Business Management - Assignment

ASSIGNMENT
(a) Discuss the nature of a Sole proprietor, a

partnership and a public listed incorporated limited
liability company (corporation) in the light of the
above statement
Sole proprietorship
A sole proprietorship, or simply proprietorship, is a type of business

entity which legally has no separate existence from its owner. Hence, the
limitations of liability enjoyed by a corporation and limited liability
partnerships do not apply to sole proprietors. All debts of the business are
debts of the owner. It is a "sole" proprietor in the sense that the owner has no
partners. A sole proprietorship essentially means a person does business
in his or her own name and there is only one owner. A sole proprietorship
is not a corporation; it does not pay corporate taxes, but rather the person
who organized the business pays personal income taxes on the profits made,
making accounting much simpler. A sole proprietorship need not worry
about double taxation like a corporate entity would have to.
Most sole proprietors will register a trade name or "Doing Business As".
This allows the proprietor to do business with a name other than his or her
legal name and also allows the proprietor to open a business account with
banking institutions.
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Advantages
An entrepreneur may opt for the sole proprietorship legal structure because
no additional work must be done to start the business. In most cases, there
are no legal formalities to forming or dissolving a business. A sole proprietor
is not separate from the individual; what the business makes, so does the
individual. At the same time, all of the individual's non-protected assets (e.g
homestead or qualified retirement accounts) are at risk. There is not
necessarily better control or business administration possible with a sole
proprietorship, only increased risks. For example, a single member, member
managed LLC still only has one owner, who can make decisions quickly
without having to consult others, but has the advantage of limited liability. In
the United States a sole proprietorship has the option of buying health care
for self-employed persons, such as a Health Savings Account.
Furthermore, in many jurisdictions, a sole proprietorship files simpler tax

returns to report its business activity. In the United States, for example, a
sole proprietorship reports its income and deductions on a Schedule C on the
individual's personal return. To the IRS, a single member LLC is treated as a
disregarded entity, and thereby, the owner of a single member LLC will still
report income and deductions on a Schedule C on their individual. In
comparison, an identical small business operating as an S Corporation or
partnership would be required to prepare and submit a separate tax return. As
with all flow-through entities, all of the profits and losses from the business
go right to the owner. A sole proprietorship often has the advantage of the
least government regulations.
Disadvantages
A business organized as a trader will likely have a hard time raising capital
since shares of the business cannot be sold, and there is a smaller sense of
legitimacy relative to a business organized as a corporation or limited
liability company. It can also sometimes be more difficult to raise bank
finance, as sole proprietorships cannot grant a floating charge which in many
jurisdictions is a sine qua non of bank financing. Hiring employees may also
be difficult. This form of business will have unlimited liability, therefore, if
the business is sued, the proprietor is personally liable. The life span of the
business is also uncertain. As soon as the owner decides not to have the
business anymore, or the owner dies, the business ceases to exist.
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In countries without universal health care, such as United States, a sole
proprietor is also responsible for his or her own health insurance, and may
find difficulty finding any if one of the family members to be covered has a
previous health issue.
Another disadvantage of a sole proprietorship is that as a business becomes

successful, the risks accompanying the business tend to grow. To minimize
those risks, a sole proprietor has the option of forming a limited liability
company, or LLC. Note that such an LLC would still be treated as a sole
proprietorship for income tax accounting purposes.
Partnership
A partnership is a type of business entity in which partners (owners)

share with each other the profits or losses of the business undertaking in
which all have invested. Partnerships are often favored over
corporations for taxation purposes, as the partnership structure does
not generally incur a tax on profits before it is distributed to the
partners (i.e. there is no dividend tax levied). However, depending on
the partnership structure and the jurisdiction in which it operates,
owners of a partnership may be exposed to greater personal liability
than they would as shareholders of a corporation
General partnership
In the commercial and legal parlance of most countries, a general
partnership or simply a partnership, refers to an association of persons or
an unincorporated company with the following major features:
• Formed by two or more persons
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• The owners are all personally liable for any legal actions and debts the
company may face
• Created by agreement, proof of existence and estoppel]
Partnership taxation
Partnership taxation is the concept of taxing a partnership business entity.
Many jurisdictions regulate partnerships and the taxation thereof differently.
Many common law jurisdictions apply a concept called "flow through

taxation" to partnerships. Partnerships are a flow-through entity where the
taxes are assessed at the entity level but which are applied to the partners of
the partnership.
For an example
Hong Kong
Partnership taxation in Hong Kong is the taxation of the profits or losses
generated by partnership business entities. First, these profits or losses of the
partnership are assessed according to the Hong Kong Inland Revenue
Ordinance, Chapter 112, section 22. After assessment, then said profits or
losses flow through the partnership to the partners who are then taxed on
their share of said profits or losses generated by the partnership without any
taxes levied against the partnership.
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Limited Liability Company
What is a Limited Liability Company?
A limited liability company (LLC):

• is a type of business ownership combining several features of
corporation and partnership structures
• is not a corporation or a partnership
• may be called a limited liability corporation, the correct terminology is
limited liability company
• owners are called members not partners or shareholders
• number of members are unlimited and may be individuals,
corporations, or other LLC's
Advantages of Limited Liability Company
Limited Liability: Owners of a LLC have the liability protection of a corporation.
Flexible Profit Distribution: Limited liability companies can select varying forms of distribution of profits.
Unlike a common partnership where the split is 50-50, LLC have much more flexibility.
No Minutes: Corporations are required to keep formal minutes, have meetings, and record resolutions. The
LLC business structure requires no corporate minutes or resolutions and is easier to operate.
Flow Through Taxation: All your business losses, profits, and expenses flow through the company to the
individual members. You avoid the double taxation of paying corporate tax and individual tax. Generally, this
will be a tax advantage, but circumstances can favor a corporate tax structure.
Disadvantages of Limited Liability Company
Limited Life: Corporations can live forever, whereas a LLC is dissolved when a member dies or undergoes
bankruptcy.
Going Public: Business owners with plans to take their company public, or issuing employee shares in the
future, may be best served by choosing a corporate business structure.
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Added Complexity: Running a sole-proprietorship or partnership will have less paperwork and complexity.
A LLC may federally be classified as a sole-proprietorship, partnership, or corporation for tax purposes.
Classification can be selected or a default may apply.
Setting-up a Limited Liability Company
1. Articles of Organization: If you plan to set up a limited liability company, you will have to file articles of
organization with the Secretary of State and pay the required fees. Articles may be prepared by a lawyer or
filed yourself.
2. Operating Agreement: Although it is not required in many states to draft an operating agreement, it is
advisable. Much like corporate by-laws or partnership agreements, the operating agreement can help define
your company profit sharing, ownership, responsibilities, and ownership changes.
(b)External environmental influence in business
External influences
Businesses operate in an external environment in which as well as competition from

rivals businesses have to take account of legal, political, social and economic influences.
A SLEPT(Social, Legal, Economic, Political, Technological) analysis is often carried out

by business planners which enables them to develop more informed strategies (i.e. long
term plans).
Social factors
Relate to change is society and social structures. Changes in the structure of the
population, and in consumer lifestyles and behaviour affect buying patterns.
Legal factors
Relate to changes in laws and regulations. Businesses must be careful to keep within the
law and to anticipate ways in which changes in laws will affect the way they must
behave.
Economic factors
Relate to changes in the wider economy. A growing economy provides greater

opportunities for businesses to make profits, so businesses welcome rising living
standards.
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Political factors
Relate to ways in which changes in government and government policy can influence
business.
Technological factors
Provide opportunities for businesses to adopt new breakthroughs, innovations, and

inventions to cut costs and develop new products.
A business producing confectionery like Cadbury Schweppes examines SLEPT factors in

designing new products. For example, social factors that it needs to be aware of include
changing patterns of eating. Today many consumers like to eat 'on the go' so bite sized
chocolate treats are in great demand to top up consumers energy supplies. Legal factors to
be kept an eye on include European Union regulations about the content of products that
can be advertised as chocolate. Economic factors relate to changes in living standards and
how these affect consumptions patters.
Technological change is particularly important today, for example, the development of

new technologies that have enabled variations on chocolate bars to be produced in an ice
cream format. Political changes are closely tied up with economic ones and relate to
changing governmental influence. For example, a change from a Labour to a
Conservative government would effect taxation policies which would impact on the cost
of chocolate production.
Environmental scanning
The process whereby businesses examine the external environment to identify key
structural changes in the world around them which affect demand and supply conditions
for their products
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References
• Hamilton, Robert W., and Jonathan R. Macey, Cases on Corporations Including
Partnerships and Limited Liability Companies, 9th Ed., West Group, 2005.
DeMott, Deborah A. “Transatlantic Perspectives on Partnership Law: Risk and

Instability”, (2001) 26 Journal of Corporation Law. 879-895.[

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ASSIGNMENT

(a) Discuss the nature of a Sole proprietor, a

A sole proprietorship, or simply proprietorship, is a type of business

Furthermore, in many jurisdictions, a sole proprietorship files simpler tax

Another disadvantage of a sole proprietorship is that as a business becomes

A partnership is a type of business entity in which partners (owners)

• Formed by two or more persons

Many common law jurisdictions apply a concept called "flow through

What is a Limited Liability Company?

A limited liability company (LLC):

Limited Liability: Owners of a LLC have the liability protection of a corporation.

Disadvantages of Limited Liability Company

Setting-up a Limited Liability Company

(b)External environmental influence in business

Businesses operate in an external environment in which as well as competition from

A SLEPT(Social, Legal, Economic, Political, Technological) analysis is often carried out

Relate to changes in the wider economy. A growing economy provides greater

Provide opportunities for businesses to adopt new breakthroughs, innovations, and

A business producing confectionery like Cadbury Schweppes examines SLEPT factors in

Technological change is particularly important today, for example, the development of

DeMott, Deborah A. “Transatlantic Perspectives on Partnership Law: Risk and

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