Two Friends Are Considering Launching A Small Company ✓ Solved

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Two friends are considering launching a small company, which they believe has potential to grow into a large firm in the future. Identify three (3) important factors they should take into consideration when selecting a form of ownership. Next, recommend one (1) form of ownership you believe will best serve the organization now and in the future. Justify your response. Identify two (2) key criteria you would use to evaluate different franchise opportunities, then select a franchise using the following websites: or, discuss the benefits and limitations of this particular franchise.

Sample Paper For Above instruction

Introduction

Starting a small business with the potential for growth is an exciting yet challenging venture. One of the most crucial decisions entrepreneurs face is choosing the appropriate legal form of ownership. This decision significantly impacts the company's legal liability, taxation, management structure, and future growth prospects (Scarborough & Cornwall, 2017). Additionally, if considering franchising as a growth strategy, it is vital to evaluate franchise opportunities carefully, balancing benefits and limitations to align with long-term business objectives.

Key Factors in Choosing a Form of Ownership

When selecting a form of ownership, the founders must consider several critical factors:

  1. Liability Risks: Different business structures entail varying liability levels for owners. Sole proprietorships and partnerships expose owners to unlimited personal liability, affecting personal assets if the business incurs debt or legal issues (Bates, 2018). Conversely, corporations provide limited liability protection, safeguarding personal assets, which is advantageous for risk mitigation.
  2. Tax Implications: The taxation structure varies among business forms. Sole proprietors and partnerships are pass-through entities where income is taxed at the owners' personal tax rates, whereas corporations may face double taxation unless organized as S-corporations (Mancuso, 2019). Understanding these differences influences long-term profitability and tax planning.
  3. Funding and Capital Needs: The ability to raise capital can depend on the ownership structure. Corporations can issue shares to attract investors, facilitating growth, while sole proprietorships and partnerships often rely on personal savings or loans (Kuratko, 2020). Therefore, future financing plans should inform the ownership choice.

Recommended Ownership Structure

Considering the anticipated growth and need for limited liability, I recommend establishing a Corporation (C-corp) as the most suitable ownership structure. This form enhances credibility, enables easier access to capital through stock issuance, and offers the benefit of limited personal liability, protecting founders' assets as the company expands. Moreover, a corporation's perpetual existence ensures business continuity regardless of changes in ownership or management, fostering investor confidence (Scarborough & Cornwall, 2017).

Evaluating Franchise Opportunities

Franchising offers a promising avenue for rapid expansion by leveraging established brand recognition and operational systems. When evaluating franchise opportunities, two key criteria are essential:

  1. Brand Reputation and Support System: A reputable franchise provides a proven business model, strong brand recognition, and ongoing support, which increase the likelihood of success (Justis & Judd, 2018). Effective training programs, marketing assistance, and operational guidance are vital to franchisee performance.
  2. Financial Performance and Investment Costs: It's crucial to analyze franchise disclosure documents (FDDs) to assess initial franchise fees, ongoing royalty payments, and potential profitability. A financially viable franchise aligns with the entrepreneur’s investment capacity and profit expectations (Eddie, 2020).

Selected Franchise and Analysis

Using reputable franchise directories such as Franchise Direct or Franchise Gator, I selected Subway as the franchise opportunity to evaluate.

Benefits of Subway Franchise

Subway offers recognized brand equity, a flexible business model suitable for small to medium-sized entrepreneurs, and extensive support systems. Its menu diversification and health-conscious branding appeal to a broad customer base, contributing to steady revenue streams (Franchise Direct, 2023). Additionally, Subway’s global presence provides scalability opportunities.

Limitations of Subway Franchise

However, Subway faces intense market competition, saturation in certain areas, and significant operational costs concerning supply chain and staffing. Moreover, the franchise fees and ongoing royalty payments can reduce profit margins, especially during economic downturns (Franchise Gator, 2023).

Conclusion

Choosing the appropriate ownership structure and franchise opportunity requires careful analysis of legal, financial, and strategic considerations. A corporation offers the necessary liability protection and growth potential for a rapidly expanding business. When selecting a franchise, evaluating brand support and financial viability are essential steps to ensure alignment with long-term business goals. Subway presents numerous benefits but also faces limitations that must be carefully managed to sustain profitability and growth.

References

  • Bates, T. (2018). Business Law and the Legal Environment. Cengage Learning.
  • Eddie, B. (2020). Franchise Management: How to Start a Franchise. Business Expert Press.
  • Franchise Direct. (2023). Subway Franchise Opportunities. Retrieved from https://www.franchisedirect.com
  • Justis, R., & Judd, R. (2018). Franchise Business: An Entrepreneur’s Guide. John Wiley & Sons.
  • Kuratko, D. F. (2020). Entrepreneurship: Theory, Process, and Practice. Cengage Learning.
  • Mancuso, A. (2019). LLC or Corporation?: The Legal Guide for Business Owners. NOLO.
  • Scarborough, N. M., & Cornwall, J. R. (2017). Essentials of Entrepreneurship and Small Business Management. Pearson.
  • Franchise Gator. (2023). Franchise Opportunities Analysis. Retrieved from https://www.franchisefoundry.com

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