Business Operations - Essay Example

Business operations Introduction Businesses can expand and originate from various entity types. Limited or general partnerships, corporation, sole proprietorship, nonprofit organizations, Limited Liability Company (LLC), and Limited Liability Partnership (LLP) may be a few examples of the styles available for business shareholders and owners to choose from in order to carry out their business operations. Each and every style may have its own gains and setbacks as regards taxation, liability and government regulations and laws. In a bid to answer your question, I might have to make use of two different business examples which comprise of different operation styles and guidelines. The two businesses include a bar business and professional practice and may be detailed on the basis of basic requirements necessary for successful business formation. I would also be keen at outlining the entity choice for each of these businesses as a way of providing advantages over the other. A detailed explanation of how each of the two scenarios controls the taxation, liability and business issues would also be in order. To add on that, the regulations, laws and potential risks that may be involved in every business style may be identified. Bar business The best business entity choice for Miriam, Lou and Jose in their business operation could be forming a Limited Partnership. Jose and Lou would then perform the role of general partners hence manage the operations of the business on a daily basis. Miriam on the other hand, may act as a partner limited on a limited liability basis thus, invest her capital in this venture, and still maintain her legal rights in the engagement of business management in the way she might desire. An amendment done in 2001 that led to the Revised Uniform Limited Partnership Act (RULPA) gives an allowance to limited partners to engage in the limited partnership management without having to lose their shield as limited partners. (Cheeseman, 2010). In this entity type, general partners may suffer the personal unlimited liabilities burdens, although Miriam may only be liable up until her contribution of capital for the potential obligations and debts of the business. A business’ potential partners might be liable in the satisfaction of the demands of creditors in case the business partnership ends up insolvent, and every partner may be responsible for the losses or profits from their individual returns on tax. Laws, Regulations and Risk The Uniform Limited Partnership Act deduces the main provisions necessary for the operation, dissolution and even formation of the limited partnerships if all the partners attain individual principle business. These three partners must be able to complete an agreement on the limited partnership, which has the ability to establish the terms or conditions that regard profit and loss allocation, termination, voting rights, partnership dissolution and operations. If a signed agreement between limited and general partners does not exist, then its business certificate would serve the purpose of a sole agreement (Cheeseman, 2010). Companies based on limited liabilities should ensure that proper business tax and operations records are maintained. Failure to which may prompt the court to charge an individual against liability for their actions instead of the whole corporation. This may include the corporate debt liability. All courts have started applying the otherwise traditional corporate piercing of veil on LLCs in order to ensure members’ personal liability as a way of claiming LLC’s debts. Miriam, the liability partner, would be charged by the court with corporate veil piercing in case there might be proof that she largely interfered with the profits and operations of the business. Corporate veil piercing may be defined as a doctrine which further states that in case there might be any domination of a shareholder to the corporation he is in and improperly uses it for other purposes, there might be a disregard of the corporate entity by an equity court and the shareholder may be held liable for the corporation’s debts. This liability partnership may also be said to be governed on the basis of discrimination laws and employment just like the other types of businesses. The owners should strictly follow laws stipulated which aim at employee right protection and follow equity statutes from the federal government and the state. Owners must also ensure adequate individual protection from lawsuits which come as a result of purchasing insurance tort acts (Vanderkerckhove, 2007). Professional Practice Tara and Akiva plan to form a maternity clinic although they need extremely humongous loans in order to finance their business. This business may therefore be referred to as a medical professionals’ partnership which would then permit these two owners to create a Limited Liability Partnership (LLP). An LLP might be said to be extremely beneficial to both partners since each of them may only be liable for obligations or debts in accordance with the ration of capital contribution within the partnership. In this type of partnership, the partners may not be liable for any debts accrued by the business in case it fails. Due to this reason, several states may limit the formation of this type of business to people who are professional e.g. lawyers and doctors. The laws of state in which these business types carry out their operations may be said to control its procedures of operation hence many states may demand businesses operating as LLPs in order to have a one million dollar insurance liability which covers wrongful acts, misconduct and negligence from employees or partners of the business. The requirement of insurance may be said to be a move to protect negatively affected members of the third party, although it also aids in the protection of the owners thus enabling them continue with their business practices. Taxation and Risk Just like most businesses that operate on a partnership basis, Limited Liability Partnerships may benefit from taxation on flow-through, meaning that all the losses and profits may be noted on every partner’s tax form. However, it is crucial to note that an LLP may be expected to file the government’s information returns thus losses and income may be said to be easily traceable to the partners. Risks in this business type may include capital investment loss to both of the partners in case the business fails to flourish. Each of the two partners would be liable for the losses only including their investment, although each one of two may suffer payment of loans taken to fund the business at the start. Every personal investor suffers losses to contribution of capital in case a lawsuit is filed; if one partner becomes negligent, he would be considered responsible for capital contribution amounts (Cheeseman, 2010). Liability Laws and Regulations Tara and Akiva may be said to be entering into an extremely high-risk business type hence must be prepared ready for the issues regarding liability. Lawsuits concerning malpractice are often inevitable in this business type. The owners may be required to carry insurance on malpractice in order to be protected from lawsuits based on professional malpractice. Professionals including architects, lawyers, accountants and doctors have a stern ordinary care duty while carrying out their practices and may be held accountable for any injuries accrued as a result of their negligence called professional malpractice. This business type may require a maintenance and obtainment of proper clinic licensing equipment lawfully required from both partners in order to attain necessary certifications and training. Laws may also require doctor/patient privacy and confidentiality issues which must be legally adhered to by the partners. After a keen observation of these two business types it might enable one to conclude that the unlimited personal liability may favor an individual operating on a company contract more than the individual operating on a partnership contract. Partnerships require a tedious formality in order to start and run. It is advisable that an individual learns to avoid unlimited personal liability on contracts at all costs. A shareholder’s liability in a limited company may be said to be limited since the company is always said to be a separate entity from the shareholders. In case the company is sued for any business related misconduct, then the owners may not be liable in any way. A shareholder in this form of business cannot be accountable for the company’s debts, although he may be accountable for the company’s investment value. This is because he may be considered the direct contributor to the company’s capital base. This often happens in form zero individual dividends as a result of the company’s lack of profit for allocation. Limited liability may be said to be promoted in order to encourage entrepreneurship from several economists. This kind of shareholder protection might perhaps be considered the main advantage as regards incorporation. The only liability of the members may be from the unpaid amount on shares. Since many of the private companies often allocate shares on the basis of fully paid dividends, in case things happen to go wrong, the only loss to the member would be share value and company loans. Individual private may be put at any risk. This protection may not be applicable on fraud. The directors of any company may not incur any arising liabilities that may be fully taken care of by the company. In case the creditors happen to lose their money through fraud from the directors, there will be no limit to directors’ liability. It might be extremely tasking to pierce the veil of LLC since they might not possess several formalities as in order to maintain them compared to a partnership. As long as its members do not make a mistake of commingling funds, it might not be easy to be veil pierced. In some circumstances, LLCs may incur personal liability when member distributions may render insolvency to the LLC. Shareholders in this set up often enjoy the protection from all or some liability for debts and acts of the company depending on laws of state shield. Conclusion Business owners must research exhaustively and weigh the different business types, involved risks, potential ability, regulations and laws and taxation issues before they plunge themselves into a business world. Both scenarios analyzed in this paper may be said to have involved different business structure types. Government laws may require the operations, dissolution and development of every business entity type hence it may be the duty of the entity’s operators of control to make sure regulations and laws have been fully met. Failure to do so may create loopholes for government persecution, lawsuits and even closure. References "BUILDING PARTNERSHIPS and Strategic Alliances. Business Partnerships: Do What You Can Do Best and Partner For the Rest." Ten3 BUSINESS E-COACH. Web. 17 Mar. 2012. . Business Entities, Laws, and Regulations. Anti Essays. Retrieved March 17, 2012, from the World Wide Web: http://www.antiessays.com/free-essays/81199.html Cheeseman, Henry R., 2010. Business Law: Legal Environment, Online Commerce, Business Ethics, and International Issues. Upper Saddle River, NJ: Pearson Prentice Hall. Johansen, Erika. "Limited Partnership Rules." EHow. Demand Media, 02 Jan. 2011. Web. 17 Mar. 2012. . "Limited Liability Company (LLC)." Internal Revenue Service. Web. 17 Mar. 2012. . Vanderkerckhove, Karen., 2007. Piercing the Corporate Veil. Alphen Aan Den Rijn, the Netherlands: Kluwer Law International. Read More