Self-Employment Steps for Vocational Rehabilitation Counselors: Helping a Consumer Start a Business

Chapter 6:

The Business Description

The Business

This section describes the business clearly and concisely. It discusses the business's name and its significance, the form of ownership, the business location, the service or product to be sold, and projections for the future. 

Business History

This section describes the history of an existing business or need for a new business. It describes how and why an existing business was founded or why a new business is needed. For an existing business, it should discuss the growth of the business on a local and regional level or beyond if appropriate. For a new business, it should discuss the industry on a local and regional basis and the projected growth of the business. 

Form of Ownership

This section specifies and discusses the rational for the type of business ownership. It includes documents or agreements between partners or shareholders. It discusses how the potential business owner determined the appropriate form of ownership for his or her business. The Secretary of State's office in the state where the consumer wishes to open the business can help. In Montana, for example, the We Mean Business booklet contains the filing forms necessary to start a business and the information needed to determine the appropriate form of ownership. It details the array of legal steps necessary to start, maintain and/or dissolve a business.

A potential business owner should also contact a certified public accountant or a business consultant to discuss the appropriate form of ownership for his or her particular business. Figure 8 describes the advantages and disadvantages of each type of ownership.

Figure 8: Advantages and Disadvantages by Ownership Type

Sole Proprietorship
  • Low start-up costs
  • Owner in direct control
  • Minimal working capital requirements
  • Tax advantage to small owner
  • All profits go to owner
  • Unlimited liability
  • Lack of continuity
  • Difficulty in raising capital
  • East of formation
  • Low start-up costs
  • Additional sources of venture capital
  • Broader management base
  • Possible tax advantage
  • Limited outside regulation
  • Unlimited liability
  • Lack of continuity
  • Divided authority
  • Difficulty in raising additional capital
  • Difficulty in finding suitable partners
Limited Partnership
  • General partners manage the business
  • More closely regulated than a general partnership
  • Limited partners cannot manage the business
  • General partners have full personal liability
Limited Liability Partnership
  • Operated in the same manner as a general partnership
  • Partners only liable to the extent of their original investment
  • Partners not responsible for errors or negligence of persons they are not supervising or directing
  • Periodic LLP renewal
Limited Liability Company
  • Protects from personal liability similar to corporation
  • Favorable tax treatment similar to partnership
  • Each member's liability limited to investment amount
  • May have all members manage the business equally
  • Permits unlimited duration
  • Permits corporations as members
  • Provides flexibility in contributions and distribution of assets
  • Consideration of duration is required for tax purposes
  • Restricts transfer of interest without approval of membership
  • States' rules and regulations may vary
C Corporation
  • Limited liability
  • Specialized management
  • Transferable ownership
  • Continuous existence
  • Legal entity
  • Possible tax advantages
  • Ease of raising capital
  • Close regulation
  • Most expensive form to organize
  • Charter restrictions
  • Extensive record keeping
  • Double taxation
S Corporation
  • No double taxation
  • Stockholders deduct any net operating loss on individual tax returns
  • Stockholders pay taxes on corporate income
  • Additional accounting costs to set up over sole proprietorship
  • Smaller-than-usual capital investment
  • Less working capital than normally required
  • Prior public acceptance of product/service
  • Management assistance
  • Better than average profit margins
  • Possible high franchiser fees, supplies, and charges
  • Some loss of independence
  • Possible difficulties in canceling contracts

Figure 8 Sources:
Adapted from Gary L. Kuebbeler's, Going Into Business for Yourself. Columbus: Ohio Distributive Education Materials Lab, The Ohio State University and from the Montana ... We Mean Business: Business Filing Guidelines and Forms, Office of the Secretary of State, Helena, Montana.

Ownership Interest

This section lists all owners, such as major shareholders or partners. It also documents owners' or shareholders' willingness to provide personal guarantees for any financing.

Industry Trends

This section discusses the current trends of the proposed (or existing) business and the industry. It describes whether or not the demand for the product or service exceeds current supply.

Background Information About the Owners

This section provides information about the owner(s), describing any experience in the industry or with managing a small business. This section also contains information about any business advisors other than lawyers or CPAs.

Chapter 6 Business Plan Study Guide: Business Description

  1. The plan describes why the business is needed. 
    True____ False ____ 

  2. For both a new and an existing business, the plan should discuss any anticipated growth of either the business or industry. True_____ False_____ 

  3. The Business Section contains a description of the form of ownership for the business and a rationale for the form of ownership. True_____ False _____ 

  4. This section includes a description of any relevant experience the owner(s) have for operating the business. True _____ False _____ 

Study Guide Answers: Chapter 6 - The Business Description

July 1998, 1st Revision June 1999, 2nd Revision February 2001