Business Construction Scenario Business Entities Vary From Essay

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Business Construction Scenario

Business entities vary from countries to countries since the formation of a business is controlled by the various legal systems instituted in those countries. There are many types of business entities, and this is where we find the likes of sole-proprietorship, partnership, cooperatives, corporations and limited liability Company among others (Waddell, 2008). A business may be categorized in any of these entities just by the composition of its members.

Business Scenario

From the business scenario, where Jose and Lou wants to open a sports bar and restaurant, but they don't have enough capital to start up the business; therefore, they need to partner with Miriam who will be able to finance them but will be playing minimal role in its management. This situation will lead them to forming a partnership type of business entity with her.

Through partnership, all their mutual interest will be covered; Jose and Lou will have the capital they need to start the business through Miriam contribution. While engaging into partnership, both parties are expected to formulate an agreement among them while will stipulate clearly how they are to run the business, the amount of profit each should get according to how much they contribute and their role in the business, their responsibilities into the business, how the achievement of the business is to be evaluated, and lastly, the agreement is to state clearly what is to take place in case the partners decides to dissolve the business. The agreement is normally prepared to suit the specific business it is meant for (Ostrowski, 2010).

In partnership entity, the partners share all the losses and the gains got from the business. Both partners will have control over the business, but Jose and Lou will be the ones running the businesses and they will be paid for their contribution of running the business apart from the profits or the losses they would have made (Waddell, 2008).

Since in this type of business entity, one of the shareholders who run the business is paid some stated sum of money, in addition to the profit distribution, and then the business is entitled to pay to the IRS the taxes which are to be paid for the amount salary given.

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In most cases, the shareholder managing the business will opt to go for more of the profit distribution and less of the salary allocated to him/her in order to reduce the amount of tax levied on the salary. On top of the tax paid for the salary given to the shareholder managing the business, the business also has to pay taxes levied on the type of business including the various licenses for operations.

Laws and regulations

This type of business entity is allowed to transfer ownership to another individual or transfer some of the shares, but in the situation where a significant amount of shares has been transferred to another person, then the law requires that a new partnership should be formed, immediately after termination of the previous agreement (Waddell, 2008).

Risks present in this type of business

One of the risks is that, in case of losses or debts, the business owners are legally liable to pay all the debts which would have accrued in the process. Also, when one partner runs the business, he/she assumes a potential portion of the risk (Ostrowski, 2010).

Business scenario 2

In this scenario, Frank, a wealthy businessman wants to open a chain of extermination business. Since he has the capital to start the business, then it is appropriate for Frank to start a new business as a sole propriator. In a sole proprietorship, the business is run by the single owner and there is no legal boundary between the business owner and the business. At this level, the owner is to receive all the profits and he will be required to pay the entire taxes specific to the extermination business (Waddell, 2008).

When a business is owned solely, it becomes an unlimited liability where in instances where the owner has debts, then he is supposed to pay himself since him and business are termed as one.

Laws and regulations

In a sole proprietorship, the law states that the partner….....

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