Business Structure

Business Structures
Jeanette M Melchor Maldonado
FIN/571 Foundations of Corporate Finance
March 13, 2014
Prof. Ricardo Rivera-Matos

Business Structures
There are different types of business structures but with three fundamental decisions that influences any decision when running a business. These decisions are: working capital management, capital budgeting and financing. The working capital determines how daily financial information and situations are managed and the firm will be able to pay the monthly bills; it will also advise how cash is going to be invested. The capital budgeting identifies which of the productive assets the business should buy. The financing establishes how the company should manage their finances and pay for the assets. Each one of the decisions has an important impact on the company’s balance sheet and their profitableness.
Most of the new and small firms function as sole proprietor and partnership because is the easiest legal structure in addition because of their size in operating scale, capital requirements and easier to acquire a license. As businesses grow larger they are more likely to become corporations because normally the firm will have more benefits and outweigh any disadvantage. The first business structure is the sole proprietor that consists in only one owner and a few employees. This structure has many advantages such as, is very simple type of structure to start, probably least regulated and they can keep all the profits. Also all decisions are made by one person and they may be subject to lower taxes. On the other hand the sole proprietor has all the personal liability and has less possibility to grow because it depends of the owner’s capital investment. The second structure is the partnership that operates with two or more owners that are legally join to manage the company. Each partner will have to agree to this partnership in what their management roles will be, how the profits are going to be divided, the...