What form of ownership can be use in this scenario?Jeff Smith started a small manufacturing company three years ago as the only owner with $50,000 and two other employees. Jeff’s company has...
What form of ownership can be use in this scenario?
Jeff Smith started a small manufacturing company three years ago as the only owner with $50,000 and two other employees. Jeff’s company has grown to seven million in sales revenue and he now has 20 employees. Jeff has decided in order to grow his business he must find sources of new capital. Jeff would prefer to maintain control over company decision making, but if necessary would share some decision making power.
In this scenario, Smith might incorporate or he might form a limited partnership. Either would work well enough in the scenario given here.
A limited partnership would allow Smith to bring in a general partner who could share some decision making power. Other partners could come in and be sources of capital but could be excluded (as limited partners) from the decision making process. Some banks are also more willing to lend to partnerships than to corporations.
If he were to incorporate, Smith would also be able to keep control of the company. He would still have access to loans from most lending institutions. As an added benefit, he would be free from personal liability for any company debts.
If Smith is sure that his company will not end up bankrupt, a limited partnership would probably be best for him. He could keep control of the company and gain access to capital without incurring the extra costs and paperwork associated with incorporation.