The planning team should work together closely and keep each other apprised of decisions that are made. Financing requirements may control the form of the business organization, particularly when outside investors will be sought. The planning team should examine carefully both immediate and future needs for financing, together with the needs and requirements of the prospective owners of the enterprise, to determine the relative advantages and disadvantages of each of the choices of business entity forms available. If more than one person will have an equity ownership in the business, planning for future dispute resolution is a critical issue. Divided ownership or management can permit a deadlock to occur, resulting in an inability to make critical management decisions, which can lead to dissolution and liquidation or other termination of the business.
Planning can avoid such paralysis.
It is critical that the organizing team have someone knowledgeable in financial and accounting matters to prepare pro forma balance sheets and financial statements in order to test the validity of the business plan and to generate projections. Income tax consequences are always a primary consideration, so a member of the team should be knowledgeable in tax matters. The choices of business entity available are sole proprietorship, general partnership, limited partnership, corporation and limited liability company. Each form has its own characteristics and requirements, and each has features that may be either advantages or disadvantages, depending upon the nature of the business and the plan for future growth. The simplest form of business entity is the sole proprietorship in which one person conducts business personally in his or her name or under an assumed or trade name.