Martha is president of Apex Training Co. Before launching Apex, she was vice president of marketing for Globus Training, a company that earned $125 million in training revenues annually.
She was instrumental in Globus growing at a 25% rate per year over a period of four years. She left Globus and set up her own training company because she believed that she could be as successful running her own business as she was in helping Globus to grow.
After six years of operation, Apex is generating $4.2 million in revenues, split evenly between public seminars and in-house programs at client sites. When reviewing her books, her accountant tells her she has done a great job establishing a business. But he expresses concern about the fact that she is running the business as a sole proprietorship.
He suggests that while the sole proprietorship may have made sense during her earliest start-up stage, she had perhaps outgrown that legal structure.
In responding to the following questions, avoid talking in theoretical generalities. Make sure your comments would be useful to Martha if she had a chance to review them. Your advice should be pertinent to her specific business – remember, she is running a training company, not a retail or manufacturing business.
1. Why did it make sense to establish Apex as a sole proprietorship at the time it was launched?
2. What do you think were the accountants’ concerns about running Apex as a sole proprietorship?
3. What relative advantages and disadvantages would Martha face if she structured Apex as a partnership or LLC?
4. The accountant talked about outgrowing the sole proprietorship structure. Is it possible to employ a sole proprietorship structure for larger, mature businesses without them “outgrowing” the structure?