226 Planning and Forecasting
much work to be done before it could be brought to market. The software had
to be converted from a mainframe operating system to the various popular mi-
crocomputer systems. In addition, there was much marketing to be done prior
to its release. Phil anticipated that he would probably spend over $300,000 on
programmers and salespeople before the first dollar of royalties would appear.
But he was prepared to make that investment himself, in anticipation of retain-
ing all the eventual profit.
THE HOTEL VENTURE
Bruce and Erika were not nearly as interested in high technology. Directly fol-
lowing their graduation from business school, they were planning to construct
and operate a resort hotel near a popular ski area. They had chosen as their
location a beautiful parcel of land in Colorado owned by their third partner,
Michael. Rich in ideas and enthusiasm, the three lacked funds. They were cer-
tain, however, that they could attract investors to their enterprise. The loca-
tion, they were sure, would virtually sell itself.
THE PURPOSE OF THIS CHAPTER
Each of these three groups of entrepreneurs would soon be faced with what
might well be the most important decision of the initial years of their busi-
nesses: which of the various legal business forms to choose for the operation of
their enterprises. It is the purpose of this chapter to describe, compare, and
contrast the most popular of these forms in the hope that the reader will then
be able to make such choices intelligently and effectively. After discussing the
various business forms, we will revisit our entrepreneurs and analyze their
choices.
BUSINESS FORMS
Two of the most popular business forms could be described as the default
forms because the law will deem a business to be operating under one of these
forms unless it makes an affirmative choice otherwise. The first of these forms
is the sole proprietorship. Unless he or she has actively chosen another form,
the individual operating his or her own business is considered to be a sole pro-
prietor. Two or more persons operating a business together are considered a
partnership (or general partnership), unless they have elected other wise. Both
of these forms share the characteristic that for all intents and purposes they
are not entities separate from their owners. Every act taken or obligation as-
sumed as a sole proprietorship or partnership is an act taken or obligation as-
sumed by the business owners as individuals.