- June 25, 2020
BUSINESS STRUCTURE 5
Businessesare guided by the prevailing legal regimes, on registration andoperational framework.Official and regulatory regimes have significantly influenced thenature of business incorporation taking place in the current setting.Investors and business owners have to thoroughly examine these issuesto conform to their business objectives and the environment. In fact,most businesses fail to realize their objectives because disagreementon the legal and regulatory frameworks. Itis essential that the firm(s) stick to the legal and regulatoryaspects through which they were established.Depending on the prevailing environment, business owners are supposedto examine risks and benefits of either general partnership orlimited liability company option. In choosing the right businessstructure, it is important to assess the pros and cons associatedwith each of the options.
Ina general partnership, each partner is supposed to contributesignificant amount of money, labor, and property. The partners sharethe benefits or losses depending on the allocation of ownership.Moreover, they bear the principal liability. When the business hasdebts and other liabilities, it is the associates who take personalcharge of clearing the burdens. As such, the partners are not coveredfully by the law, which implies that one can easily auction theirpersonal items to recover the money. Further, each investor is liablefor the actions committed by the other partners. Another major issueabout general partnerships is that management issues could arise.Researcherspoint out that most partnerships do not realize the intendedobjectives due to the existence of many variables that influenceperformance. Itis thus, vital for the owners to know the worth of the company orthe outlook of the future cash flows to determine their monetaryworth and the ability to run the company’s operations (Martin,2011).
Moreover,the LimitedLiability Company(LLC) is a business structure that has legal framework that givesrestricted liabilities to the owners. It is known to generate morebenefits than the general partnership. Various jurisdictions havedifferent legal regimes that administrate the operations of anorganization. Operating as an LLC has several benefits. One of theadvantages is that LLCs have tax flexibility since the ownersdetermine the amount of money they want taxed. As such, the memberscan use the intended figures for tax purposes without getting intoproblems with authorities. Another benefit is that the entrepreneursare insulated from liabilities such as debts and acts incurred by acompany. Depending on the legal framework, the owners are not liablein cases of debts or unwarranted actions. In the event of a legalcase, it is the company that is sued and not the members (Martin,2011).
Further,LLC has less administrative paperwork and record keeping. The benefitis advantageous to the members as it allows them to concentrate onimportant issues affecting the firm. Decision-making process is alsoeasy as the members vote depending on their share strength. It isalso true that management of LLC is easier hence, making it easierto realize benefits and objectives. InLLC, it is easier to harmonize the resources and assets within theorganizations to the expectations of the members. Further, issuessuch as organizational culture and behavior are addressed where themembers assess the resources and competencies to retain orre-organize. The functionalunits are aligned alongside the strategic plans and intended goals.It is also easier to share information, knowledge and resources toenhance the success of the intended objectives(Reuting, 2014).
Beinggoverned as a legal entity, LLC can enter into partnerships withother firms. The approach is used to help in meeting the intendedobjectives while at the same time reduce the financial, regulatory,and legal implications that are likely to emerge in the process ofrestructuring. It is, thus, easier to harmonize operations, retainclients and sustain the diverse interests. LLC’s can easily engagein mergers to improve market base, buy patents, acquire brands, andlicenses, among others. Nonetheless,there are jurisdictions that do not give LLC the statutory provisions(Mancuso, 2013).In such instances, an LLC may it difficult to raise capital asinvestors opt for better-understood firms.The members will be required to account for their profits when filingthe returns. At times, LLCs do not have specific roles hence bringingconfusion in administration of activities. In such instances, theowners are unaware of the specific people in charge. In some cases,LLC can have limited life in case a member ceases to exist.
Inconclusion, operating a LLC does not expose the partners hence abetter option compared to the general partnership. LLC benefits areclear with the owners having the option to engage managers andemployees to drive the firm’s agenda. General partnership has morerisks with high legal exposure to the owners while LLC has betterflexibility and protection for the investors. It also brings variedtax options and removes personal liabilities from the members. Ibelieve that operating my business as an LLC is appropriate for myproposed business.
Mancuso,A. (2013). Yourlimited liability company : An operating manual.Berkeley, California: Nolo.
Martin,A. R. (2011). Limitedliability company & partnership answer book.Austin : Wolters Kluwer Law & Business.
Reuting,J. (2014). LimitedLiability Companies For Dummies.Hoboken: Wiley.