Topics: Corporation, Types of business entity, Types of companies Pages: 6 (1554 words) Published: June 24, 2013
Legal, social, and economics of Business


Unit 1. Individual project

Terry McBride

JUNE 16,2013

The scenario in question gives us the portfolio of a person that likes to do things around the home and has come up with an idea that might benefit his/her home and perhaps other homes globally. Another version of this idea already exists on the market but the person believes his invention might further simplify and make the “appliance” more user friendly and safer. This person does not have available funds for the project and would therefore have to look to an outsider to complete the task at hand. The inventor has researched the market of the other “appliance” and found that it has an annual growth of 2%. He believes this invention could increase that growth because he thinks this invention might be used in many other “appliances” making the product quite versatile and therefore appealing to a wide range of markets. For the person to be able to make a wise decision about how to make his project a reality we look at three types of business, the sole proprietorship, general partnership and corporation, while considering the advantages and disadvantages. After looking thoroughly at these types of businesses, we try to make an informed decision in which type to recommend for the project, keeping in mind all the aspects of the persons “limitations”. These three types of businesses all have their advantages and disadvantages and based on those we determine that general partnership would be the smartest way to proceed, as the persons “limitations” minimize the chances of the two other options succeeding.

Let us start by looking at closely at the three business types in question regarding the scenario.

Sole proprietorship, a business owned and operated by one person.


He would be in full control, and accountable to no one but himself. In the case listed this could be good because he could manage his time between his business and the home equally, on the other hand it might also bring difficulties both to the home and business as one might suffer from the other. Managing a business by oneself must be a difficult task.

It is easily achievable. The startup of a sole proprietorship would be easy, but does success come from ease? There must be some risks and difficulties involved.

Less money to be raised for starting up the business. As written in the scenario, the subject does not have access to large funds, therefore this could be a less financially upsetting way to start.


He would be liable for all the debts of the business personally, there is no limit to his liability. Putting his family’s financial security at risk might not seem a good idea and hardly appealing to his spouse, but taking a considerable amount of risk would be necessary.

He might find it difficult to attain funding. Being an individual with low “net worth” banks and other loan facilities might not want to take the chance of lending the money for the project.

General partnership, two or more persons whom share monetary responsibilities.


Growth possibilities. As described in the scenario the idea could be usable with several “appliances” making the project likely to have considerable growth potential in time.

Easier to attain funding. If two or more individuals take up partnership it is more likely to be appealing to monetary facilities to fund the project because two individuals are worth more than just one.

Both partners are taxed as individuals. Only one level of taxation. Partners are taxed according to their partnership agreement and have full control over how their income is allocated in accordance to their interests as long as there is economic reason.


One person may be liable for all debts. If for example a person would only be letting someone use their name in the partnership agreement, that same person, even if...

References: Bellis,M(n.d.). Invention assessment: What is the purpose of marketability evaluation? Retrieved from: http://inventors.about.com/od/marketassessment/a/evaluation.htm , (August 23, 2011)
Ebert, R. J., & Griffin, R. W. (2011). Business essentials (8th ed.) )[Online version]. Retrieved from: AIU Online Virtual Campus. Introduction to business: BUS105-1103B-275 website.
Quick MBA(n.d.). Law and business: The Corporation. Retrieved from:
www.quickmba.com/law/partnership/general/, (August 23,2011)
Quick MBA(n.d.). Law and business: The General partnership. Retrieved from:
www.quickmba.com/law/partnership/general/, (August 23,2011)
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