Entity Selection: Creating a Web Development Firm

Entity Selection: Creating a Web Development Firm

Peter graduated in Computer Science three years ago and has been working as a web developer for a leading software provider ever since. During his employment, Peter gained considerable experience in web based and e-commerce solutions design. Leon, a business student, met Peter in collage. As an account manager in an advertisement and marketing company, Leon maintains a large database of businesses and has cultivated good relationships with most clients. Peter had successfully designed solutions for a few clients forwarded by Leon. After their initial success and given the number of prospective client, Peter and Leon decide to venture into the lucrative market of web development and start their own web development firm.

Business Vision

Business Name

The firm will carry the name "Web Solutions Plus." This name clearly reflects the type of business activity and the nature of products and services. It also conveys richness and variety allowing room for expanding operations and providing additional services in the future.

Mission Statement

Using the slogan "Quality for the financially challenged," Web Solutions Plus will provide products and services adhering to latest technological standards in the web development industry at highly competitive prices.

Products and Services

Web Solutions Plus will provide state of the art web based business solutions and consultancy services in web application design and management. The scope of operations will include website design and security, e-commerce solution design and management, intranets and database driven client/server applications--accounting and inventory systems, billing and P.O.S systems, payroll systems, customer lead generation systems--built on a multitude of the latest web and database technologies.

Market Niche

The firm will target small to medium sized businesses operating in any sector and provide cost effective solutions with competitive prices. This will be especially appealing to businesses with limited budgets that find it difficult to afford solutions provided by major software venders. Market research remains pending to have a detailed assessment and this segment.

Competitors

An initial assessment of the market shows an abundance of website designers and e-commerce solution providers. However there seems to be a limited number of web based application providers that target business operations like P.O.S and accounting systems. Again, this area needs thorough market research for accurate assessment.

Future Plans

After attaining significant growth in the web development sector, Web Solutions Plus will consider expanding its business activities to include domain registration and Internet hosting services.

Legal and Regulatory Considerations

In order to choose an entity that will best serve the business objectives and strategic plan of its owners, a careful assessment of legal and regulatory issues should be in progress. O. Lee Reed (2002) identifies five factors that should be considered before choosing the right form of business entity: cost of creation, continuity, managerial control and liability of owners and taxation and distribution of profits among owners.

Cost of Creation

Cost of creation refers to the expenses of registering an organization as a legal entity plus the time and formalities involved (Reed, 2002). Considering their average income and limited budget, Peter and Leon should choose a low-cost solution for their start-up business. Having a number of projects in the pipeline, they should also start their formal operations soon enough to proceed with signing contracts.

Continuity

Continuity refers to the duration of the organization and its existence in relation to its owners (Reed, 2002). Web Solutions Plus should have reasonable stability in order to implement its long-term strategic plan and achieve the growth prospects of its owners.

Managerial Control

The extent of direct involvement of owners in business activities of the organization determines the amount of managerial control and can well be the source on internal conflict (Reed, 2002). The activities of Web Solutions Plus will be divided into two groups. Peter will head operations that include solution planning and design, programming, and troubleshooting. Leon will manage marketing, sales, accounting and finance. The owners in this case will have full control and act as agents of the business.

Liability

As most business owners attempt to limit their personal liability to the debts of their organization, this factor remains one of the most important determinants of entity formation (Reed, 2002). With regard to Web Solutions Plus, it does not very costly to operate this business given the high expertise and knowledge of Peter and Leon. Therefore, Peter and Leon will not object to being personally liable to their debts as long as they have full control on their business.

Taxation and Distribution of Profits

Since taxes amount a significant portion of profits, most businesses try to avoid entity forms that incur double taxation--taxes on the profits to the organization followed by taxes on personal income from the proceeds of the business. In some cases, double taxation may cause owners to pay taxes without even receiving a share of the proceeds (Reed, 2002). As a start-up firm, Web Solutions Plus needs to conserve its resources for growth. It is crucial