BBA 3210 Final Exam

Kubasek et al. (2016) describe a sole proprietorship as “a business in which one person (sole proprietor) is in control of the management and profits” (p. 440). The one person in sole control of the management and profits is known as the sole proprietor. Advantages of a sole proprietorship include 1) the ease of start up as there are very few legal formalities, 2) a sole proprietor will have complete control over the management of the business meaning that he or she will make all decisions regarding the hiring of employees, business hours, and the very nature of the business itself. Finally, 3) the sole proprietor will keep all of the profits of a business, which are taxed as personal income (Kubasek, Browne, Herron, Dhooge, & Barkacs, 2016).

A partnership is simply a voluntary association created between two or more individuals who will co-own a business for profit. There are several types of partnerships that exist, including: general partnerships, limited partnerships, and limited liability partnerships (Kubasek, Browne, Herron, Dhooge, & Barkacs, 2016). “A general partnership consists of an agreement that the partners will divide the profits (usually equally) and management responsibilities and share unlimited personal liability for the partnership’s debts” (Kubasek, Browne, Herron, Dhooge, & Barkacs, 2016, p. 445). A limited partnership consists of an agreement between at least one general partner and one limited partner. The general partner(s) assume unlimited liability for the debts of the partnership while the limited partner(s) assume no responsibility beyond the capital in which they have invested and furthermore, have no part in the management of the company. Finally, a limited liability partnership establishes that all partners will assume liability for any other partner’s malpractice to the extent of the partnerships assets. Meaning, a limited liability partnership differs from other forms as the partner’s liability for professional malpractice is limited solely to the partnership, therefore if one partner within the LLP is guilty of malpractice, the other partner’s personal assets are not at stake (Kubasek, Browne, Herron, Dhooge, & Barkacs, 2016).

Partnerships offer advantages in that they are simple to establish, generally not even required a written agreement. Additionally, due to the fact that partnerships are in most cases not considered a separate legal entity, the income from the partnership is taxed as individual income for each partner, allowing for the partners to deduct business losses (Kubasek, Browne, Herron, Dhooge, & Barkacs, 2016).

Reference:

Kubasek, N., Browne, M. N., Herron, D. J., Dhooge, L. J., & Barkacs, L. (2016). Dynamic business law: The

essentials (3rd ed.). New York, NY: McGraw-Hill Education.

A corporation is defined as “a legal entity formed by issuing stock to investors, who are the owners of the corporation” (Kubasek, Browne, Herron, Dhooge, & Barkacs, 2016, p. 446). The investors who are issued stock, are known as shareholders. The corporation is considered to be perhaps the most dominant form of business and is managed by a board of directors that has been appointed by the shareholders. This board of directors in turn then hires officers to run the day-to-day business of the corporation. Unlike most other forms of business, the corporation is considered a separate legal entity and therefore can be sued (Kubasek, Browne, Herron, Dhooge, & Barkacs, 2016).

On the other hand, a limited liability company (LLC) is “an unincorporated business that is taxed like a partnership, with the members paying personal income taxes, and has the limited liability of a corporation” (Kubasek, Browne, Herron, Dhooge, & Barkacs, 2016, p. 447). Essentially, an LLC combines the tax advantages of a partnership with the limited liability of a corporation. Unlike a corporation however, an LLC does not require profits and losses to be allocated in proportion to ownership interests. Additionally, unlike that of a corporation, an LLC is not held to the standard of conducting an annual meeting where minutes are kept, making record keeping much more flexible and simplified. These separate entities were likely created to provide specific advantages within each business type. Within a corporation, the shareholders cannot be held personally liable for the debts of the corporation. In addition to that, if a shareholder dies, the corporation remains and is not dissolved. LLC’s on the other hand were likely created in the face of changing times and business requirements, offering various tax advantages and advantages within creation. The IRS typically treats an LLC like a partnership or proprietorship and members are able to report the profits and losses on their personal income taxes, with no separate tax being assessed on the company itself. Additionally, as the global environment expanded and continues to do so, the LLC offers the ability for non-citizens and non-permanent residents to be part of the formation of the LLC (Kubasek, Browne, Herron, Dhooge, & Barkacs, 2016).

Reference:

Kubasek, N., Browne, M. N., Herron, D. J., Dhooge, L. J., & Barkacs, L. (2016). Dynamic business law: The

essentials (3rd ed.). New York, NY: McGraw-Hill Education.