Business Entity Implications for Contracts Business Companies

BUSINESS COMPANIES

Business Companies: Business Entity Implications for Contracts

Sole Proprietorship

A sole proprietorship is defined as a business owned by one person. The advantages include whole ownership entitled only to the proprietor himself, low taxes, and rarer complications for launching (Treece, 2018). However, there are also pitfalls, such as less protection when under threat of legal cases, profit and losses are the only income, and seeking new businesses would be an issue. The business owner is responsible for making negotiations, decisions, judgments, and signing and approving contracts. A sole proprietorship does not protect the business owner as he is the only person running the person, and if anything goes wrong with the supplier, he could be easily sued (Lawrence, n.d.). As a single person owns the business, the contract’s authenticity is low.

Partnership

A business partnership is a firm started between two or more people who share their skills and risks along with profits and losses. The pros of a partnership include less for laities as legal obligations are handled conveniently (Korchak, 2017). The partnership supports each other, making it easier to start sharing the burden individually. With collective power, decision-making becomes better as knowledge and diverse opinions are considered (Korchak, 2017). On the contrary, the cons include unlimited liability, legal existence being questioned by partners living overseas, restricted capital access, and seeming to be temporary business entities due to a lack of independent existence and prestige (Korchak, 2017).

Contract creation and agreeing to its terms and conditions is the process that is analyzed, reviewed, and approved by all partners collectively (Net Lawman, 2021). Signatures of all partners are needed to finalize a partnership contract; however, one single partner can sign on behalf of the rest of the partnership. Taking charge is the responsibility of all partners, as profits, losses, and risks are shared equally (Net Lawman, 2021). Contract creation, negotiation, and approval of contracts also lie on the shoulders of all business partnerships; still, if one partner on behalf of others has signed the contract, he cannot be kept liable for mismanagement as the shared responsibility rule applies (Net Lawman, 2021).

Limited Liability Company (LLC)

In this type of business formation, the partners are only liable for the amount of loss compared to the investment they made in the company (Fernando, 2022). No personal responsibility for debts or losses does not apply to the individuals, which is entirely in contrast to sole proprietorship and partnership. The pros include taxation flexibility, low costs and lesser paperwork, the inclusion of an unlimited number of members, and income generated through uncomplicated things (Grasshopper, n.d.). Cons encompass challenges while raising financial capital, expensive when renewal is required, and salaries are not generated for the business owners being under the LLC agreement (Grasshopper, n.d.).

The power of creating, negotiating, and approving contracts lies in the document initially formed when LLC is created (Hayes, 2022). This document reveals who is responsible for what, and the delegation of authority resides in the operating agreement signed by all individuals on the paper. Negotiation and approval of contracts are also based on this document to clarify matters before they become complicated or are dragged to court (Hayes, 2022).

Corporation

Business Corporation includes different owners having the right under law to enter into certain contracts, owning of assets, share liabilities and pay taxes (Investopedia, 2022). It is a ‘legal entity’ where some firms prefer including ‘Inc.’ with their names. Pros of having a business corporation include safety and protection, business steadiness, easier obtaining of capital, and safeguarding personal liability (Schooley, 2022). Cons include the time-taking process, double taxation, inflexible formalities, and certain etiquette for following before making it legal (Schooley, 2022).

Just as in the case of LLC, individuals of the business corporation are assigned powers in the agreement that gives them legal authority to sign, negotiate and approve contracts (Up Counsel, 2020). Actual and implicit authorities play a major role in this regard as the former is about legal authority to explicitly form and regulate the contract while the latter is on an agent representing the others (Up Counsel, 2020).