Business Forms and Ethics

Business Forms

One of the most important decisions for entrepreneurs is determining the most suitable form of business ownership when setting up a business. For Adam and Laura who are seeking to establish a pet grooming shop named Dazzling Doggies Day Spa, the determination of a suitable form of business ownership is critical towards ensuring the success of their business venture. When making the decision, Adam and Laura need to consider various factors surrounding their business venture including the fact that Beth, Laura’s mother, would like to contribute towards the startup costs without being involved in the everyday business operations, but wants a share of the business’ profits.
In light of these factors, there are two considerable options for Adam and Laura i.e. a corporation and limited partnership. A corporation is a form of business ownership in which the business is considered as a legal entity that is separate from its shareholders. This would be a suitable option for Adam and Laura since the business venture will be structured in a manner through which Beth will be a shareholder. As a shareholder, Beth will not be personally liable for the obligations, debts, and acts of the corporation. However, since it’s a startup, corporation may not be the best option for Adam and Laura given the complexities and requirements associated with it. A corporation is more expensive to set up in comparison to other forms of business ownership, which implies that it may not be the best option for the two entrepreneurs.
As a result, the most suitable option for Adam and Laura is a limited partnership, which is a non-incorporated business that is established by at least two individuals (Matheson, 2002). Through this form of business ownership, an individual can contribute to the business without participating in its day-to-day operations. Since Beth wants to contribute to the startup costs and have a share of profits without engaging in the daily business operations, a limited partnership would be the most suitable form of business ownership. In this case, Adam and Laura will act as the general partners while Beth will act as the limited partner. As the general partners, Adam and Laura will be responsible for the daily operations of the business as well as personally liable for its acts, obligations, and debts. On the other hand, as the limited partner, Beth will not engage in the business’ daily operations, but will receive a share of profits as agreed upon.
After the Dazzling Doggies Day Spa was established and started its operations, Adam started using the business’ checking account to pay all his personal bills without Laura and Beth’s knowledge. Adam’s actions are unethical and illegal since he is not the sole-proprietor of the business, which has other stakeholders i.e. Laura and Beth. By using the business’ checking account to pay all his personal bills without the knowledge of the other shareholders, Adam has engaged in unethical financial practices. In essence, Adam was engaging in corruption through using his position as one of the business executives for personal gain.
Ethical decisions are defined as decisions that are legal and meet the common ethical standards of an organization or community (Manjunatha & Ahamed, 2013). Some of the most common unethical business practices include mismanagement of earnings, creative accounting, misleading financial analysis, bribery, manipulation of business practices, and securities fraud (Manjunatha & Ahamed, 2013). Adam’s use of the company’s checking account to pay all his personal bills is an example of an unethical decision in business. Since the decision was not agreed upon by the entire team of shareholders, Adam failed to meet the common ethical standards of an organization and was committing an illegality. Actually, Adam’s use of company money to pay all his personal bills was an example of mismanagement of a company’s earnings, which is one of the common unethical business practices. Therefore, Adam’s actions were not only illegal but also unethical.
References
Manjunatha, K. & Ahamed, M.N. (2013, Sep-Oct). Pertinent Relationship of Unethical Practices of Business on Company’s Credibility. IOSR Journal of Business and Management, 13(2), 18-22.
Matheson, J.H. (2002). Choice of Organizational Form for the Start-Up Business. Minnesota Journal of Business Law & Entrepreneurship. Retrieved from http://scholarship.law.umn.edu/cgi/viewcontent.cgi?article=1111&context=faculty_articles