Selecting a Legal Structure: Revisiting the Strategic Issues and Views of Small and Micro Business Owners

  • Giles T. Hertz University of Tampa
  • Fred Beasley University of South Carolina Beaufort
  • Rebecca J. White University of Tampa

Abstract

Entrepreneurs often make decisions about the legal structure of their new business without fully considering the effect of the decision on other strategically important concerns. The question of whether the new venture should be formed as a sole proprietorship, partnership, corporation, limited liability company or one of several other legal forms is a complex one. To effectively answer that question requires the founder to consider the advantages and disadvantages of each, and how the choice will affect four primary areas of concern: startup costs; the firm's exposure to legal liability; tax position; and finance options. This research addresses a gap in the literature and investigates the decision-making process of 513 founders of small and micro businesses in selecting a legal structure and clarifies other related concerns such as the source of entity structure advice, the factors influencing entity selection and the resultant confidence and satisfaction with the chosen legal structure. Findings suggest that small business owners who obtain counsel from accountants and/or attorneys are more likely to consider the full spectrum of implications of legal entity type and are generally more satisfied that their choice will positively affect firm profitability.

Downloads

Download data is not yet available.

References

Bagley, C. (2008). Winning legally: the value of legal astuteness. Academy of Management Review, 33 (2), 378-390.

Bauer, K.A. (1993). Buying and selling a high-tech business. Managing Intellectual Property, 29, 19-24.

Brown, C.A., Colborne, C.H. & McMullan, W.E. (1988). Legal issues in new venture development. Journal of Business Venturing, 3, 273-287.

Byrd, S. & Richey, R. (1998). The choice of entity for the small business owner. The Mid-Atlantic Journal of Business, 34(3), 205-215.

Cash, L., Dickens, T. & Mowrey, M. (2005). Choice of business entity after JTRRA and AJCA. Strategic Finance, 15-16.

Davies, J. (1979). Small business and legal services. American Bar Association Journal, 65, 1806-1807.

Fenton, J.W. & Lawrimore, K. (1992). Employment reference checking, firm size, and defamation liability. Journal of Small Business Management, 30 (4), 88-95.

Goldsby, Michael G., & Kuratko, Donald F. & Bishop., James W. (2005). Entrepreneurship and Fitness: An Examination of Rigorous Exercise and Goal Attainment among Small Business Owners*. Journal of Small Business Management, 43(1), 78-92.

Hornsby, Jeffrey S., & Kuratko, Donald F.. (1990). Human Resource Management in Small Business: Critical Issues for the 1990's. Journal of Small Business Management, 28(3), 9.

Heriot, K.C. & Huneycutt, S (2001). Legal issues impacting the small firm: preliminary observations," Proceedings of the United States Association of Small Business and Entrepreneurship and Small Business Institute Directors Association Annual Meeting, Orlando, FL.

Hertz, G. (2006). An entrepreneur's guide to selecting a legal structure for your new Kentucky business. Kentucky Science and Technology Corporation, Frankfort, KY.

Ireland, D., Fowler, J. & Nord, G. (1985) The legal profession: views from small business owners/operator. Journal of Small Business Management, 23 (1), 56-64.

Jones, S.B. (1997). Small business and community economic development transactional lawyering for social change and economic justice. Clinical Law Review, 4, 195-134.

Karl, P.A. (1999). The answers point to the LLC: Twenty questions. The CPA Journal, 69(8), 40.

Khandekar, R. & Young, J. (1985). Selecting a legal structure. Journal of Small Business Management, 23 (1), 47-55.

Kuratko, Donald F., Hornsby, Jeffrey S., & Naffziger, Douglas W. (1997). An examination of owner's goals in sustaining entrepreneurship. Journal of Small Business Management, 35(1), 24-33.

Lyles, Marjorie A, Baird, Inga S, Orris, Burdeane, & Kuratko, Donald F. (1993). Formalized planning in small business: Increasing strategic choices. Journal of Small Business Management, 31(2), 38.

Malach, S., Robinson, P & Radcliff, T. (2006). Differentiating legal issues by business type. Journal of Small Business Management, 44(4), 563-576.

Mauer, Richard. (1993, September). I was a Mac agitator. The Quill, 81(7), 24.

McEvoy, Glenn M.. (1984). Small Business Personnel Practices. Journal of Small Business Management, 22(4), 1.

Mellor, W. & Lee, P. (2001). Institute for justice clinic on entrepreneurship: A real world model in stimulating private enterprise in the inner city. Journal of Small and Emerging Business Law, 5, 71-90.

Opiela, N. (2004). According to form: Choosing the right business entity. Journal of Financial Planning, 17(7), 36-42.

Pathak, J.S. (1994). Getting down to business. International Corporate Law, 38, 38-45.

Porcaro, G.A. (2007). The choice of entity maze. Journal of Accountancy, 203(3), 64-68.

Ramsey, V.J. & Williams, J.H. (1996). Small business and clean air regulations: Issues and problems. Journal of Business and Entrepreneurship, 8(1), 53-69.

Robinson, R.L., Jackson, W.T., Franklin, G.M. & Hensley, D. (1998). U.S. sexual harassment law: Implications for small business. Journal of Small Business Management, 36 (2), 1-12.

Scholes, M. & Wolfson, M (1992). Taxes and business strategy: A planning approach. Prentice-Hall, Englewood Cliffs, NJ.

Smith, J., Raabe, W. & Maloney, D. (2007) West Federal Taxation: Taxation of Business Entities. Thomson South-Western, Mason, OH.

Sumutka, A.R. (1997) Selecting a form of business. The CPA Journal, 67(4), 24-29, 56-57.

Teske, J. M. (1995). Second generation legal issues in integrated delivery system. Journal of the Healthcare Financial Management Association, 49(1), 54-59.

Thomas, D.S. & Usry, M. (1991). Entrepreneurship classes must include more legal topics. Business Forum, 16 (4), 10-11.
Published
2009-01-21
How to Cite
HERTZ, Giles T.; BEASLEY, Fred; WHITE, Rebecca J.. Selecting a Legal Structure: Revisiting the Strategic Issues and Views of Small and Micro Business Owners. Journal of Small Business Strategy, [S.l.], v. 20, n. 1, p. 81-102, jan. 2009. ISSN 2380-1751. Available at: <https://libjournals.mtsu.edu/index.php/jsbs/article/view/120>. Date accessed: 20 june 2019.
Section
Articles