Why Limited Liability Company Is Preferred to a General Partnership - Essay Example

Name Professor University affiliation Subject Date Table of Contents Table of Contents ii 1.0 Reasons why Limited Liability Company is preferred to a general partnership 1 1.1 Formation 1 1.2 Separate legal entity 1 1.3 Liability 1 1.4 Tax flexibility and advantages 2 1.5 Business Management 2 1.6 simplicity in record and documentation 3 1.7 Risk exposure 3 1.8 Perpetual Lifespan 3 1.9 Business credibility 3 1.10 Sources of capital 4 1.12 Combination of attributes 4 1.13 Decision-making 4 1.14 Sharing profits 5 1.15 Ownership of assets 5 2.0 Avoiding expensive claims; complying with Equality Act 2010 5 2.1 The protected characteristics 6 2.1.1 Age 7 2.1.2 Disability 7 2.1.3 Marriage and Civil Partnership (section 8) 7 2.1.4 Race (section 10) 7 2.1.5 Public sector equality duty (section 149) 8 2.1.6 Harassment 8 2.1.7 Employment 8 2.1.8 Contractual terms 8 2.1.9 Section 19; Indirect Discrimination 9 2.1.10 Section 20: Duty to make adjustments. 9 References list 10 1.0 Reasons why Limited Liability Company is preferred to a general partnership 1.1 Formation Formation and ownership of these two businesses have different requirements. A general partnership needs at least two partners and a partnership deed or agreement to form to commence business. Conversely, Limited Liability Company can be formed even by one person who will be responsible for the whole company (Allen, 2012, 521). This feature makes a limited liability company more preferable since it cuts down on the cost incurred in all the legal procedures during formation. Also, a limited liability company can include other forms of businesses such as corporations, another limited liability company or even a partnership. So instead of focusing on a single form of business, he can start a limited liability company that offers other alternatives in case one develops an interest in expanding the business or starting another corporation. 1.2 Separate legal entity The legal entity of any given limited liability company is a totally separate from its associates. It offers such rights and privileges to its members like; rights of an artificial person, right to own property, transact business in its name, sue and be sued, disregard a partnership with unlimited liability to partners, that is, it’s the sole responsibility of partners bearing the burden in case the partnership goes bankrupt. The partners are liable to repay all the debts (Akintoye et al, 2003, 40). 1.3 Liability Bovaird (2004, 199) states that In the case of liability, members of a limited liability company are shielded or protected from the company’s burden of liabilities. This is an added advantage having a limited liability company compared to a general partnership where the partnership’s liability lies solely on the shoulders of the partners forming the partnership. This means that the liability of members towards the business debts, liabilities, and lawsuits is unlimited. To add on this, the partners are also at risk of losing their properties in case of bankruptcy or debt, and each partner is responsible for another partner’s actions because the decisions made by one of them affects all of them consequently. However, this is not the case in Limited Liability Company as its members do not experience any such cases. Members’ liability does not go beyond the total amount of capital invested in the company, and members’ personal property is not interfered with. 1.4 Tax flexibility and advantages Lerner et al (2007, 732) argues that Limited liability companies enjoy tax flexibility regarding the way they pay their taxes. Since their internal revenue service has no separate category for them, they are taxed as the sole proprietorship. Individual members share the profits generated then later they remit the taxes; this gives the members the option to choose which form of taxation suits their business best. General partnership has high taxes to pay when making higher profits since each partner must pay tax returns on the percentage of profit he receives from the partnership, the higher the profit earnings, the higher the tax to pay. 1.5 Business Management Management issues are quite rampant in general partnerships since the whole partnership later on owns investments made by partners from their money. Conversely, in limited liability Company, managing the business is much simple because all the members are permitted to participate in the overall management of the company and decision making (Lerner et al, 2007, 731). The operating agreement gives associates the right to make a decide how to conduct the different aspects of the business. 1.6 simplicity in record and documentation Documentation and process of a limited liability company are easier. Most states do not demand an annual general meeting of shareholders, attendance and minutes for such a company because decision making of the company rests with its managing members. And also it is not compulsory to appoint the board of directors to direct the company making the need for administrative and financial bookkeeping lesser unlike in general partnership where all the above requirements are mandatory. 1.7 Risk exposure Considering the level of business risks, General partnerships are exposed to higher levels of business risks as compared to limited liability companies due to the unlimited liabilities of the partners. 1.8 Perpetual Lifespan Perpetual lifetime general refers to the going concern of a company and it’s another feature of a limited liability company that makes it better compared to a general partnership. Members of a general partnership can come to an agreement at any time to sell their shares, and when this happen, the partnership gets dissolved. Even though a buyout can keep extending the lifespan of a general partnership, it is still regarded to have a limited life, a limited liability company, on the other hand, have a perpetual life unless a date was set to dissolve it. 1.9 Business credibility A new business may gain high credibility with customers and employees when formed by a limited liability company because it gives an impression that the owner made a formal commitment to the business. It is a different case when it comes to general partnership since they act according to their interests and not that of the business. 1.10 Sources of capital For a limited liability company, it's much easier to raise capital with which to commence its operations since it has many sources from which it can raise the money. For example, a company can enlist new members by issuing ownership rights. The company can design varying classes of ownership rights with diverse returns and privileges, for instance, from voting rights to the share of profit. In a company, the investors are assured of limited liability, usually the value of investment. 1.11Transfer of ownership Ownership transfer can easily be done without interfering with the in existence operations of a limited liability entity by simply offering it for purchase to the public. The business of a general partnership, on the other hand, cannot be sold as a whole before first transferring each of its current assets, licenses and permits individually. 1.12 Combination of attributes Limited Liability Companies are mixed-breed business units that own a distinctive combination of complementary legal, tax and business characteristics that cannot be found in other single entities. They are organized properly; hence provide limited liability security advantages and operational flexibility. They also undergo taxation without any limitations applied to partnership. 1.13 Decision-making Entrepreneurs are people who prefer to chart their courses. In most cases, countries take note of a single member or owner of limited liability Company which means that it possible for one to be the sole owner of his or her business. A limited liability company with the single membership can make business decisions without having to consult with others or seek approval from partners or a board of directors like in a general partnership. 1.14 Sharing profits A business organization shares profits while considering owner’s fraction of wealth input or ownership interest. However, Partners normally share profits equally in a general partnership. A limited liability company's members, on the other hand, retain the plasticity to determine how to distribute profits according to the terms of their agreement. The company members are unlimited to their proportion of ownership (Savas, 2000, 650). But they may resolve to split up profits in a different way they agree. 1.15 Ownership of assets Savas (2000, 590) States that were owning an asset in your name, an investment property or a vehicle provides an easy target for one performing an asset scour. Before initiating a lawsuit, it’s important to perform an asset search. Litigation will follow if there are no assets in your name that may decrease the chances of placing possessions in the title of a limited liability company formation. 2.0 Avoiding expensive claims; complying with Equality Act 2010 All service providers no matter how big the size, are covered by the Equality Act 2010 but the method or way of enforcement should be appropriate to the size of the organization and its functions. The Equality Act covers people with a protected trait against discrimination when using any service provided both publicly or privately whether the service requires payment or not. Exposing the employees to the knowledge of the Equality Act and urge them to work under the rules set for them to avoid the expensive claims against the organization is the first step. It is much safer for a firm to have all its associates have a print of “The Equality Act” as well as “The Human Rights Commission Guidance” designed for their suppliers rather than being ignorant about their behavior. Unless specified otherwise, the obligation applies to the public ruling classes mentioned in Schedule 19 of the Act regarding all their functions. It also covers those who are not listed but enjoy public services, in respect of that service. Business’s policies for hiring, promotion and staff management should help one to stay within the law, attract skilled employees and make the best out of them. Businesses that employs from the vast possible skill pool do draw the best staff. Such measures like Policies that prevent harassment and discrimination, and that allow the workers to balance their work, and personal lives help the employer to retain employees and reduce costs associated with hiring new employees. One could spot new commodities by simply being alert of and understanding the various needs of the customers. Under the Act, employees are not permitted to victimize, discriminate or harass another worker since they have a ‘protected characteristic’. Employees must avoid harassment, discrimination, and victimization of the protected groups. They must make fair adjustments for incapacitated people in all of the areas where necessary. According to Section 27 of the Act, victimization arises when a client is disciplined by the employer or service provider because of displaying or executing an act that is protected. 2.1 The protected characteristics Maternity or gender assignment, sex, age, pregnancy, race, and disability are the major protected characteristics stipulated in the Act. 2.1.1 Age All ages are sheltered from illegal discrimination as stated by section 5 of ‘The Equality Act 2010’. Essentially, justification of discrimination can only be done where there is protected characteristics. Justification of unequal treatment on the grounds of age may only be done by Employers are only allowed to use age as a justification for unequal treatment if only they can prove that the disparate action is an equivalent way of attaining a genuine purpose (Lawsociety.org.uk, 2015) 2.1.2 Disability Both Section 6 and Agenda 1 of the Act uses the same definition of disability as contained in the Disability Discrimination Act of 1995. Having a mental or physical impairment, that has a permanent adverse result on their capacity to conduct daily routines, is the only ground upon which an individual can be concluded to be physically challenged. 2.1.3 Marriage and Civil Partnership (section 8) Section 8 of the Act forbids employment discrimination on the basis of civil partnership or marriage. The prohibition does not apply in the provision of good and services. 2.1.4 Race (section 10) The Act, under section 10, stipulates very specific provisions on race. Unfairness on grounds of race is illegal, so is nationality or ethnicity. More emphasis on sex, that is men and women is provide in section 11 of the Act, however, there are no changes in the substantive law. The rights of Bisexual, heterosexual, lesbian and gay people are also protected under the Act (Dipboye & Colella, 2005). 2.1.5 Public sector equality duty (section 149) Since a limited liability company is a public company, it is important to consider the need to the following as per the Act; Eradicate prejudice, victimization, harassment and other demeanor prohibited under the Act and champion better relations between the protected parties. Section 1555 and 153 directs ministers to certify that public procurement and authorities are carrying out their specific functions as stipulated in section 149. The power should be used to strengthen local government to use procurement for equality purposes. 2.1.6 Harassment In section 26, harassment is defined as any undesirable act or behavior that is hostile and offensive in nature and connected to a relevant secure characteristic, with the purpose of humiliating, degrading and violating a person’s dignity. The main classes of harassment that have been prohibited by the Act include: Harassment has been classified by the act into three; harassment associated to characteristics that are protected, unfavorable treatment of an individual on refusal to submit to sexual allures (Green, 2003, 74). 2.1.7 Employment A candidate to be offered an employment opportunity should only be questioned on health issues if the aspects that arise will help the employer decide whether the individual is suitable to undertake a role that is critical to the firm or uncovers disability which may hinder or require appropriate adjustments in the firm and help the employer to make any sensible adjustments for the candidate. 2.1.8 Contractual terms According to Section 77 “The Equity Act” decrees any given contractual word that seeks to hinder or constrain an individual from revealing vital facts concerning the terms of the contract unenforceable. Section 77 (3) defines a 'relevant pay disclosure' as a course of defining the extent to which a particular protected characteristic is linked payment or remuneration. For instance, when remuneration is related to age or gender. Consequently, any clause or phrase that seeks to prevent discussions on pay because of the existence of a protected characteristic is prohibited. However there exist no prohibition on any clause that encourages pay discussions. (Green, 2003, 74).). 2.1.9 Section 19; Indirect Discrimination When a policy relates to everybody more importantly to individuals that share characteristics that are protected, then indirect unfairness results (Green, 2003, 74). The Act defines indirect unjust as; a person (1) discriminates against another (2) if 1 applies to 2 a provision, criterion or practice that is unfair about a relevant protected characteristic of 2's. Indirect discrimination covered factors such as race, sex or age. It does not cover both maternity and pregnancy. 2.1.10 Section 20: Duty to make adjustments. The Act spreads current duties upon suppliers and employers of products from the Disability Discrimination Act 1995 allows the Section 20 to make sensible modifications for people who are disabled by merging and distributing functions and responsibility upon service providers and employers (Dipboye & Colella, 2005). The duty is classified in to three: a. In scenarios where persons who are not incapacitated are in advantageous positions compared to disable persons then, the individual must make sensible alterations to avoid the shortcoming upon the disabled person. b. In scenarios where persons who are fit are in advantageous positions compared to persons who physical features puts incapacitates the individual to a disadvantageous position, the individual must make sensible alterations to avoid the shortcoming upon the incapacitated person. c. In scenarios where an incapacitated person would perform better, but only with the provision of an auxiliary aid, then the person who is fit and in an advantageous position compared to the incapacitated person then the person should provide the aid. References list Akintoye, A., Beck, M. and Hardcastle, C. (2003). Public-private partnerships. Oxford, OX, UK: Blackwell Science, pp 40-60 Allen, R. (2012). International Handbook on Public-Private Partnerships - Edited by Graeme A. Hodge, Carsten Greve, and Anthony E. Boardman. Governance, 25(3), pp.521-523. Bovaird, T. (2004). Public–Private Partnerships: from Contested Concepts to Prevalent Practice. International Review of Administrative Sciences, 70(2), pp.199-215. Dipboye, R. and Colella, A. (2005). Discrimination at work. Mahwah, N.J.: Lawrence Erlbaum Associates, Publishers. Green, T. (2003). Discrimination in Workplace Dynamics: Toward a Structural Account of Disparate Treatment Theory. SSRN Electronic Journal, 79(3), pp74 Lawsociety.org.uk, (2015). Equality Act 2010 - The Law Society. [online] Available at: http://www.lawsociety.org.uk/support-services/advice/practice-notes/equality-act-2010/ [Accessed 26 Nov. 2015].pp. 1-5 Lerner, J., Schoar, A. And Wongsunwai, W. (2007). Smart Institutions, Foolish Choices: The Limited Partner Performance Puzzle. The Journal of Finance, 62(2), pp.731-764. Savas, E. (2000). Privatization and public-private partnerships. New York: Chatham House. pp. 124-650 Read More