Question

Martin, Barry, and Sims each have $4,000 to contribute toward an office supply business that they would like to start up. They are aware that there will be stiff competition in the business district where they will be opening. The three of them want to begin the business with as little hassle as possible and with minimal overhead costs. On the other hand, they do not want to do so in a way that subjects them to unnecessary taxes or makes them more liable than they have to be for potential lawsuits based on torts or contracts. Please prepare a PowerPoint presentation discussing what the advantages and disadvantages would be to organize as a: 1) partnership, 2) corporation, and 3) limited liability company. Make a recommendation and explain why you reached your conclusions. As to the liability issue, would it make a difference whether the potential suits were based on tort or contract issues? Explaining why you reached your conclusion is just as important as the conclusions themselves.

Answer 1

Partnership

A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Simply we can say that the partnership is the relation between the person. The person who have entered into partnership with one another are called individually , partneers. Each partners contribute money, property,labour or skills and expect to share in the profits and losses of the business.The partnership is the result of an agreement. It doesn't arise from status, operation of law or inheritance. In the partnership atleast two persons are necessary to constitute a partnership. In the partnership,the profit must equally share to all the partners. Partnership have the unlimited liabilities.

Advantages of partnership

1.Easy to form

Like sole proprietorship, partnership business can be formed easily without any compulsory legal formalities.

2. Large financial resources

Since two or more partneers join hands to start a partnership business,it may be possible to pool together more resources as compared to a sole proprietorship. The partners can contribute more capital,more efforts and more time for the business.

3.Better decision

The partners are the owners of the business,so they have equal rights in the decision making process. In the case of conflict they sit together to solve the issue. There is no scope of reckless and bad decisions.

4. Flexibility in Operations

A partnership firm is a flexible organisation. Anytime the partners can decide to make changes.

5. Sharing risks

The one of the best advantage is sharing of risk. The risks can be share to all the partners equally.

6. Protection of interest of each partners

In partnership all partners have equal rights in all the areas of decisions making. Any decision that is against the interest of a partner ,he have the right to prevent decision from being taken.

Disadvantag of partnership

1. Unlimited liabilities

The one of the major disadvantage of the partner ship firm is unlimited liabilities.

2. No independent legal status

A business partnership has no independent legal existence distinct from partners.

3. Limited access to capital

The capital is the blood of every business. So In partnership one of the demerit is difficulties to access the capital.

4. Profit must be shared

In the case of partnership, profit equally shared to all partners. If one partner shows less performance but the profit is equal to all partners.

Cooperation

Cooperative is a private business organisation that is owned and controlled by the people who use it's products/suppliers or services. The cooperative sector represent the division of economy which is owned and controlled by a group of. persons having a common motive.

Merits or advantages

1. Easy to establish

A cooperative organisation can be formed very easily.

2.Open membership

Any individual having a common interest can become a member of a cooperative organisation. He/she can join or leave the organisation at his/her own will.

3. Autonomous control

It is an autonomous body and the members can elect a representative by casting their votes.

4.Limited liabilities

A cooperative organisation ,the members have limited liability. It is the major advantage of it.

Demerits

1. Limited capital

The capital raised by the cooperative society is limited to an extent because its members mostly belong to a specific section of the society.

2.Ineffective management

These organisations doesn't operate properly due to their ineffective management abilities

3.Lack of motivation

The main purpose of all cooperative societies is to provide services to its members instead of the earning profits.

4. Lack of cooperation

Lack cooperation among the members is the one of the drawback .The personal difference like selfishness, egoism etc make lack of cooperation.

Limited companies

A limited company is general form incorporation that limits the amount of liability under taken by the company shareholders. A limited company completely separate entity from its owners.

Advantages

1. Tax efficient

The limited companies are more tax efficient compared to a sole trader.

2. Limited liability

In the limited companies, limited liability to business owner.

3. Seperate entity

A limited company is a separate entity from its owners.

Professional status

A limited company have a professional status in it's operations.

Disadvantages

1. Complecated to set up

Set up process of a limited company,and it's registeration is very difficult and complicated.

2. Complex accounts

The accounts and other financial details are very complex and difficult to manage, because lots of financial accounts are handled by limited companies.

To start any business that is either partnership firm, cooperation or limited company must understand the legal formalities and other details especially unlimited or limited liabilities.