Business forms: understanding the issues

The goals and visions may differ, but the drive of every small business founder is success. Helping them find the right legal form for a business can be the critical success factor.

The first part of the business forms series gave an overview of the different options available when it comes to legal forms. This follow-up guide dives deeper into the areas perceived as most important by both advisers and entrepreneurs, highlighting aspects which might weigh more heavily on the minds of the novice founder than the experienced expert.

Steps to success

Practice professionals and business advisors have a key role to play in supporting entrepreneurs, providing them with expert advice on what can, should and must be done when it comes to starting business venture.

The first crucial step is to advise the business founder on the legal form they should adopt for their business. An open and honest conversation about what the implications are, informed by an understanding of likely preconceptions, will help set the foundations of an enduring and successful advisory relationship.

In order to help structure the analysis and conversations with clients, the characteristics of business forms have been split into four broad sections, considering in turn: 

• Realising the returns – what is the motivation and value of their new business? Profit for investors, providing community services or financial security for the founder and their family, are a few examples.
• Investing into the business – will the client need start-up money? Will they raise money as debt or equity, or perhaps look for funding elsewhere (government grants e.g.)?
• Legal characteristics - will the business have a separate legal identity from the owner? This will affect how contracts are entered into as well as legal rights and liabilities, and of course the protection of the owners other assets. 
• Administrative requirements - these tend to fall into two categories – occasional requirements, such as the formalities around the initial start-up or major transactions such as a sale of the business, and regular requirements such as preparing and filing or publishing accounting information.

Sympathetic and pragmatic advice from experienced experts in the field can make a real difference to the success of the venture. We hope this practical guide helps professional accountants in practice and business advisors continue in their crucial work in supporting business start-ups.

ACCA author, Jason Piper