The paper "Understanding Business Laws and Ethics" is a great example of an assignment on business. According to Batman (2007), technological advancement resulted in the proliferation of numerous business ideas whose inception leads to sustainability and raises the living standards of the plan initiators. Today, entrepreneurs need to indulge in a lot of mutual decision making to reach viable conclusions when not only deciding on the type of business but also the exact business structure to establish. This paper is divided into two major sections. The first section identifies and discusses the type of business structure that Mary and Jack, who developed a technologically equipped classroom chair for keeping students attentive, would choose to incorporate their friends Will and Ken so as to reach their objectives.
The second part provides legal advice to the four members due to different problems experienced as they began the business. Type of Business Structure According to ABG (2016), the type of business structure chosen by an entrepreneur is probably the most critical idea that can propel the entire business towards achieving its desired success. The type of business structure chosen ill not only affect the amount of taxes paid but also impact the number of paperwork and the number of workers employed.
The business structure also affects the ability of an entrepreneur to raise capital, and the liability faced when starting up the new venture. The most common types of business structures include partnership, corporation, sole proprietorship, an S corporation Hillman and Loewenstein (2015) add that limited liability partnership (LLP) and the limited liability company (LLC) have evolved over time into the most common forms of business structures.
Nevertheless, companies may be either private or public in nature. In this case, Mary and Jack have to make wise choices because each business structure poses different consequences regarding cash and capital required to start. The chosen structure should. Therefore, best match the needs of Jack, Mary, Will, and Ken. The situational analysis reveals that Jack and Mary’ s business will be operated and owned by four individuals. Jack and Mary are the initiators of the business idea and aim to invest it to ensure that they achieve their long-term goals and objectives.
Despite having inadequate capital, their goal is to begin their business on a small scale and evolve into a universal business organization providing seats for school and university classrooms. The partnership would be the best business structure in this case. It is, however, essential to comprehend that business partnerships exist in two different forms. These types include limited and general partnerships (ABG, 2016). Members of a general partnership assume the responsibility and alternative obligations incurred in the debts of the partnership but manage the business collaboratively. According to Hillman and Loewenstein (2015), a limited partnership has both limited and general partners.
As usual general partners operate and own the enterprise while assuming business liability for their partnership. However, limited partners will be part of the business venture but operate only as investors. Such partners lack control and management over the business entity. Additionally, limited partnership subjects such members to similar liabilities as those undergone by their general counterparts. A limited partnership is usually ineffective in the case of a new business venture due to the rising demands of the required administrative challenges and filings.
They may only function efficiently in case the partnership expects to have numerous passive investors (Edwards & Edwards, 2012). In case the business has more than two members who are willing to be active partners, a general partnership would be the best option. Jack and Mary’ s idea of being a start-up, will be imperative to incorporate both Will as an active partner. However, Ken’ s intention is to invest heavily in the business. Hence, he will not only serve as an investor but also as a limited partner.
Jack, Mary should, therefore, choose a limited partnership as the best business structure to incorporate Ken and Will in the firm. Tax treatment is one critical advantage enjoyed by a partnership. This form of corporate structure does not pay tax on its income by transferring through all types of outcomes in the form of either losses or profits to its individual partners (ABG, 2016). Partnerships achieve this advantage by filing a tax return Form 1065. This type plays an essential role by reporting the income and loss of the partnership to the IRS. Moreover, all members of the partnership must report their loss and income share on Schedule K-1 of Form 1065.
Using general partnership when structuring a business faces individual liability as to the primary challenge. General partners just as sole proprietors are individually liable for the debts and obligations of the firm. Every member of the general partner can act on behalf of the partnership. They do so by taking loans and making viable decisions that affect all the other partners. Lastly, partnerships need more accounting and legal service making them expensive when compared to other forms of a business structure such as sole proprietorships. Legal Advice on Each of the Problem Incurred Question A In this case, Jack violated the laws and regulations governing the ownership, operation, and decision-making process in a joint business venture.
Despite the law barring Ken from managing the organization due to his limitation as to the investor, he will also incur the entire business liabilities just as his colleagues. Despite the advantages associated with running a partnership, there are a plethora of demerits that affect the running of this form of business structure.
One major issue that partners need to understand is that an individual decision affects all members of the business entity. According to Edwards and Edwards (2012), essential to engage in active consultation before making a vital decision. Jack should understand that it is against the business and partnership law to make decisions without consulting the rest of the group. Additionally, it is unethical to buy cheap goods that do not suit the demands and needs of the consumers as well as the other partners.
Studies reveal that cheap goods tend to pose the challenges of quality and may not last for the expected period. Question B Due to the susceptible consequences resulting from the use of poor sensors purchased by Jack, it is evident that students will succumb to severe challenges. These sensors could cause serious health consequences to the university and school students who are to act as the consumers by using the technologically improved seats. The primary outcome expected, in this case, was the malfunctioning of the chairs. Burns realized by the students were inescapable.
Sensors have a high probability of containing harmful carcinogenic products such as X-rays, beta, and Gama rays. These products may result in complications of the spinal cord due to poor sensitivity and impair the brain of the users (Batman, 2007). Also, they may cause malfunctioning of essential body parts and result in chronic non-communicable diseases such as cancer. In this case, the student’ s decision to sue the partnership is viable. However, the four partners have a duty to play in ensuring the business continues to exist and operate.
They, therefore, have to take a synergistic step in ensuring that they protect the image of their partnership and at the same time protect the students. The partnership, through its secretary, should draft an official letter not only to the school and the university but also to the police as the two main authorities responsible for taking a step in suing them for having violated consumer rights. All consumers have a right to get access to quality goods that are free from any health effects (Batman, 2007). The later should outline all the mistakes committed and seek an apology from the responsible groups promising to take care of the affected students and limit further complications. Question C The best way to incorporate Ken in the business is by shifting the business from a limited partnership to a general one.
General partners are all liable to the business and take part in the management of the day to day activities. Changing to a general partnership will be a major strategy of opening up the partnership for future growth by incorporating Ken in the management. Changing to a general partnership will allow Ken to access the partnership accounts and records and give him a say overrunning of the firm. Alternatively, the Victorian Partnership can shift from being a partnership to a public company where all members have equal access to the organizational records.
However, the three members have to engage in mutual decision making and come with one strategy that they may use to approach Ken, who is the principal investor in the business. Primarily, they have to convince the incumbent to assist them to address the current issue for having caused serious injuries to the students and barring the police to oversee the survival of the current business idea. Conclusion Understanding business laws and ethics is an imperative step to put into consideration when starting a business.
Laws govern the way business organizations function in a given environment and ensure that they protect all stakeholders in the business. Laws establish a favorable business environment and prevent junior business partners such as the consumers who cannot advocate for their rights from unnecessary exploitation. This paper has identified the best business structure that Jack, Mary, and Will can adopt to ensure that they achieve their aim of setting up a small business venture and growing into a large organization.
Additionally, the paper provided a piece of detailed advice that the partnership can take to address the current issues they are facing.
Australian Business Government (2016). Start Your Business. Retrieved on May 10th 2016 from: https://www.business.gov.au/info/plan-and-start/start-your-business
Batman, J. L. (2007). Advising the small business: forms and advice for the legal practitioner. Chicago, American Bar Association, General Practice, Solo & Small Firm Division.
Edwards, L. L., & Edwards, J. S. (2012). Guide to factual investigations. Albany, NY, West/Thomson Learning.
Hillman, R. W., & Loewenstein, M. J. (2015). Research handbook on partnerships, LLCs and alternative forms of business organizations. http://search.ebscohost.com/login.aspx?direct=true&scope=site&db=nlebk&db=nlabk&AN=1057206.