Forms of Business
When beginning a business venture, the first and most important decision made by the owner is to review the forms of business options and determine which one would be suitable for the organization of their company. There are seven forms of business that will be discussed and different scenarios that will be developed in which each of these forms of business would be the preferred form. The seven forms of business are sole proprietorship, partnership, limited liability partnership, Limited Liability Company, S corporation, franchise, and corporate form. The selection depends on many factors – Each of these forms of business has advantages and disadvantages for the entrepreneurs (Cheeseman, 34). Each scenario will also include why the corresponding business form is most preferred. Sole proprietorship
Sole proprietorship is the simplest and most common form of business (Cheeseman, 530). This form of business would be appropriate for a single business owner. The business owner would be the sole proprietor in this situation. The sole proprietor would be the only decision maker on how to conduct their business, as well as would be held liable for all activities within their business and cold be at a loss for all assets if the business is not successful. For example, Kelly opens a hair store as the sole proprietor of the business. She handles all contracts made for her and to any employees that she may hire and receives all profits made from the business. Should productivity begin to slow down and Kelly has to close her business, she is personally liable for any debts owed which may come from her own assets. Kelly could be at risk for losing her home, funds from her checking/savings account, and her car if she owns any. No one else is receiving any profit for the company but herself which is why she should be the only individual held responsible for any loans or debt owed. Partnership
A partnership, otherwise known as a general partnership and much like a sole proprietorship, is the association of two or more people carrying on a business as co-owners for profit (Cheeseman, 533). A business name must be created, a partnership must be formed, and a partnership agreement must be established. The co-owners will share the profits and liabilities which are recognized in the partnership contract. Partnerships are minimally formalized and must meet certain criteria operated under the Uniform Partnership Act (UPA). The UPA is a model act that codifies partnership law (Cheeseman, 534). An example for a partnership would be Grace and Owen opening up a private medical practice. Each individual would be held accountable to their equal rights and duties, share equal business profits and they make sure that this agreement is placed in writing. Grace realizes that all of the patients on the second floor are not susceptible to a disease because of a huge outbreak of the H1N1 virus. Grace fails to mention this to Owen because this information may be publicized and hinder could possible hinder the practices’ image and lose current and future patients. Sooner or later the information is out to the public. Grace attempted to protect these particular patients from the virus, but did not win out. In the end, Owen is still held liable for the damage this has done as he is a co-owner and all information is attributed to him as well. Grace did not act with care, nor did she act in the best interest of the partnership. Both owners would be liable as the duty of care was breached. Limited Liability Partnership
Limited liability partnership (LLP) differs from a partnership where there are no general partners. The partners are not held personally liable for any obligations or debts owed. Instead all partners are limited partners who stand to lose only their capital contribution if the partnership fails and—nothing beyond his or her capital contributions (Cheeseman, 624). This form of business is only used for professionals and not...
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