MEMO: BUSINESS ENTITY CHOICE 7
Memo:Business Entity Choice
To:ClientFrom:Name & Associates Law FirmJuly 4, 2014
RE:CHOICEOF BUSINESS ENTITY
Inresponse to your request on the type of business entity in relationto your full service restaurant and bar, we recommend you review thefollowing entities
Asole proprietorship business is a business formed by one person, whois the sole owner and controller. The sole owner bears fullresponsibility of the business and bears all the risks as well as therewards. The advantage with this type of business is that you willhave full control of the business and you will be the sole decisionmaker. In addition, you will enjoy all the benefits and profits thataccrue with your business expansion. However, the main disadvantagewith this business ownership is that your liability will not belimited but unlimited. According to Pride et al (2011), unlimitedliability means that you will be fully responsible for businessliabilities and debts. This means that your personal assets an estatecan be used to pay for business liabilities. Moreover, you will beforced to work a lot, but you can allow your wife to assist you.
Thisis a type of business ownership that involves more than one person. Apartnership business is a business entity that is formed and run bymany people who have individual stakes in the organization. Thepartners in the business make a written agreement called apartnership deed. The partnership deed details the particulars of theagreement, such as capital contributions, the ratio of profitdivision, salaries to partners and procedures of admitting newpartners or dissolving the business. The advantage with a partnershipis the there are many people involved, thereby dividing work, lossesand liabilities of the business. However, the main disadvantage isthat the liability of this business is unlimited in regard to thepartners. This means that partners risk losing their personal assetsand estates to cover for business liabilities.
Thisis a business entity that operates like a general partnership, buthas some partners with limited liability. This means that personalassets and estate of these limited partners are not liable to paybusiness liabilities beyond the original capital contribution orcurrent capital in the partnership business. On the other hand,general partners have unlimited liabilities in the business.
Alimited partnership is a business entity that is formed by more thanone person and operates just like a limited partnership. However, theliabilities of all the partners are limited by the capitalcontribution by each one of them this means that the only asset orequity that is liable for business liabilities is the capitalinterests of a partner in the business. The advantage with thisbusiness is that the liability of the partners will be limited andthat there is sharing of work and business responsibilities. However,decision making is long due to the consultation and capitalcontribution is limited by the financial ability of the partners.
Alimited liability company or simply a limited company is a businessentity formed by two or more people, but less than fifty and fullyregistered under the companies act. Under this business model, thelimited company is a separate entity from the owners. To form acompany, the owners must establish a memorandum of association andmemorandum of understanding and sign them as directors. The mainadvantage of the limited companies is that they enjoy separate legalprivileges and can therefore enter into contracts, own property, sellproperties and pay tax. However, the limitation with companies isthat they require longer legal processes and guidelines to form andrun. For instance, adhere to companies’ tax regulations andcompliance to corporate guidelines like to publish financialstatements for public companies.
Acorporation is a large public organization that is incorporateddirectly through the passing of laws and legislation or through aregistration process of the law. A corporation is mostly formed bymany owners called shareholders and enjoys separate legal rightsdistinct from the stakeholders. The types of corporations includepubliccorporations, private corporations, publicly held corporations, closecorporations, sub-chapter S corporations, professional corporationsand non-stock corporations (Pride et al, 2011). Corporationsare mostly owned by the public and their shares are traded on thepublic stock exchanges. The advantage with corporations is that theircapital bases are large because of many owners. However, their legalprocedures and decision making processes are long. This businessmodel is not appropriate for you since you are starting a smallfamily-based business and the capital are limited to your family’sfinancial ability.
Inyour case, you can establish a limited liability company with you andthe wife as directors of your new business. This is because thecompany only requires a minimum of two people to form and run asdirectors. In forming your company, you will have to find theservices of a lawyer, which we provide here to assist you with thelegal processes involved. In addition, you will provide theobjectives that your business will be tasked with as well as yourbusiness model. The following are the reasons for recommending you toestablish a private limited liability company.
Reasonsfor the Recordation
Asa private limited company, your company will have a separate legalrecognition and will exist as a separate entity from you and yourfamily. According to Pride et al (2011), a limited company is a legalperson with most of legal privileges as a normal citizen. This willmake your business easier to enter into contracts, as well as managebusiness operations.
Additionally,there will be continued existence in the business as a company evenwhen you are not there. According to Pride et al (2011), there is apossibility of perpetual succession of a business in the case forlimited liability private companies. This means that after you retireor you face the unfortunate eventuality of death, there will havecontinuity of the business from the successors of your business.
Moreover,the liability of the company is limited to the investment and equityin the business. This advantage will protect your personal assetsthat you own away from the new business. According to Pride et al(2011), the limitation of the liabilities of a private company allowsthe owners to manage the business without worrying about theeventuality of losing their personal wealth from unfortunate businessdealings. This will be a good clause to protect your family and yourfamily’s estate since you are establishing the business with yourwife.
Fromthe description presented to you, I am hopeful that you haveunderstood the different types of business entities. These are allgood business ventures, but there can only be the most favorite asper your current situation. According to our assessment, we affirmthat you form a private limited company. This is because a limitedcompany is the most appropriate business entity that suits yourcurrent circumstances of a family-based business. In addition, thecompany will be the continuous business entity that can allow otherfamily members to participate as shareholders or employee. Therefore,a private limited liability company is what we recommend.
Pride,W., Hughes, R., & Kapoor,J. (2011). Business.New York: CengageLearning