Business Law 531
Having a business mindset, taking risks, having patience and a good amount of financial means is just the start to starting up a business. Becoming an entrepreneur of any sort is not as easy as most people would think. An important decision an entrepreneur makes is deciding the type of business to create or go into. The business types that will be explained are sole proprietorship, partnership, limited liability partnership, Limited Liability Company, S corporation, franchise, and corporation. Each business type will be given a scenario as well as a justification as to why that type of business is preferred.
Business Type, Scenarios, & Justifications
Sole Proprietorship is the simplest form of business (Cheeseman, 2010, p. 530). An owner and the business are considered one entity in a sole proprietorship. “Sole proprietorships are the most common form of business organization in the United States” (Cheeseman, 2010, 530). These are the smaller businesses which are and will slowly and surely become nonexistent due to the bigger corporations taking over (i.e., Wal-Mart, Target, Starbucks, and so on.). Newsstand is a neighborhood convenience store that is said to have the best fresh bread and pastries in the community. Dan is the sole proprietor, which means he is legally liable for everything within his store. Sole proprietorship is a great business form for Dan because it was easy for him to open that required minimal paperwork and it did not cost him greatly financially. The store could easily be sold to another if he wanted to sale it in the future. On top of that, he is his own boss. Dan makes all the decisions without consulting with a partner, shareholder, or investor. Sole proprietorship is an excellent choice for those who want to operate their business however they want and not have issues that involves others’ consent. Cheeseman states that “a partnership is the voluntary association of two or more persons for carrying on a business as co-owners for profit” (2010, p. 533). To qualify as a partnership, there a few qualifications that must be met – for example, one is that there must be multiple individuals operating the business as co-owners for profit (Cheeseman, 2010, 534). According to Cheeseman, the agreement to form a partnership may be oral, written, or implied. Although there are no formalities required, it is best to get the agreement in writing (p. 535). Ebony and Monique were hairdressers who wanted to open a new beauty salon in the city center. Prior to going into business, they met Lisa and Cindy who are nail technicians, and Anna who is a massage therapist. After many meetings, the five of them decided that they wanted to all go into business and open a salon that includes hairdressers, nail technicians, and massage therapists. They decided to form a partnership. Each of the women put up $15,000 as an initial investment and each of them were co-owners of the business. The five of them worked hard getting their business up and running and their salon became the hit of the town. Forming a partnership was the best option for Ebony, Monique, Lisa, Cindy, and Anna. Had they not entered into the partnership, none of them would be where they are today. Partnerships are good for people who have the same interests, the same goals, and minimal amounts of money. Because each of the partners had only $15,000 to invest, none of them could have opened the salon of their dreams on their own, but by forming the partnership they could pool their resources and make a thriving business. According to Cheeseman, a Limited Liability Partnership, LLP, is a special form of partnership in which all partners are limited partners, and there are no general partners (Cheeseman, 2010, p. 623). In an LLP, the partners cannot lose more than their capital contribution. This type of partnership is usually allowed for...