Unincorporated sole traders and partnerships are only

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Unformatted text preview: he way that businesses raise funds. Unincorporated: Sole traders and partnerships are only able to raise additional capital from their own resources or by allowing new partners to buy into the business. Before forming a partnership you should obtain legal, tax and accounting advice. A limited liability partnership (LLP) offer the flexibility of a partnership but with a corporate status and limited liability. Incorporated: Limited companies are able to raise equity by issuing shares. There are, however, many other considerations to take into account before deciding to incorporate, such as: Many companies require an audit and therefore an accountant has to be engaged and fees have to be paid minority shareholders are able to exercise their rights through the courts and holders of more than 25% of the shares are able to stop certain resolutions there may be important tax considerations the importance of limited liability As the business grows, there will be a tendency towards incorporation because companies find it easier to raise external finance. If you wish to remain unincorporated you will only be able to raise venture capital from private investors. The large venture capital funds prefer not to invest in unincorporated businesses. Impact Of Growth On The Rest Of The Business Before you decide to raise finance to expand your business you should consider the impact on other aspects of your business: Do you have the managerial skills and time to manage a bigger business? Do you have the accounting controls to manage a bigger business? Are your premises, plant and machinery and workforce operating at or near full capacity? Impact Of Growth On Your Private Life Carrying on a business can be extremely hard work and time consuming. You will find that the division between work and your private life can become indistinct and you should: Consider your family's attitude to your business Think about personal tax implications Assess the security of any family assets Risk/Reward Equity investors recognise that there is a risk attached to investing, particularly in private companies, because the potential rewards far exceed the returns available on alternative forms of investment. The price at which you will sell equity in your business will involve a negotiation between you and the investor and will depend on your own and the investor's view of the risk/reward ratio of your business. You will only be able to sell equity if your business has the potential to do well and if it does, to do very well. Venture capitalists are interested in investing in businesses that expect to double their profits every three years. If your business is likely to grow rapidly it is normally wise to raise equity so that the business has greater room for manoeuvre in its finances during the periods of expansion and to allow you to concentrate on running the business. Selling equity will help stabilise your business and make it sufficiently robust to withstand short-term fluctuations such as a fall in sales caused by a recessi...
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This note was uploaded on 02/27/2013 for the course GBMT 300 taught by Professor Javierwujie during the Summer '12 term at University of Wisconsin.

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