For each business, discuss the business entity that represents the best choice for each business; taking control, taxation, and liability issues into consideration. Also, identify laws and regulations each business must consider in starting the business, and identify risks against which each business must protect itself. For the Construction scenario, discuss all of the above elements; plus, also identify and discuss the employment laws and regulations with which the Construction entity must comply in making a decision.
Lou and Jose plan to open a sports bar and restaurant where customers socialize and watch sporting events on large-screen TVs that hang around the bar. They do not have much money, but they do have Miriam, a wealthy investor who does not have time to participate in the business, but wants to provide capital to start the business in return for a percentage ownership.
A sole proprietorship also known as a sole trader or simply proprietorship is a type of business entity, which is owned and run by one individual and where there is no legal distinction between the owner and the business. All profits and all losses accrue to the owner (subject to taxation). All assets of the business are owned by the proprietor, all debts of the business are their debts, and they must pay them from their personal resources. This means that the owner has unlimited liability. It is a “sole” proprietorship in the sense that the owner has no partners (partnership).
A sole proprietor may do business with a trade name other than his or her legal name. This also allows the proprietor to open a business account with banking institutions.
The main advantages of a sole proprietorship are that they are easy to start up, they are subject to fewer regulations relative to other types of businesses, the owner has full autonomy with regard to business decisions, and they are easy to discontinue. Another advantage is that one takes all the profits of the business. This is the main reason that most businesses are of this type.
A sole proprietorship is not a corporation; it does not pay corporate taxes, but rather the person who organized the business pays self-employment taxes on the profits made, making tax filing much simpler. A sole proprietorship also does not have to be concerned with double taxation, as a corporate entity would. A sole proprietor usually has a quick decision process and does not have any opposition when making a decision as he or she has total control of his or her business.
All profits and losses accrue to the owner. The owner does not have the tension regarding conflicts among the partners, as there are no partners. In addition, it is easy to set up, with having little paperwork to fill in and little money spent on setting up, this is one of the easiest types of business to start.
A business organized as a sole trader will likely have a hard time raising capital since it has to make up for all the business’s funds. The owner of the business has unlimited liability as he/her is responsible for the business’s debts because she/se has control over the business.
A disadvantage of a sole proprietorship is that as a business becomes successful, the risks accompanying the business tend to grow. To minimize those risks, a sole proprietor has the option of forming a corporation, or, more recently in America, a limited liability company (Wikimedia Foundation, Inc. 15 May 2010).
Akiva and Tara have just completed all educational and experiential requirements to be licensed as obstetricians. They want to open a birth clinic together. They will take out a large loan to finance start-up costs.
The federal government of the United States does not have specific statutory law governing the establishment of partnerships. Instead, each of the fifty states as well as the District of Columbia has its own statutes and common law that govern partnerships. These states largely follow general common law principles of partnerships whether a general partnership, a limited partnership or a limited liability partnership.
In the absence of applicable federal law, the National Conference of Commissioners on Uniform State Laws has issued non-binding models laws (called uniform act) in which to encourage the adoption of uniformity of partnership law into the states by their respective legislatures. This includes the Uniform Partnership Act and the Uniform Limited Partnership Act.
Although the federal government does not have specific statutory law for establishing partnerships, it has an extensive and hyper detailed statutory scheme for the taxation of partnerships in the Internal Revenue Code. The IRC is Title 26 of the United States Code wherein Subchapter K of Chapter 1 creates tax consequences of such great scale and scope that it effectively serves as a federal statutory scheme for governing partnerships (Wikimedia Foundation, Inc. 11 May 2010).
Mei-Lin is the hiring manager for Surebuild, Inc., a new construction company. She has advertised a position as a jackhammer operator. The position’s description states that the successful applicant must have a high school diploma. The following people applied for the position. Michelle, 35, who appears to be pregnant, is a high school graduate, and was formerly employed as a jackhammer operator.
Eric, 55, who is experienced with a jackhammer, but has no high school diploma, Felipe, who is 38, speaks no English, has no high school diploma, but is experienced with a jackhammer. In addition, Nick, 23, a college graduate who is epileptic, and has no experience with a jackhammer.
Mei-Lin as the manager has to look out for the company and hire the best person that is qualified for the job description. Michelle is the only one that has a high school diploma and knows how to operate a jackhammer but the only downfall is she is pregnant.
Mei-Lin does not know how far long Michelle is in her pregnancy so Mei-Lin does not know how long Michelle would be working for the company and have a leave of absence. As for Eric, Mei-Lin does not know how long Eric’s experience of operating a jackhammer and the reason why Eric did not get his high school diploma. The company is counting on Mei-Lin to make the right decision of hiring the right person for the job.
In this paper, I had to figure out which business entity works for the Restaurant/Bar Business and Professional Business. I think I did pretty well of doing the research of answering which business entity works for those. In the Construction Scenario, a manager had to decide whom to hire for the company and has all the qualifications for the job description.
Wikimedia Foundation, Inc. (15 May 2010). Sole proprietorship. Retrieved on May 17, 2010 from http://en.wikipedia.org/wiki/Sole_trader
Wikimedia Foundation, Inc. (11 May 2010). Partnership. Retrieved on May 17, 2010 from http://en.wikipedia.org/wiki/Partnership
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