Business Scenarios
There are several forms of legal businesses. There are some advantages and disadvantages of each form of business. The major forms for conducting businesses and professions are: sole proprietorship, general partnership, limited partnership, limited liability partnership, limited liability company, and a corporation (Cheeseman, 2010). Entrepreneurs must consider the requirements that must be met before deciding upon what form of business they want to operate. There are certain laws, requirements, and regulations that must be followed in each business form.
Sole Proprietorship Sole proprietorship is one of the simplest forms of a business organization. In this form of business, the owner of the business, the sole proprietor, is the business (Cheesesman, 2010). This form of an organization is the most common in the United States (Cheeseman, 2010). Sole proprietorships are ideal for small businesses. For example, my husband and I want to start a small business. This form of business suits our needs because there is low start-up costs associated with operating a sole proprietorship. Also running the business is easier because my husband and I, the owners, have the right to make all management decisions concerning the business. Screening, interviewing, hiring, and firing employees would be our responsibility. This form of business would also allow us to grow a family business and incorporate our children into the business. When we are ready to retire, we could easily hand the business over to our children. As sole proprietors, we would own all of the business and has the right to receive all of the business’s profits.
General Partnership A general partnership is a voluntary association of two or more persons for carrying on a business as co-owners for profit (Cheeseman, 2011). This form of business requires partners to be held personally liable for the debts and obligations of the partnership. Partners share responsibilities, management, and profits. This is ideal for two people with an idea for a product or service. A partnership is easy to establish and most times there are low startup costs.
Partnership agreements must be created and signed when forming partnerships. This agreement helps to protect each partner. When considering starting a small business, my friend and I talked about starting a business together. We discussed how the business would run, chose a location, and decided which of us would work what shift.
Luckily, the conversation continued and I discovered it was a bad idea before we committed to starting the business. My friend had stipulations that I could not agree on. She is married with no children; whereas I am married with three children. My friend wanted our agreement to state that in the event of one of us dying an untimely death, the other partner would own the entire business. Our halves would not be given to our spouses or my children. That was a problem for me because I want to leave something for my family. Issues such as this one are best dissolved before a partnership is formed. We could see right away that we should not go into business together.
Limited Partnership A limited partnership, or special partnership, has two types of partners: (1) general partners, who invest capital, manage the business and are personally liable for partnership debts and (2) limited partners, who invest capital but do not participate in management and are not personally liable for partnership debts beyond their capital contributions
(Cheeseman, 2011). An example of a limited partnership would be if my husband and his siblings went into business together. There is no maximum number of partners for a limited partnership. Our profits would be split according to the contribution we each made to the start up of the business. Our company name could not be our last names, unless it is the surname of the
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