Legal Framework

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Introduction

Business Structurecan be defined as the institute framework legally acknowledged in a particular field for conducting commercial activities such as corporation, partnership, Limited Liability Company and sole proprietorship. Each business structure has its merits and demerits in terms of liability protection, ease of set up, periodic reporting requirements, taxation, complexity, cost and operating complexity. The kind of business structure that am going to choose in this case will depend mainly on the delicate balancing of challenging considerations. The best structure for home based businesses such as making and selling of crafts is sole proprietorship. However the business in the question will belong to two people meaning sole proprietorship is not applicable. The only business structure which is applicable in this craft business is general partnership because it involves more than two people and am starting the business with my brother. While choosing this kind of partnership I have acknowledged the fact that for any general partnership form of business to succeed there must be the considerations on the professional competence of all partners. My brother and I have the kind of skills required because we have done some studies on crafting and marketing. I also believe that there might be personal differences between us as partners and I think it will be necessary for us to iron these differences.

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Main body (discussion)

I settled on a general partnership as the main business structure of our craft business because we are two and the general partnership must be made up of two or more people. I prefer this business structure because it doesn't fall under much statute law since a certificate of registration is the only main document required. This means that our business has relative freedom from the government control and special taxations which are experienced by corporations. For example our craft business will not require registration because it will be home-based. Again, it will be selling through the internet thus relieving us of the tax burden. Again in most cases you will find that no formalities are required when forming this kind of partnership. For example you will fid that no partnership agreement is specifically required unless the partners agree to do so. In my case my brother and I view this as a partnership of friends whereby we can take time, discuss and agree on everything (financial contributions and contribution s relating to the work of the business such as labor and other efforts) without signing or putting down a written contract.

I prefer the general partnership kind of business structure for our craft business because there will be no formal agreement and therefore we will consider each other as equal partners. It therefore transpires that we will both have equal interests. It also means that we are both equally entitled to the operation and management. This also includes equal shares of profits and losses (Leanne 1). Owing to the fact that we are brothers I agree with this kind of structure because we know each other explicitly and it is therefore simple for us to handle nay difficulties or disputes without much complications because we are not following any written agreements. I think the general partnership kind of business structure is good for our craft business because as partners we can easily agree to plough back our profits so as to increase the income of the business or we can as well agree to use our business as collateral whereby we will get huge loans to expand the business. As partners, I think it will be easier to make business decisions because we are working together collaboratively. I also think that as the only partners in a general partnership, we will get direct rewards for our efforts. Presence of many partners in a partnership tend to bring about lower gains especially where the business is small or is not doing well resulting to lower profits for individual partners.

From another perspective, a general partnership suits our craft business because incase the government recognizes our existence it will not be taxed since it is categorized as a "pass through" entity. In such a case, it's us as the business partners who will be taxed. This will make the filling of tax return forms relatively easy and again there will be no need for us to fill separate returns for the partnership and for ourselves (owners). This business structure also offers flexibility. For example in our business we will be free to tackle the responsibilities available depending on our abilities and as the needs of the business dictate. This is unlike other business structures whereby responsibilities are allocated without considerations of what each partner has specialized in. The flexibility of this business structure is also depicted in the distribution of profits and losses. This is because as partners we hold the idea that an individual partner who has had higher contribution, taken a financial risk or has been very active has to be rewarded with higher profits. This is unlike corporations whereby dividends are always distributed relatively to the stock held by each stock holder (Business Law Group, 2006).

Conclusion

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As a home-based business, general partnership business structure emerges as the best business structure for us. Additionally, the chances that we are going to be taxed are minimal albeit partnerships are not taxed. I also recommend this business structure for our business because the legal requirements for its formation are few or even none in some countries unlike corporation where there are many requirements to be fulfilled before its formation. This business structure is the best for our business because we can settle disputes and make decisions very easily owing to the convenience of number (2 partners). Its flexibility further complements this advantage. For example it is easy for us to handle responsibilities according to our capabilities or as it is dictated by the business needs and again the mechanism of rewards will depend on our agreement.

References

  • Business Law Group. (2006). Canadian Business Law. Edmonton: Emond Montgomery Publication.
  • Phillips Leanne. (2002). New business basics: 5 important tips for establishing a partnership. Retrieved from http://www.essortment.com/career/newbusinessbas_sfxs.htm