Legal, Social, and Economic Environments of Business
Robert L. Spradley
American Intercontinental University Online
This paper is based on a business scenario. In this scenario an inventor, named Robert, who enjoys working around his home, cleaning, cooking, and doing minor home repairs has an idea for a new kind of home appliance that would meet the daily needs of many consumers. Wanting to start a business, he does some research on three legal forms of ownership for a small business. He describes the advantages and disadvantages when compared to the issues involved in starting a business and each other. Finally he elaborates on the choice that he made and why.
They also assume complete responsibility for any of its liability or debts. In the eye of the law and the public, you are one in the same with business.
Some of the advantages of a sole proprietorship are as follows:
(1) Easiest and least expensive form of ownership to organize
(2) Sole proprietors are in complete control, and within the parameters of the law, may make
decisions as they see fit.
(3) Sole proprietors receive all income generated by the business to keep or reinvest
(4) Profits from the business flow-through directly to the owner’s personal tax return
(5) The business is easy to dissolve, if desired.
Some disadvantages of a Sole Proprietorship are as follows:
(1) Sole proprietors have unlimited liability and are legally responsible for all debts against the
business. Their business and personal assets are at risk.
(2) May be at a disadvantage in raising funds and are often limited to using funds from personal
savings or consumer loans.
(3) May have a hard time attracting high-caliber employees, or those that are motivated by the
opportunity to own a part of the business.
(4) Some employee benefits, such as owner’s medical insurance premiums, are not directly
deductible from business income (only partially deductible as an adjustment to income).
The second form of ownership for small business is called a Partnership. In a partnership, two or more people share ownership of a single business. Like proprietorships, the law does not distinguish between the business and its owners. The partners should have a legal agreement that sets forth how decisions will be made, profits will be shared, disputes will be resolved, how future partners will be admitted to the partnership, how partners can be bought out, or what steps will be taken to dissolve the partnership when needed.
Some advantages of a partnership are as follows:
(1) Partnerships are relatively easy to establish; however time should be invested in developing
the partnership agreement.
(2) With more than one owner, the ability to raise funds may be increased.
(3) The profits from the business flow directly through to the partner’s personal tax returns.
(4) Prospective employees may be attracted to the business if given the incentive to become a
Some disadvantages of a partnership are as follows:
(1) Partners are jointly and individually liable for the actions of the other partner.
(2) Profits must be shared with others.
(3) Since decisions are shared, disagreements can occur.
There are three types of partnerships. The first one is a General partnership, where partners divide responsibility for management and liability, as well as the shares of profit or...