Legal Structure of Business

Business Structures

Corporation business structures

Preference of Corporation Business Structure Over Other Known Structures

In this paper, we will choose the corporation business structure as an ideal choice for the firm McDonalds in order to carry out its operations. We will define the merits which a multinational firm like McDonalds can take advantage of if because of this structure, also we will have an in-depth look on other structures such as sole proprietorship and partnership and focus on their strengths and weaknesses.

Review of Sole Proprietorship and Partnership

Let's review the structure of sole proprietorship first, it is regarded as one of the least expensive and easiest way to start any business as compared to corporative and partnership structure. Here the overall business as well as the business owner is viewed legally as a same entity. This however has its own disadvantages which in our chosen case of McDonalds could result in many risks for the firm. First, there isn't any type of legal distinction between owner and business in sole proprietorship, therefore if the owner is involved in some sort of legal or financial trouble then it could jeopardize the whole business itself. For a firm like McDonalds which operates its business on a multinational level it is extremely risky to hand over the charge to one person or entity completely.

Sole proprietorship structure is also known to have very limited ability to raise capital, this is because it is very difficult or impossible to sell shares or interest in the business for the sake of acquiring capital and this also makes it difficult to obtain any sort of loans or other funding resources. The business owner is also known to be in charge of all the aspects of the business, this includes the service and product development alongside accounting, customer service and marketing. Many of the sole proprietors have great knowledge regarding their own services or business producst but carry less information in other areas, for McDonalds it is very important that the owner of the business has significant information regarding the markets in which the business operates as well as other areas which could either benefit the firm or may provide competition in the future.

Now, let's have a look at the structure of partnership and see why it is not the ideal choice for McDonalds. Here are some of the advantages of business partnerships, they are relatively easy to make, since there are more than one owner in the business, the overall ability to generate funds is increased substantially because the partners might have more capacity of borrowing and therefore could also contribute more funds towards the business.

Prospective employees could also be attracted towards the business by giving them the incentive of becoming a partner, this could bring up fresh ideas which may help the business in the longer term, it also could bring a much wider set of skills and knowledge which in today's age is extremely important for any multinational firm like McDonalds. "Partnerships are also known to be very cost-effective since every partner has its specialties in a certain aspect of the business." (Swann, 1993). It allows moral support and will for the partners as well as the employees to have more creative brainstorming.

Although the mentioned advantages of partnerships may indicate that it is a very successful business model, it should also be noted here that it has its drawbacks which in our case could result in many business flaws. Let's have a look at some of these disadvantages and see how it could affect McDonalds. In partnership the business partners are individually and jointly liable for other partner's actions therefore the share of blame might go on the entire team of partners instead of the responsible person. It is also very important to properly share profits with others, partners must decide how they must value each other's skills and time and to achieve something like this requires extreme amount of coordination and patience which is something not all partners might be willing towards.

Because decisions are shared many disagreements could occur, partnerships are usually set for the longer term and if any dramatic change occurs in the business environment then it could lead towards a traumatic split up between the partners and this is something which McDonalds can not afford at all. Partnerships usually have many limitations which are due to the mutual agreements of their contracts, this could greatly affect the firm as it might hinder its prospects of becoming an even larger organization.

It is also seen that partnerships have a limited life, it might even end because the death or withdrawal of a single partner, therefore in a sense it is also regarded as a very volatile structure of business. Therefore McDonalds could not risk to fully adopt the partnership model since the sudden absence of a single partner might hurt the overall business of the firm greatly.

Now, since we have focused on the models of sole proprietorship and partnerships and have seen how they are not appropriate for McDonalds, let's focus on the corporation structure and see why it is the best model for our chosen firm.

Corporation business structure

A corporation business structure is created by law and is defined as a separate entity from the owners of the business i.e. The shareholders and stockholders. Here are some of its advantages. It has a lifespan which is completely independent from its shareholders or stockholders (owners), for a firm like McDonalds it is extremely important that it does not rely on a single person too much for its finances or different operations. It is also observed that the fringe benefits costs are usually tax-deductible.

In corporations the personal assets are generally protected from business liability, this comes as a great advantage for the main owners of the business when the firm goes into severe losses. Another key advantage of corporate structure is that ownership is made transferable through sale of stock, here it is seen that in many cases when an owner is unable to carry on his duties or just want to quit then the stocks could determine the next potential owner which may have more power or other great ideas that might influence the business for good. These owners are also seen to have more capital therefore they could end up doing more benefit for the firm. It is also very easy to increase the operating capital and this can be done through sale of stock.