1. Since Kinseys & her daughter are planning Katrina are planning to start a business they have to be very careful about the form of ownership they get into.

There are many forms of ownership ,so the recomendations should suit the business model and the needs of both of them.

Recommendation:

Limited liabilty partnership:

LLCs provides limited liability and are taxed as a partnership or sole proprietorship (depending on the number of members). This type of business formation -- formed by submitting articles of organization to the state in which the company resides -- is growing rapidly because it is flexible, simple to run, and does not require all the paperwork of corporations.It is very different from the traditional partnership where every partner has joint (but not several) liabilty

In an LLP some or all partners have to form limited liability likeshareholders of a corporation. But here the partners a very large role in management & decision making.

The advantages are that there is shared decision making and also knowledge sharing between partners which improves decision making. Kinsey should consider this form of ownership since the liability is limited meaning they do not have any personal liability and the business is a seperate entity and losses have to be borne by the company in its own identity.

Ther is no requirment of minimum capital to be brought to start the company unlike the case of companies where there is a minimum capital requiremnets.There is also no need to do compulsory audit ,it should be done only if the required limits are reached and hence this form of business is good for those who have very little capital in hand and want to start some business.

There is flexibilty to manage the internal structure ,there is also no need of minimum partners and also raising and utilization of funds depends on the will of the partners.

Partnership :

A simple agreement between two or more people is the only pre-requisite to start a partnership firm. It is only the partnership agreement that governs the partners.

Termination of a partnership firm is easier. It is so because of the agreement which is valid only between the partners regarding the closure is enough.It is formed with minimum 2 members which is very feasible and easy and does not involve a lot of compliance issues.Compliance is much less except for filing a separate ITR there are no other mandatory compliances.Although the there is unlimited liabilty involved in this form there many advantages that can over ride this disadvantage .Since less paper work ,compliance procedures,less delay in decision making and no mimimum capital requirements it is a ideal form for new and emerging businesses across.There is also no complusion for registration of partnership firm which means it may or may not be registered.

A partner can ease your financial burden. Instead of paying for everything yourself, your partner can split the cost. Because of the partner’s financial contributions, the business might be able to afford more things up front. And, you might be able to avoid large amounts of debt when starting your business.

2) The kinseys should avoid Sole Proprietorship because

(ii)By its very nature, proprietary concerns cannot grow big. They have limited means. They cannot expand operations in a big way. As a result, they do not enjoy the economies of scale. Customers, in the final analysis, do not gain from such miniscule concerns in the long run.

(ii) Small businesses have a limited lifespan.They exist for a short time and then disappear in no time if customers turn to malls for their needs.

(iii)There is a lack of professional skills,talent and expertise.He has limited knowledge and does not have the ability to gauze competition, changes in fashions and customer tastes and preferences, trends in economy etc. He cannot run the show in a professional way.

(iv)Overall knowledge of market, competition, prod­ucts, tastes of customers, changes in fashions and trends, general trends in economy, danger from global firms etc.—is relatively poor. As a result he might take inappropriate decisions in a hurry, looking at things from a narrow perspective.

(v)Business cannot go beyond a point for a variety of reasons—limited capital, owner lacks needed skills and competencies required to run the show on a large scale, unlimited liability compels many owners to remain small etc.

Since the kinseys wanna expand and grow they should opt out of this type of ownership since it is reductant and it does not promote growth and expansion but has a narrow outreach and is not an ideal form for people looking for growth ,development and creating wealth and goodwill in the market.

3) Ther are certain factors to be considered before deciding on the form of ownership of business.

The following are some of the important factors business owners should consider when selecting a form of ownership.

Cost of Start-up

Setting up a business can involve little more than printing some business cards, or it may entail hiring a corporate attorney to draft corporate charters, agreements, and articles of incorporation. As the forms of business ownership become more complex, the cost associated with establishing the business also increases. Every business owner must decide how long he/she wants to wait before getting the business up and running and also how much of his/her own money to invest.

Control vs. Responsibility

One of the primary reasons people give for wanting to start their own business is the desire to be independent. Different legal structures provide the owner with more or less control and authority. There are trade-offs in each case, though, because with autonomy and control come responsibility. For instance, if you’re the sole proprietor of a business with no employees, as a one-person show, you retain all the control, but you also have all the work and responsibility. Other forms of business (such as partnerships, for example,) may mean relinquishing some control, but, in return, the responsibility (and liability) may be spread among several principals. You’ll learn more about these trade-offs later in the module. Ther should be proper distinction between the 2 factors it is of immense importance .

Profits

Many first-time business owners look to people like Bill Gates, Oprah Winfrey, or Ben & Jerry and aspire to their level of wealth and success. How a business’s profits are shared (or not shared) is determined by the legal structure. Some owners are willing to share the profits in exchange for assistance and support establishing and running the business.

Taxation

When planning to start a new business, many people instinctively seek the advice of an attorney as the first step in the process. Depending on the legal structure of the business, the owner may be taxed at a lower rate than someone working for a large company, or the owner might see his or her business income taxed twice, sometimes with additional speciality taxes imposed by governmental agencies.

Entrepreneurial Ability

Many businesses fail despite the owner’s enthusiasm and/or talent, because the owner lacks the deep knowledge and expertise needed to transform an interest or hobby into a commercial enterprise. Performing an honest and accurate appraisal of one’s skills, background, and entrepreneurial abilities before launching a business can prevent disappointment and failure later on.There has to be an immense demonstartion of skill and expertise to start a business and keep it going and also to stay on top of the competition and be the best.Since the market is immensely competitive and this factor has to be considered before selecting a form of ownership

Risk Tolerance

Everyone’s tolerance for risk is different. Some people enjoy the rush of skydiving and rollercoasters, while others prefer to stick to the carousel or keep their feet on the ground. In business, one’s degree of risk tolerance should be compatible with the form of ownership being considered. For example, a forty-five-year old entrepreneur with dependents might seek to protect her accumulated assets (real estate, savings, retirement, etc.) and therefore select a legal structure that carries less personal financial risk. Every prospective business owner must gauge what he or she is willing to risk losing and choose a form of business accordingly.

Financing

Few business owners start a business with lottery winnings or many years’ worth of savings. Many seek funding from a bank, venture capitalist, private investor, or credit union in order to get their businesses off the ground. Lenders may be one of the greatest influences on the choice of business ownership—even more decisive than the owner’s preference or ambition. Since there is risk inherent in any business venture, especially start-ups, lenders often require the business to be structured in a way that best assures the repayment of funds (whether the business makes it or not). Even businesses that have been established for a long time may be forced to change their legal structure when seeking funding to expand their operations. If an owner anticipates needing funding at any point during the life of the business, selecting a form of ownership that aligns with lender requirements from the start may be a wise decision.

Continuity and Transferability

Finally, business owners need to consider if they want their business to outlive them (or carry on after they leave). If an owner is looking to start a business that can be passed on to his or her children or other family members, then the legal structure of the business is extremely important. Certain organizational types “die” with the owner, so it’s crucial for the owner to decide how and whether a business will persist and/or be sold to new ownership.

Liability

Many businesses these days start a fresh and have very limited ability to take up huge liability.Many form of business have unlimited liability while some have a limited laibility, limited to their share in the business and the liability is not joint and several.The business has seperate legal identity distinct then that of members .Hence many businesses will consider this factor importance to decide about the form of ownership most appleaing and as per the goals of the owner.