Establishment of Limited Liability Company - Essay Example

Entrepreneurship: Successfully Funding a Business Venture Kelsey A. Brantley Dr. Jeffrey Weaver BUS 313 – Introduction to Entrepreneurship Establishment of Limited Liability Company The steps of forming a limited liability company (LLC) are fairly uniform in United States with slight variations. It begins with selecting a name of our event management firm and checking its availability in state’s database by filing a trade name application with a certain amount of fee. For creation of LLC, articles of organizations are required to be filed with state’s taxation and assessment authority (Dammann & Schündeln, 2012; Maryland Department of Assessment & Taxation, 2013). This document will contain necessary details of the upcoming organization i.e. name, address, business’s purpose and details of registered agent. This document will be accompanied with a filing fee. Appointing an agent of service is mandatory in some states like Maryland. This step is to ensure that there is an entity in personal or business capacity who can accept legal notices and other documents on behalf of firm being registered and is also physically present in the state. Next step in LLC creation for our business will be preparation of operating agreement which would outline details of partnership arrangements within the firm although this condition may not be mandatory in many states. If required by law, there will be published notice about establishment of LLC (Mancuso, 2011). Following steps after registration will be obtaining IRS Employer Identification Number (EIN) since our selected model has more than one member and has intent of hiring several associate designers and freelance managers (U.S. Small Business Administration, 2013a). Funding Sources for Limited Liability Company Every business needs capital to cover its startup and other operational expenses. In order to fund this event management firm, there are several options available for funding that can be considered. Firstly, the desired amount of capital can be raised by partners brining in their own assets through liquidation or raising collateral loans against their properties (Bagley & Whynott, 1994). Every partner will have to bring in a certain amount that will be decided in the operating agreement. Where raising capital through one’s own assets is convenient, it also has inherent risks like losing assets if the business fails or partners being unable to pay off creditors if loan is raised against their personal assets. On the other hand where partners use personal saving like retirement funds, there can be severe penalties for untimely withdrawal and failure to make payment. Despite these risks, raising personal capital is the most common source of funding in small businesses due to convenience, no-cost and speed. Another source of funding can be seeking traditional loans offered by banks, private creditors and credit unions. This step is relatively formal as it requires a sound business plan in order to persuade creditors for loans. Usually banks and other creditors are relatively reluctant to lend loans to startup businesses however all of our partners have sound experience and impressive professional credentials which would make outlook of our future more viable. In case if we remain unable to raise loans through applications, personal properties of partners can be used as collaterals to raise loans. Where these loans are obtained for longer period and provide suitable payback time to debtors, failure to pay back can lead to losing business as well as collaterals and incurring severe financial penalties with poor credit history affecting partners’ future credit status. Almost all of our members use credit cards that offer short-term credit services against very low interest rates, annual fees and have several perks and benefits that can be helpful in business purchasing and travelling (Bagley & Whynott, 1994; Fritzpack, 2013). This method also is fairly convenient due to readily available cash in hand and also less formal procedures in acquiring loans. However, this option provides solution in the short-term only and hence can be used for operational expenses only with credit being paid off in the time limit specified by banks. Failure to do so would lead to extremely high interest rates. There are several informal options available like using personal loans raised from family and friends, and peer-to-peer lending sites however inherent risks like spoiling one’s relations, social support and good will may not make them the most appropriate options (Fritzpack, 2013). Out of these various options, raising personal capital is a more viable option. In all the options evaluated, there are either financial penalties or some form of interest and cost that would lead to increase in expenses of our firm. Since we are intending to control expenditure in the beginning, partners in the event management firm would have to come up with personal liquidated assets. This method is expedient, convenient and has lesser cost involved. Although the risks of losing one’s personal assets cannot be ignored but cost-benefit analysis makes this option more appropriate than others. Protection of Intellectual Property The intellectual property of our business is our new programming technology that assists in event planning. This new software is highly flexible and produces output after insertion of budget and desired customer’s specifications (guests, material etc.). It also has an option of customization in the output generated by the program. We have checked with the authorities and only software used by event management firms are those that assist in creating layouts with manual designing. In addition to that, there are various designing layouts that have not been used earlier in the state and are sole creation of our designing firm. In order to protect this intellectual property, all the designs, signs, logos etc produced by us will be registered in The U.S. Patent and Trademark Office (2013). Once registered, trademarks and copyrights will be applicable that will help us protect our creative property on state as well as federal level (Kinsella, 2001). After trade marking and copyrighting processes, internal mechanism will be designed to enhance this protection mechanism. For this purpose, digital marks will be added to all the designs and images produced by our firm. Proposals and designs will be sent out in a secured PDF or other formats that are difficult to copy. In addition to that, all the proposals and official correspondence containing intellectual property will be accompanied with notice stating that the information is confidential and any form of copying would lead to legal actions. Revamping of Business Our future plan is to further revamp our business in order to extend our operations beyond one state. For this purpose, a website working on the model of ecommerce will be created. It is important to note that our business mainly caters to social needs of our customers by making their important days memorable for them. Our virtual business model would comprise of a web portal through which clients across states can select designs and also have correspondence with our representatives and designers. In addition to that, the portal will be used to create strategic alliance with suppliers in different states in order to have a competitive advantage of a national firm. Once the designs have been finalized by clients, a quotation will be sent to them. It is important to note that all the materials will be exclusive and shall not be available commonly in the market except with the suppliers with whom we will have business contacts. Furthermore, these suppliers will remain confidential to the client. For physical execution, our designer and event manager will move to the specified location and complete the contract. This new business model will also require changes in funding practices since risks are higher due to lesser control over intellectual property. Furthermore, research and development and further maintenance expenses will also increase due to development of web portal. Therefore, our firm will apply for government grants and loans through U.S. Small Business Administration (2013b). This government authority sanctions loans for developing new and revamping old business in technology sector. In addition to that, a personal line of credit will be acquired with a fixed limit which will renew on payment of old debt. With virtual existence arise several threats to our intellectual property. Therefore, no images will be downloadable from the website and will also have digital mark. Trademarks are extended to all the states therefore legal protection will be available. Other internal practices will be duly followed to protect our creative property. Business after Five Years After five years, our event management firm has been functioning with stability and producing reasonable revenues while operating nationally. The business has expanded tremendously; therefore we have decided to perform purchasing of material used in events instead of renting them every time. At this stage, partners’ previous capital shall not be used since it will be insufficient to perform desired procurement. Instead of using company’s running account (as it is required for operational and running expenses), bank credit will be acquired. Acquisition of loan at this point will not require any collateral or guarantee other than that of partners’ since business is stable and has sufficient goodwill. Furthermore, our intangible assets have high market value which is ample for providing security to bank for recovery purposes. Doing the same was difficult in the beginning since banks usually give loans to running corporations with sound credit history; also failure in business would have made repayments of principle amount and interest difficult (Fritzpack 2013). However, our good will and secure credit history will make us a good prospect for lending loans. References Bagley, W.D., & Whynott, P.P. (1994). The Limited Liability Company. James Publishing. Fritzpack, D. (2013). Funding Your LLC. Retrieved 25 November 2013 from http://www.nolo.com/legal-encyclopedia/funding-your-llc.html Dammann, J., & Schündeln, M. (2012). Where are limited liability companies formed? An empirical analysis. Journal of Law and Economics, 55(4), 741-791. Kinsella, S.N. (2001). Against intellectual property. Journal of Libertarian Studies, 15(2), 1-53. Mancuso, A. (2011). From Your Own Limited Liability Company, 7th ed. CA: NOLO. Maryland Department of Assessments & Taxation. (2010). Form& Applications. Retrieved 26 November 2013 from http://www.dat.state.md.us/sdatweb/sdatforms.html The United States Patent & Trademark Office. (2013). Trademarks Home. Retrieved 26 November 2013 from http://www.uspto.gov/trademarks/ U.S. Small Business Administration. (2013a). Limited Liability Company. Retrieved 26 November 2013 from http://www.sba.gov/content/limited-liability-company-llc U.S. Small Business Administration. (2013b). Loans and Grants Search Tool. Retrieved 26 November 2013 from http://www.sba.gov/loans-and-grants Read More