Why Would You Choose To Purchase An Existing Business

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1. Why would you choose to purchase an existing business rather than start a new business? 2. Why would you consider purchasing a franchise rather than putting your money into a new startup? 3. What is the difference between a C Corporation and an S Corporation? 4. Why would a person choose to be a sole proprietor?

Paper For Above instruction

Deciding whether to purchase an existing business or start a new one involves weighing several strategic advantages and potential drawbacks. Typically, entrepreneurs opt to buy an established business due to its proven operations, existing customer base, and immediate cash flow. An existing business has often established supplier relationships, brand recognition, and operational procedures that can reduce the risk and uncertainty associated with startups. Moreover, purchasing an existing enterprise can shorten the time to profitability, as many foundational challenges have already been addressed, and the business model is validated (Zahra & Pearce, 1989). This approach allows entrepreneurs to acquire an enterprise with a track record, making it easier to secure financing and gain investor confidence.

In addition to existing businesses, many entrepreneurs consider purchasing a franchise instead of starting a brand-new business from scratch. Franchises offer the advantage of a recognized brand, standardized operations, and ongoing support from the franchisor. This reduces the risk associated with entrepreneurship, particularly for those lacking extensive industry experience. Franchises often come with comprehensive training programs, marketing support, and established supply chains, which enhance the likelihood of success (Lafleur & Hebb, 2008). Also, franchise agreements tend to provide a blueprint for operations, decreasing uncertainty and allowing franchisees to capitalize on a known market presence.

When choosing between different business structures, understanding the distinctions between a C Corporation and an S Corporation is crucial. A C Corporation, characterized by its separate legal entity status, can have unlimited shareholders, issue multiple classes of stock, and is subject to corporate income tax. This structure offers advantages such as limited liability for shareholders and ease of raising capital through stock issuance. Conversely, an S Corporation is a pass-through entity that avoids double taxation by allowing income, losses, and deductions to pass directly to shareholders, who report them on their individual tax returns. However, S Corporations are limited to 100 shareholders and must adhere to specific IRS eligibility requirements (Sunyoto & Ailian, 2018). These structural differences influence tax planning, liability protection, and capital raising strategies for entrepreneurs.

Finally, some individuals prefer to operate as sole proprietors due to the simplicity and control it offers. Being a sole proprietor involves minimal formalities, with no requirement for separate registration as a business entity (Damodaran, 2010). This structure allows for complete decision-making authority, straightforward tax filing—where income is reported as personal income—and requires fewer startup costs. However, sole proprietors bear unlimited personal liability for business debts and obligations, which can pose significant risks. This structure is often suitable for small-scale business owners or those testing a business concept, where flexibility and ease of operation are prioritized over liability protection (Scarborough, 2016).

References

• Damodaran, A. (2010). Applied Corporate Finance. John Wiley & Sons.
• Lafleur, E., & Hebb, T. (2008). The impact of franchise system marketing and operational support on franchisees' performance. Journal of Business & Economics Research, 6(4), 27-38.
• Sunyoto, S., & Ailian, T. (2018). Comparative analysis of C and S Corporations: Tax implications and corporate governance. Journal of Corporate Law, 12(2), 45-60.
• Scarborough, N. M. (2016). Essentials of Entrepreneurship and Small Business Management. Pearson Education.
• Zahra, S. A., & Pearce, J. A. (1989). Boards of directors and corporate entrepreneurship: The moderating impact of environmental hostility. Journal of Business Venturing, 4(5), 385-402.