New Business Structure – Job Creation

S

Dear M & M:

What form of business do you recommend for a new business?

-Daniel

Dear Daniel:

One of the first decisions that you will have to make as a business owner is how the business should be structured. All businesses must adopt some legal configuration that defines the rights and liabilities of participants in the business’s ownership, control, personal liability, life span, and financial structure. This decision will have long-term implications, so you may want to consult with an accountant and attorney to help you select the form of ownership that is right for you. In making a choice, you will want to take into account the following: Your vision regarding the size and nature of your business. The level of control you wish to have. The level of “structure” you are willing to deal with. The business’s vulnerability to lawsuits should be considered. Tax implications of the different organizational structures make a difference.  What products and services you offer can determine what legal entity is right for you. Your personal long-term goals, whether or not you need to re-invest earnings into the business, your need for access to cash out of the business for yourself and number of people running the company. Sole Proprietorship; Partnerships; Corporations and Limited Liability Companies are the most commonly used forms. According to the latest census bureau small businesses that have employees 44 percent are S Corporations, 22 percent are C Corporations, 16 percent are Sole Proprietorships, 11 percent are Partnerships, and 7 percent are Nonprofit. Firms in the US that do not have employees 86 percent are Sole Proprietors, 7 percent are Corporations and 7 percent are Partnerships. Keep in mind 21.5 percent of all small business in the US have employees and 78.5 percent of all small businesses do not have employees. When combining all small businesses with or without employees 73.2 percent are Sole Proprietors and 19.5 percent are corporations. – US Census Bureau

-M&M

 

Dear M & M:

Are most of the jobs created by existing companies or new start-ups?

-June

Dear June:

About 60 percent of the private-sector net new jobs are from existing estab­lishments and about 40 percent from the churn of startups minus closures in the last two decades (Source: Bureau of Labor Statistics, Business Employment Dynamics).

A highly dynamic economy can have very high startup and expansion rates as well as very high closure and contraction rates, but it is the difference between gains and losses, the net effect that matters for job growth and ultimately economic growth.

Evaluating job creation from start-ups and fast-growing firms while ignoring job loss from firm closures and contracting firms leads to an incomplete accounting for employment dynamics. To fully analyze employment across all firms, a net calculation of employment change is needed; one must include both job gains and losses in the calculation. Even so, for small firms (fewer than 500 employees) over the last two decades, openings have accounted for 40 percent of the “new” jobs and expansions have accounted for the remaining 60 percent. Less than half of the jobs created by startups exist after five years (Source: Census, Business Dynamics Statistics).

-M&M

To ask your questions: Call the Small Business Development Center(SBDC) at Cochise College (520)-515-5478 or email schmittm@cochise.edu or contact the Sierra Vista Economic Development Foundation(EDF) at 520-458-6948 or email  hollism@svedf.org

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