Legal Forms of Business - Essay Example

Legal Forms of Business Institution:Legal Forms of BusinessLegal forms of business entail a wide array of options from which one can decide on the most suitable one to adopt depending on capital, risk factor, continuity and operations flexibility. Sole proprietorship is ideal in a scenario where only one person is involved in business ownership. This is often the case when considering small business where personal liability for business debts is not a significant worry owing to the simplicity and inexpensiveness of running the business entity.

An example of a scenario where sole proprietorship would be ideal is a small service business which is unlikely to borrow a lot of money or get sued. In addition, where a single person can raise entire capital required to start a business in which he/she is the central service provider and wants full control. A partnership would be appropriate if the business’ ownership lies with a family or if capital contribution is done by more than one person (Ennico, 2010). Partnerships are typical in instances where the entity’s business line is not risky enough to warrant a more complex model.

Limited liability partnerships are recommendable for small businesses that start off with one person or company as the owner but the need to expand by soliciting investments from other persons or companies. These new entrants are referred to as limited partners as their liabilities are limited to the business entity since they have no control of business operations. In such a scenario, the business’ daily operations are run by a general partner who is, therefore, liable for business debt unless the general partner is a company.

Limited liability companies, on the other hand, are suitable for persons wishing to set up a business entity where owners’ liability for business debts and court judgements made against the company. This business form is appropriate for persons or companies that require a separate legal and tax entity from the owners, hence owners file their personal taxes from salaries and bonuses earned by the company (Mitchell, 2009). This is the most suitable form in instances where owners have massive assets that they wish to protect from business creditors, or the business conducted by the company is risky to warrant constant law suits from customers.

S corporations would be suitable in instances where shareholders or owners would like to receive salaries that are considered “reasonable” by law. S corporations can also be set up when owners wish to make additional funds because funds retained by the entity after paying its employees and shareholders are not subjected to employment taxes. Franchises would be a splendid idea for investors wishing to set up a firm, but do not wish to go through all the processes involved in establishing a business.

Franchises entail using the brand name and trademarks of already established companies to conduct business. This option allows business owners to venture into successful businesses that are highly marketable. Corporate form is a viable option where owners wish that the business survives the death of any of them. In addition, corporate form will allow the company to accumulate large capital portions from outside sources such as shareholders. In this case, shareholders are only liable for the stocks they own hence loss is limited to the investment already made.

The death or insanity of one shareholder is not enough to render the business entity dissolved (Crawford, 2004). ReferencesCrawford, T. (2004). Business and legal forms for illustrators. New York: Allworth Press. Ennico, C. R. (2010). Forms for small business entities. Michigan: WEST. Mitchell, P. (2009). Choosing the right legal form of business: The complete guide to becoming a sole proprietor, partnership,  LLC, or Corporation. Florida: Atlantic Publishing Group Inc.