eNoter

Posted October 3, 2011 at 12:55 AM via web

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What form of ownership should be used in this scenario?

John and Bill Jones started a partnership and opened a small technology company two years ago. They have seen a 1000% increase in sales for their services. Both partners know it will require significant capital to take the business to the next level. As the company has added service representatives the liability risk of the company have increased significantly.

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted October 3, 2011 at 1:05 AM (Answer #1)

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In this case, these two men should incorporate their business.  So the best form of ownership for them would be a corporation.

A corporation has its disadvantages.  Most of these have to do with the added paperwork that comes with being a corporation.  These can be significant.

However, a corporation is a much better form of ownership for those who need to raise capital and who wish to limit their liability.  Banks tend to be more willing to lend to corporations than to other forms of business.  The owners' personal assets are separate from the firm's and cannot be taken in payment for debts incurred by the firm.  Both of these are very important for the Joneses in this scenario.  Therefore, they should incorporate their firm.

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