Partnership & relationship
Partnership is defined as “the relation between persons carrying on a business in common with a view of profit”. It should be noted that this is a definition of the relationship that exists between the individual persons who are trading as partners rather than a definition of the apparent entity called a “partnership”. A partnership is not a body corporate because it lack legal personality and does not exist as a as a legal entity. It cannot therefore, carry on a business.
However, the persons who have entered into partnership with one another are called collectively a firm, and the name under which their business is carried on is called the firm name. The debts of the firm are the debts of the individuals who are carrying on the business since: “every partner in a firm is liable jointly with the other partners for all debts and obligations of the firm incurred while he is a partner. ” The death of any partner in a firm results in dissolution of the firm unless the partnership agreement, if any, provides otherwise. A partnership is legally non-existent, a partnership cannot own property.
In effect, the partnership property is the joint property of the partners
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A limited liability company trades, owns property and does all other things under its name while for the limited partnership this is not the case. An agency relationship arises where one or more parties called the principal contracts/hires another called an agent to perform on his behalf some services and then delegates decision making authority to that hired party (Agent). In the field of finance shareholders are the owners of the firm. This in essence removes control from the owners to the management. Agency costs are incurred by the shareholders in order to monitor the activities of their agent.
The agency costs include negotiation fees, legal costs of drawing the contracts fees, costs of setting the performance standard and monitoring Costs This is incurred to prevent undesirable managerial actions. They are meant to ensure that both parties live to the spirit of agency contract. They ensure that management utilizes the financial resources of the shareholders without undue transfer to themselves. When we want to have absolute control over all things then the sole proprietorship is the only option open to us. On the other hand the finances for expansion may be limited due to the owner’s inability to raise more funds.
We cannot expand in the near future if the capital requirements for expansion are not met. A legal entity must pay taxes in the state that it undertakes its business activity. This implies that the companies formed will pay taxes as distinct entities while for partnerships together with the sole proprietorships it is the owners who shall pay the taxes. The locations that we choose to put our business will be affected by the state laws which must be complied to enable our firm to be legally compliant. Profits will be shared between the owners of the firm and therefore the higher the number, the lower the profit share.
Corporation financial statements must be prepared in accordance with the laid down regulation which is not negotiable. The entities that are not legal persons have an obligation only to comply with the laid down guidelines about product safety and such things but it is not mandatory that they prepare the accounts in a specified format. Therefore additional requirements or extra workload are placed upon certain organization to comply with all reporting, meetings, and other regulatory guidelines depending on its legal status. Conclusion The various types of business ownership allow the owner to have planning options available to him/her.
It enables the owner to plan how the assets of the business should be held not necessarily solely in the name of the owner. In a sole proprietorship or partnership, if an owner dies all the assets may dispose and the business will not be a going concern anymore. Therefore the sole proprietor may not be able to bring his offspring into the business and thereby formally establishing continuity in the business. The problem as given should be evaluated on various fronts. We should consider the ability of the family members to raise additional finance and their technical know-how in running the business.
If they are well capable and they can take care of any eventuality then there is no problem to include them to run and manage the business. We should also evaluate the gains from incorporation of formation of a partnership taking into consideration any new ideas that may arise due to new ownership structure. With the information given I would recommend that the business should be incorporated as a limited liability company and some capable members of his/her family be shareholders with the current owner being the major shareholder.
This will eliminate the concern about liabilities due to any happening in the company and also ensure that the business survives him with control being in his/her hands and latter the family. The owner should evaluate the profitability of the business to gauge its capability to expand and compete effectively with the other upcoming businesses. This will ensure that even as we look for a partner we do not do it and it affects us in a negative manner which is possible if we don’t have due diligence. After we have taken all into consideration we should go for what fits into our strategic plans to the future.
Our mission vision and objectives must be very clear. REFERENCES Sullivan, Arthur; Sheffrin M Steven (2003). Economics Principles in action. Upper Saddle River, New Jersey: Pearson Prentice Hall. Om Prakash, (1998). European Commercial Enterprise in Pre-Colonial India :Cambridge University Press, John William Cadman, (1949). The Corporation in New Jersey: Business and Politics Dignam, A and Lowry, J (2006) Company Law, Oxford University Press ISBN-13: 978-0-19-928936-3*Ernst Freund, The Legal Nature of the Corporation, (1897) Low, Albert, (2008). “Conflict and Creativity at Work: Human Roots of Corporate Life, Sussex Academic Press