Pros and Cons of Partnership and Company Business Structures for a Café in a University Campus

PART D
I conducted interview with my cousin. She is currently pursuing her bachelors from a university
in Australia. My cousin intends to open a café in the university campus considering that the
available options are quite expensive and do not provide value of the students. She plans to open
the café business along with her two friends. Also, she also told me that there were some other
students who are also planning a similar venture and hence first mover advantage was of
importance. When I discussed about the likely business structure, she informed me that she was
planning for a company structure but was concerned about the formalities involved.
When I asked her about partnership, she categorically denied the same but did not have any
convincing reason to back her decision. It was because one of her friends was conscious about
the liability of the partners and hence wanted the company structure so as to limit the personal
liability of the owners. In order to enable an informed decision making, I informed my cousin
about the various pros and cons of the partnership business structure. I emphasized on the ease of
formation in a partnership structure where only a partnership agreement is required. Also, the
administrative and compliance burden associated with the partnership business is quite minimal.
This was quite relevant for new ventures as there is a focus on keeping the cost minimal in the
start-up phase.
Further, the various negative aspects associated with partnership were also highlighted. These
included personal liability of the partners, issues with regards to raising incremental financing
from equity dilution, income from partnership being taxed at the level of partners. However, I
highlighted the implications of all these negative aspects at the starting stage of the business
when the income is expected to be low only and also financing needs may not arise. Further, my
cousin informed me that her partners already had all the requisite financing which included six to
nine month working capital as well besides start up costs. Further, the issue of personal liabilities
were also addressed in detail since it was a key concern.
The company business structure was also discussed with reference to the key pros and cons. Of
particular interest were the key formalities involved. I was quite taken aback that despite the
availability of all the documentation required in registration of company, my cousin was quite
clueless about the same. I informed about the various steps and more importantly the timeline
involved in the same. This was discussed in detail as time was of significance for my cousin as
the opportunity could be lost if anyone else started before.However, in order to provide a
balanced view, the various advantages associated with the company structure were also outlined.
These included lower tax rate, limited liability and an ability to raise financing through share
transfer. Simultaneously, it was also indicated that in the circumstances highlighted, partnership
would be a preferable business structure. It was quite satisfying to see that she also agreed with
conviction and enhanced understanding of business structures.