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Business Structures Essay

851 words - 4 pages

Business Structures
FIN 571
July 20, 2015
Business Structures
When forming a business, there are three basic structures to identify and understand. Sole proprietorship, partnership, and corporation comprise the basic structures. The partnership can be a general partnership or a limited liability partnership and the corporation can be three types: general, subchapter S (S corporation), and limited liability company (LLC). For a business venture, there are many questions to contemplate to help in the decision for the type of structure. Is control of all aspects of the business important? Are loans or investors necessary? How important are tax credits or savings? What amount of ...view middle of the document...

There can be tax advantages since partners can file percentages of the profits individually just as on a sole proprietorship. Clearly outlining the roles and responsibilities of each partner is important because when something goes wrong all partners are equally at risk. According to Dana Griffin, “Unless the agreement states otherwise, all partners have equal voting rights within the group regardless of how much capital they contributed to the venture. Partners have a financial duty to one another, and are expected to act in the best interests of the partnership as a whole rather than just for their personal benefit” (Par. 3). In other words, if one partner contributes 70% of the capital and the other 30%, each has equal responsibility for the business. This means if one of the partners makes a big mistake resulting in a lawsuit, the other partners can be sued as well. According to Sherri Scott, a limited liability partnership eliminates this disadvantage, “This type of partnership structure protects individual partners from ‘personal liability for negligent acts of other partners or employees not under their direct control,’ states the SBA. In addition, individual partners are not responsible for company debts or other obligations” (Par. 1). Just as this structure can be advantageous in limiting liability, it can also be a disadvantage as it can limit business decisions for one partner over another. An attorney should be part of the agreement process in outlining control of business decisions and operations.
Moving toward a more complex business structure, the general corporation involves more than just an agreement between partners. The whole process can be considered a disadvantage by some entrepreneurs. It usually means having an attorney to draw up legal papers. A good business plan that shows knowledge and understanding of the...

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