Most business enterprises begin as small ideas, often started with a single person or a handful of committed individuals. Often these entrepreneurs start small because they believe it is easier to build a business from the ground up rather than try to climb a huge mountain. Starting small allows room for creative risks without the financial commitment that larger businesses require. Larger businesses often use financial instruments such as bonds and capital to finance their ventures. Many small businesses rely on the word of mouth advertising provided by local newspapers and television stations to finance their ventures.
Small businesses begin as a single person venture, usually with a small capital investment. They can benefit from leveraging their own personal skills and experience through venture capital or other external financing sources. Entrepreneurs may decide to form a limited liability company (LLC) to protect their personal assets in exchange for tax advantages. Some businesses have moved beyond the private equity stage and incorporated as a publicly traded corporation. Most businesses follow one of two business structures: sole proprietorships or corporations. A sole proprietor is an individual or entity that owns and runs the business, but does not have any other investors. Corporations are corporations run by a board of directors. They may be a publicly traded corporation or a privately held limited liability company. A corporation allows for greater control over the decisions of the corporation through a board of directors, but comes with a higher cost of capital when it comes to borrowing and equity. There are advantages to both sole proprietorships and corporations, depending upon individual preferences. For example, a sole proprietorship could give its employees free reign to change the company's policies or methods without having to seek approval from a board of directors. A corporation has less freedom but can restrict transfers between owners and employees and limit the transfer of ownership of its assets. The liability of the corporation is limited to the value of its shareholders' equity plus its capital stock (which represents the total value of all the shares outstanding). The corporation can be sued by any person or entity that brings a lawsuit against it, even if the owners are personally liable. The shareholders of a corporation do not have to personally contribute capital into the business in order to increase the value of the corporation, unlike the case of a sole proprietorship which requires that personal assets equal the value of the corporation's equity. One of the benefits of a corporation is that it requires only one set of records. This makes accounting much easier than it would be if the business hold both stock and real estate assets. All shareholders will be included in the same records and will be liable for their own debts. However, unlike a sole proprietorship, the corporation may still owe creditors (even if no longer connected to the business). There are many other factors to consider when forming a business, including how the business will be taxed and run, potential licensing and partnership arrangements with outside entities, and whether it will require special licenses or agreements with suppliers. It is also possible to save money on business expenses by deciding not to incorporate in the first place. Many small businesses may decide to form an LLC instead, because they do not meet all the requirements for taxation and licensing.
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