The purpose of this APA research paper is to evaluate the different organizational structures for a turtle daycare and evaluate why having an LLC is the best organization structure. This paper was written at an undergraduate level to serve as a sample for the Ultius blog.
The Types and Purpose of Organizational Structure
When forming an organization, founders need to take some time to consider the different organizational structures available to them. The primary purpose of an organizational structure is that it allows multiple people to have an ownership interest in the company. In addition, organizational structures provide liability as well as tax benefits to the owners of the organization.
The first organizational structure available to the turtle daycare is a sole proprietorship. A sole proprietorship would mean that the daycare would have a business and access to business benefits, but the owner has all tax liability as well as personal liability for the organization. However, one of the biggest disadvantages to a sole proprietorship is that the daycare it would only have one owner. That would limit its ability to have investors or shareholders who could share in the organizational liability, which in turn would limit the daycare’s ability to have franchises, and other types of expansion (O’kelley & Thompson, 2017).
The second possible organizational structure for the daycare is a general partnership. A general partnership is one where all of the owners have equal liability in the organization. General partnerships require that the partners be able to share in the profits of the organization as well as share in the liabilities of the organization. Thus, the daycare could expand the number of owners, and they would all share in liability if, for example, a turtle were injured at the daycare. However, general partnerships or pass-through organizations. Thus, liability as well as profits pass through to the individuals who own the organization, which means that the owners would all have a lot of risk.
A third possible organizational structure for the daycare is a corporation. Corporations, like Airbnb, have several advantages. First, corporations allow organizations to have multiple owners who have different levels of liability. Corporations have shareholders (O’kelley & Thompson, 2017). There may be different types of shareholders who have different voting rights as well as liability. One of the biggest problems with corporations, however, is that they are very expensive to set up and run. They also run the risk of double taxation. Any profits from the daycare would be taxed, and any income from the daycare to the shareholders would also be taxed.
LLC: Limited-liability company
The final option for the daycare is a limited liability company. A limited liability company is a blend of the general partnership as well as the corporate structure. Generally speaking, limited liability companies have the tax liabilities of general partnerships but the legal liabilities of a corporation. Limited liability companies have members (O’kelley & Thompson, 2017). The members of the organization own units, and there can be different classes of members.
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Conclusion: LLC is the best option for a turtle daycare center
The primary reason why it is the best structure for this business is because the daycare center is likely going to start off relatively small. A limited liability company allows an organization to grow and have more unit owners, investors, different classes of membership such that it can grow and adapt as it becomes a more robust company. The limited liability company structure will also give it the opportunity to have franchisees as it expands, which is a different business model that can generate revenue for the business. Additionally, the owners will not have any personal liability. In the daycare setting it is possible that there will be the potential for harm coming to the turtles. With a limited liability company, the owners will not be putting their own personal assets at risk because of this business endeavor. These factors make it the best organizational structure for this organization.
O’kelley, C. R., & Thompson, R. B. (2017). Corporations and other business associations: Cases and materials. Wolters Kluwer Law & Business.