Question one
a) Structure of the company
The business that I shall create shall be a limited liability company that offers customized software development services. A limited liability company offers several benefits to the owner making it a favorable business structure. A limited liability company exists as a separate legal entity. As such, the owner cannot be held responsible for any liabilities, debts, and any court decisions made against the business. The owner’s assets, investments and other properties cannot be used to recover debts of the company unless under special circumstances, such as a personal guarantee of a business debt, mixing personal funds with company funds, when the company violates state laws, or fails to pay taxes to the state (Legalzoom, n.d).
A limited liability company offers an owner taxation benefits. The owner pays taxes at the individual level on the individual returns. As such, all income, gains, losses, deductions are directly passed to the owner and the tax is filed based on individual rates of tax. In effect, it avoids double taxation that occurs when the business is taxed as an entity and the owner’s income from the business entity taxed again.
Another benefit of a limited liability company is that it is much easier to pass the business from one generation to the next. Sole proprietorships and partnerships are significantly harder to transfer ownership interests to other third parties when compared to limited liability companies (Legalzoom, n.d). A limited liability company structure would make it easy for me to transfer the business to the next family generation later on.
Limited liability companies offer other benefits such as ease of raising capital, which can be achieved by the sale of membership interests. Limited liability companies enjoy greater credibility and legitimacy when dealing with banks, other companies, etc. There are no restrictions in terms of ownerships, that is, the number of members.
b) Economic conditions of the market
The software development industry is a unique industry. Software developing companies specialize in different types of products and services customized for the clients. For example, some specialize in developing business software, others specialize in CRM software development, open source software, security and systems management software. Each company offers products that are different from those offered by companies in the same industry. Companies in the software industry offer products that are differentiated and unique from each other. As such, the software development industry can said to be an oligopoly.
Very few of the companies within the industry offer similar products and this offers them control over the market. Each of the companies within an oligopolistic market produces for a significant portion of the market and any changes in prices or product characteristics is noticeable and attracts counter actions by competitors (Ohio State University, n.d). There is intense competition between rivals and companies need to monitor the actions of other rivals and have counter-measures in order to retain market share.
Oligopolistic markets are characterized by certain barriers to entry such as economies of scale enjoyed by a few firms, high requirements for capital, control over specialized inputs, etc. However, these barriers may not apply to the software development industry because there may be no specialized inputs required
