Business Arrangements & Global Business Law - Coursework Example

Business Arrangements & Global Business Law Task The successful business that Barbara, Helen and Maureen are running falls under the partnership type of organization. It is successful business of making and selling celebration cakes and luxury desserts. This can referred as an ordinary partnership business as it is between three individuals having equal share in expense and profit. The Partnership Act 2002 has made legal for few companies to have more partners who enjoy limited liability. But in this case since the business does not have formal written documentation it cannot be given the status of a limited liability company. But now as they have received a big contract and thinking of employing a couple of people to complete the order they need to abide by the global business law pertaining to partnership and employment. It is highly necessary that a legitimate business operates within the framework of the law (Jones, 2011). Like that of a partnership firm Barbara, Helen and Maureen share their workload and have cumulative skills of three of them to complete the everyday tasks. All three of them are working together in tandem to run their business. Their hard work and partnership have built their business to success and bring it to a successful enterprise level. If they continue to run the business in the current model there are several advantages and disadvantages they are going to sow. The main advantage is that there would be more than one headcount to take care of the work. Since there are more than one the cost of running would get equally divided and more capital would be available. The income split will make the tax liability less for each of the partners. The business affairs would be private and there would be limited regulations from the external sources (MacIntyre, 2007). It would be easy to change the legal structures with the changing circumstances. Along with the advantages there are disadvantages as well if they run it in the current model of operation. The liability of debts for each partner might become unlimited. Since there is no written document of the partnership past two years there might be chance of friction between the partners. If Barbara, Helen and Maureen have a written document with all the valid points of their partnership it would be easy for them to avoid any kind of confusion in the future, which might lead to conflict in partnership. As they are going to expand their business and employee two people it is advised to have everything in written. Task 2 When Barbara, Helen and Maureen are planning to make their business a limited liability company or LLC it is necessary for them to know about various types of LLCs (GCSE Business Studies, 2004). Knowing about these would help them understand their business better and make them aware their type of business. Below are various types of LLCs: . Sole Proprietorship: In this type only one person owns and operates the business who is personally liable for any debts, business transactions and taxes. . General Partnership: In this type of business there is more than one partner involved. In this type of partnership all the co-owners are involved the debts, business transactions and taxes incurred by the business1. Case In Point: In the famous case of Patricia Ostolaza and José Diaz vs. Countrywide Home Loans, Inc., which was represented by Anthony Falcone took over all their mortgages about their new home, which Ostolaza-Diaz had a partnership. While taking over it was promised that the new payment would be much lower than that of the original repayment. When Ostolaza-Diaz filed a suit the trial dismissed it and the appellate court had upheld the dismissal on the ground that the duo was given an opportunity to read the document clearly but they had not done the same. . Limited Partnership: This type of partnership is more or less similar to that of general partnership but in this partnership one partner should have the full liability of the business structure and another would be accountable for limited amount of liabilities. . Family Limited Partnership: This type of partnership reflects the structure of limited partnership but the difference is that the partners are all family members. Mostly it is seen that when a family starts a partnership business they form it as a general or limited partnership firm2. Case In Point: In the famous case of Estate of Rector v. Commissioner, the limited partnership that Mrs. Rector formed in December 1998 was learned by her son John. She had another son named Frederick. In March 199 according to the clause of the agreement $8.8 million of cash and marketable securities were transferred to the limited partnership through revocable trust and rest 2% as general partnership. According to the partnership agreement the absolute management and control of the business affairs would be with the general partners. After the death of Mrs. Rector the situation was not like that and her sons were to filed a suite in the court of law and Judge Laro gave the judgment that limited partnership was formed to facilitate the transfer of the property to her sons and grandchildren primarily as a testamentary substitute, with the aim of lowering the value of her gross estate by applying discounts for lack of control and lack of marketability. As far as the business of Barbara, Helen and Maureen is concerned their business displays the model of General Partnership. The reason of classifying their business in this category is simple. In their business there are three partners who have equal responsibility about the workload. All three of them share the debt, business transactions and taxes equally (Business Case Studies). All three of the partners have equal liability and rights to make business decisions that are suitable for the business to be successful. They are not family members in the partnership hence it cannot be called as family Limited Partnership and none of them has limited liability on the business. Their business is also not a Sole Proprietorship as all three of them have equal share in the capital for investment. Only thing that they do not have is a properly written documentation of their business and partnership. It is always recommended to have a proper written document, which would be a partnership agreement and always be clear about the terms and conditions of the agreement before signing. All the partners need to be agreed upon the terms of the partnership so that any future confusion or disagreement can be avoided. It is important to be kept in mind that it would be the state of defaulting law if there is no properly written partnership document is available. Task 3 When Barbara, Helen and Maureen are planning to have their own company registered under the law they are trying to find out every possible option. They have come across another option other than their own company, which is off the shelf company. Before taking any decision they should clearly understand both the models of organization. The main difference between own tailor made company and off the shelf company is that the former one is the one that they can create out of their own idea and creativity whereas the later one is a readymade company that they can buy from someone else who has put it up sale. One advantage that off the shelf company has is that the company has already been registered by an accountant or a lawyer. However, this is one disadvantage for their own company, which they need to get registered on their own. If they want to set up a company quickly then buying an off the shelf company is a good option (Complete Formations). One advantage that the own company has is that they can create set up the company on their own whether it is the decoration or the number of employees that they want to employ. But in case of an off the shelf company they need to buy a company as it is – whether they like the decoration or the building or not it is up to them. For an off the shelf company they need to be sure about the reputation and business in the market, which is a tedious, time consuming and expensive job. But for the own company they need not to carry out this particular step since they are starting the company from the scratch. Only one advantage that they can fetch by buying an off the shelf company is its previous existence (van Schalkwyk, 2010). Once they buy an off the shelf company all the liabilities of the company including their current and future debt will get transferred to them automatically. There are chances that the company had some hidden liabilities in the past that might crop up in the future. If they want to start a tailor made company of their own they would know everything from the scratch; however, one disadvantage of this is they have to start from the scratch in setting up their organization. When they buy a limited liability company it is just the change of owners and shareholders, it will not anyway affect the existence of the business or the history of the company. But in case of their own company they would be in process of creating history. Task 4 Managing a business itself is an art – whether you are managing a small business or a limited liability company. If Barbara, Helen and Maureen are planning to convert their business into an LLC it is surely not possible to maintain their business like the way they are managing it now. They need to do something extra than what they are doing now as an LLC is the combination of attributes of both corporation and partnership. Running an LLC is more difficult compared to that of creating a sole proprietorship or a simple partnership business. Below are the few things that you need to keep in mind while running an LLC business (Meier, 2005). . It is very much necessary to keep a difference between your personal affairs with that of the business affairs. First thing that you can do here is to create separate bank accounts for your business and personal use. . It is always advised to document any meetings that you are holding in an LLC. It also includes the operating agreement. There could be many meetings that might be small and not required by the law to document it (Legal Zoom). But it is ideal to have a document for future reference. . It needs to keep in mind that effective management of transferring LLC ownership interest is highly important. Since there are only three members it might not be a difficult task but ensure that it is done in systematic manner. It is by law necessary to get the consent of other members when you are transferring membership interest. . It is important to process LLC tax forms and licenses on time. This keeps your business legal and gets the same into the good books of the government. This would help you avoid any kind of penalties and fines and help you running the business in legal fashion. . The owners of an LLC are protected from any personal liability by law. That means if there is anything due by the LLC to the supplier, lender or a landlord; the creditor cannot simply claim the personal car, house or any other belongings of any owner of the LLC. . Though the owners of an LLC enjoy the benefits of limited personal liabilities there are certain exceptions that they must follow. Those exceptions are 1. None of the members can hurt or injure someone personally or directly 2. They are not liable to personally guarantees a bank loan, which later comes under the default of the LLC 3. If there are employees the owners of the LLC should miss depositing the tax out of the wages of the employees 4. There is no room for the LLC owners to commit intentional fraudulent, illegal or clearly wrong activities 5. The owners are not liable to think the LLC as an extention of their personal affairs rather than a separate legal entity. Task 5 The research for advising the trio about their business and its management conducted was not a very tough task, though it was not very easy as well. It took a lot of research, which was not easy but the availability of materials over various sources made the task easy. To understand the type of business the trio is running and the laws that they need to abide by two books Introduction to Business Law and Essentials of Business Law helped a lot. These two books gave the perfect picture of business laws and their implications. While looking out for the types of business organisations the report of GCSE Business Studies presentation of 2004 named Types of Business Organisation provided lot of insight along with the online portal of Business Case Study. The book Introduction to Business Law by Lucy Jones helped formulating the laws that they need to abide by while forming a limited liability company of their own. The online article Types of Limited Liabilities Companies by Misty S. Bledsoe in Small Business by Demand Media website has helped in giving insight on various types of limited liability companies along with their advantages and disadvantages. The online portal named Complete Formations helped in formulating the aspects of the off the shelf company and articulating the difference between the tailor made and off the shelf company. This has been a great resource as it has all the information you would require to formulate the necessary and important aspect to make someone understand the pros and cons of both the types of businesses. The simple yet effective way of explaining every point made it a choice for writing the aspects of this particular task. An article named LLC Business Basics featured in Bplans was a great resource to advise the trio about what they need to keep in mind while creating an LLC. This view was supported by Managing an LLC section in LegalZoom’s LLCs Education Center. References Jones, L. (2011). Introduction to Business Law. Oxford University Press: London. MacIntyre, E. (2007). Essentials of Business Law, 2nd ed., Pearson Longman: London. GCSE Business Studies Revised Presentation, 2004. Accessed at: http://tutor2u.net/business/gcse/presentations/sample_pdf_orgtypes.pdf Business Case Studies, Type of Business Organizations. Accessed at: http://businesscasestudies.co.uk/business-theory/strategy/types-of-business-organisations.html#axzz38vlkR4o2 Complete Formations. Disadvantages of Ready Made Companies. Accessed at: http://www.completeformations.co.uk/companyfaqs/ready_made_companies/disadvantages.html van Schalkwyk, M. (2010). Advantages & Disadvantages of buying a Shelf CC. Online Article. Accessed at: http://closecorporationregistration.blogspot.in/2010/06/advantages-disadvantages-of-buying.html Meier, D. (2005). LLC Basics. Entrepreneur. Online Article. Accessed at : http://www.entrepreneur.com/article/77966 Legal Zoom LLCs Education Center. Managing an LLC. Accessed at: http://www.legalzoom.com/llc-guide/manage-llc.html Read More