Write a 3-page briefing of potential factors and issues associated with four types of business entities in the context of U.S. contract law.
Introduction
One of the most common ways in which business managers are involved with business law is in relation to contracts. Organizations of almost any size will most likely need to create, negotiate, review, approve, adhere to, and resolve conflicts associated with contracts. A business determines its legal standing by determining what type of legal entity it should be identified as. The type of legal entity can significantly impact:
How lawsuits can be brought.
How contracts are handled.
How the courts interpret contract.
How the organization enters into contracts.
How the income from the organization’s contracts is taxed.
How liability for breach of contract is assigned.
How the business is sold.
Preparations
For this assessment, assume that you work as a manager in a relatively small, privately-owned U.S. business. The company president (who is also the owner) inherited the company from his mother and has never started a business. He is considering creating a spin-off business (possibly with one or two associates) but is unsure about what form of business entity would be best to use for the new business. It is expected that contracts will play a major role in the success of the business as it utilizes numerous suppliers and distributors. The president knows you took a university-level business law class and has asked you to write a paper analyzing the four most common business entities in the context of contracts to help him decide which type of organization to choose for the new operation.
Research each of the following forms of business entities:
Sole proprietorship.
General partnership.
Corporation.
Limited liability company (LLC).
Instructions
Write a 3-page executive briefing of potential factors and issues associated with four types of business entities in the context of U.S. contract law.
Analyze the following for each type of business entity.
Step 1: Explain creation, negotiation, and approval of contracts for the most common types of business entities.
Analyze the pros and cons of each entity in this context.
For each type of business form, indicate who or what in the legal structure of the business has the authority to perform these functions: create, negotiate, and approve contracts.
Explain the advantages and disadvantages inherent in each of the four business forms with regard to contract creation, negotiation, and approval of contracts.
Step 2: Explain contract liability for the most common types of business entities.
Analyze the pros and cons of each entity in this context.
For each of the four business types, who or what has liability associated with the contract? If the business breaches a contract and is found liable for damages, who in the business might bear personal liability, and what are the consequences for that individual? What liability might the business itself bear, if any?
Explain the advantages and disadvantages inherent in each of the four business forms with regard to contract liability.
Step 3: Explain how the income of each type of business entity is taxed, specifying whether the entity, the owner, or both, are taxed.
Analyze the advantages and disadvantages of each entity in this context.
What are the income tax implications for each type of business? How is the income of the business and its owners taxed?
Analyze the advantages and disadvantages inherent in each of the four business forms with regard to taxation of income.
Step 4: Explain the effects of the type of business entity on the ability to contract for the sale of the business.
Can the business be sold, in whole and/or in part?
How is ownership of the business transferred in terms of what is sold?
Explain the advantages and disadvantages inherent in each of the four business forms with regard to selling the business.
Additional Requirements
Based on your executive audience, your executive briefing should be no more than three pages, in addition to a References page, and should be well organized and written in clear, succinct language. Follow APA rules for attributing sources that support your analysis and conclusions.
Your submission should meet the following requirements:
Written communication: Write in complete sentences free from errors that detract from the overall message.
Font and font size: Arial, 12 point.
Format and length: Double-spaced, 2-3 pages.
Citations: Include complete citations of your sources along with a References page. Review Evidence and APA for more information on how to cite your sources.
Review the assessment scoring guide for details on how your assessment will be graded.
Competencies Measured
By successfully completing this assessment, you will demonstrate your proficiency in the course competencies through the following assessment scoring guide criteria:
Competency 3: Evaluate legal options to create a business entity.
Explain creation, negotiation, and approval of contracts for the most common types of business entities.
Explain contract liability for the most common types of business entities.
Explain how the income of each type of business entity is taxed, specifying whether the entity, the owner, or both, are taxed.
Explain the effects of the type of business entity on the ability to contract for the sale of the business.
Competency 5: Convey purpose, in an appropriate tone and style, incorporating supporting evidence and adhering to organizational, professional, and scholarly writing standards.
Convey purpose, in an appropriate tone and style, incorporating supporting evidence and adhering to organizational, professional, and scholarly writing standards.
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Introduction
Business entities are a crucial aspect of contract law as they determine the legal standing of the organization and how contracts are handled. In this executive briefing, we will analyze the four most common types of business entities in the context of U.S. contract law: sole proprietorship, general partnership, corporation, and limited liability company (LLC). We will examine the creation, negotiation, and approval of contracts, contract liability, taxation of income, and the effects of the type of business entity on the ability to contract for the sale of the business.
Step 1: Creation, negotiation, and approval of contracts
Sole Proprietorship: In a sole proprietorship, the owner has complete control over the business and can create, negotiate, and approve contracts. The advantage of this structure is the ease of decision-making and flexibility. However, the owner also bears complete responsibility for any debts or legal actions.
General Partnership: In a general partnership, all partners have the authority to create, negotiate, and approve contracts. The advantage of this structure is the shared decision-making and potential for multiple perspectives. However, all partners also bear joint and several liability for any debts or legal actions.
Corporation: In a corporation, the Board of Directors has the authority to create, negotiate, and approve contracts. The advantage of this structure is the separation of personal liability and the ability to raise capital through the sale of stocks. However, the decision-making process may be more complex and there may be additional compliance and reporting requirements.
Limited Liability Company (LLC): In an LLC, the members or managers have the authority to create, negotiate, and approve contracts. The advantage of this structure is the combination of personal liability protection and flexibility in management and ownership structure. However, there may be additional compliance and reporting requirements.
Step 2: Contract liability
Sole Proprietorship: In a sole proprietorship, the owner bears complete responsibility for any debts or legal actions. This means that the owner’s personal assets are at risk in the event of a breach of contract.
General Partnership: In a general partnership, all partners bear joint and several liability for any debts or legal actions. This means that personal assets of all partners are at risk in the event of a breach of contract.
Corporation: In a corporation, shareholders are not personally liable for the debts or legal actions of the corporation. This means that personal assets of shareholders are protected in the event of a breach of contract.
Limited Liability Company (LLC): In an LLC, the members are not personally liable for the debts or legal actions of the LLC. This means that personal assets of members are protected in the event of a breach of contract.
Step 3: Taxation of income
Sole Proprietorship: In a sole proprietorship, the business income is reported on the owner’s personal tax return and is subject to self-employment tax. The advantage of this structure is the simplicity of tax filing. However, the owner bears the full burden of taxes on the business income.
General Partnership: In a general partnership, the business income is reported on the personal tax returns of the partners and is subject to self-employment tax. The advantage of this structure is the simplicity of tax filing. However, the partners bear the full burden of taxes on the business income.
Corporation: In a corporation, the business income is subject to corporate income tax and any dividends paid to shareholders are subject to personal income tax. The advantage of this structure is the potential for tax savings through double taxation. However, the compliance and reporting requirements may be more complex.
Limited Liability Company (LLC): In an
