Legal Forms of Business Paper - Essay Example

Sole Proprietorship A sole proprietorship is a kind of business structure wherein a business is to be carried by an individual or a married individual alone. If Miguel chooses this type of business structure he will find it is easy to operate, enjoy the profits and have the benefit of the flexibility of management. A sole proprietorship has fewer legal controls but at the same time has an unlimited personal liability (Reed, n. d.). Example: Miguel launches food services. The name of the company is Miguel’s Food Services.

The name comes from the name of its sole owner, Miguel Garcia. Miguel invested $50,000 from his own funds and borrowed $100,000 from the bank for the business. Let us assume that the business failed after several months of operation, and he still owes the bank the amount of $50,000. As a sole owner, he is liable to pay the bank the whole amount from his personal assets. Miguel will find it difficult to attract investors under this set up. Because he is new in this kind of business, there is also the possibility of the flaw of management, as he does not possess the necessary skills needed in the business.

Partnership A partnership is a kind of arrangement wherein two or more persons (not a married couple) agree to contribute money, labor, and skill to a business (Reed, n. d). Example: Let us suppose that Miguel accepts Peter as a general partner, each of them shares in the management of the business, shares in the profit and losses of the company and both of them are equally liable for the debt of the company. Each party must agree to the participation of its partner, and the partners can do it orally, in a written form or implied, and no formalities are required.

It should be a good practice to have a written agreement to avoid future disputes (Cheeseman2010). Thus, Miguel, and Peter as business partners should write articles of partnership that spell out their terms of agreement in management, profit, or loss. Their Food Service does not pay federal income taxes. Instead each partner should pay his or her income tax separately. This way, the government can trace if they declare their income and losses properly. General partners have the right to share in the management and also to share in the profits.

Under the rule, no partner is allowed to receive a compensation for his performance in the business unless otherwise agreed upon. However, a partner is allowed reimbursement for business travel expenses and expenses incurred for the business. Limited Partnership Another possibility for Miguel is to consider the limited partnership wherein he can be a general partner and accept partners on a limited basis. As a general partner he manages the business and shares fully in its profits and losses.

The limited partners share the profits of the organization but their losses are limited only to their shares in the company (Reed, n. d.) Let us take this example. The company is registered as Best Food Services, Ltd. The word Ltd. signifies that partners have limited participation in the company. Miguel, Peter, and James are partners. Miguel is the general partner; Peter and James are limited partners.