Business Construction Scenario Business Entities

Business Construction Scenario

Business entities vary from countries to countries since the formation of a business is controlled by the various legal systems instituted in those countries. There are many types of business entities, and this is where we find the likes of sole-proprietorship, partnership, cooperatives, corporations and limited liability Company among others (Waddell, 2008). A business may be categorized in any of these entities just by the composition of its members.

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Business Scenario

From the business scenario, where Jose and Lou wants to open a sports bar and restaurant, but they don’t have enough capital to start up the business; therefore, they need to partner with Miriam who will be able to finance them but will be in its management. This situation will lead them to forming a partnership type of business entity with her.

Through partnership, all their mutual interest will be covered; Jose and Lou will have the capital they need to start the business through Miriam contribution. While engaging into partnership, both parties are expected to formulate an agreement among them while will stipulate clearly how they are to run the business, the amount of profit each should get according to how much they contribute and their role in the business, their responsibilities into the business, how the achievement of the business is to be evaluated, and lastly, the agreement is to state clearly what is to take place in case the partners decides to dissolve the business. The agreement is normally prepared to suit the specific business it is meant for (Ostrowski, 2010).

In partnership entity, the partners share all the losses and the gains got from the business. Both partners will have control over the business, but Jose and Lou will be the ones running the businesses and they will be paid for their contribution of running the business apart from the profits or the losses they would have made (Waddell, 2008).

Since in this type of business entity, one of the shareholders who run the business is paid some stated sum of money, in addition to the profit distribution, and then the business is entitled to pay to the IRS the taxes which are to be paid for the amount salary given. In most cases, the shareholder managing the business will opt to go for more of the profit distribution and less of the salary allocated to him/her in order to reduce the amount of tax levied on the salary. On top of the tax paid for the salary given to the shareholder managing the business, the business also has to pay taxes levied on the type of business including the various licenses for operations.

Laws and regulations

This type of business entity is allowed to transfer ownership to another individual or transfer some of the shares, but in the situation where a significant amount of shares has been transferred to another person, then the law requires that a new partnership should be formed, immediately after termination of the previous agreement (Waddell, 2008).

Risks present in this type of business

One of the risks is that, in case of losses or debts, the business owners are legally liable to pay all the debts which would have accrued in the process. Also, when one partner runs the business, he/she assumes a potential portion of the risk (Ostrowski, 2010).

Business scenario 2

In this scenario, Frank, a wealthy businessman wants to open a chain of extermination business. Since he has the capital to start the business, then it is appropriate for Frank to start a new business as a sole propriator. In a sole proprietorship, the business is run by the single owner and there is no legal boundary between the business owner and the business. At this level, the owner is to receive all the profits and he will be required to pay the entire taxes specific to the extermination business (Waddell, 2008).

When a business is owned solely, it becomes an unlimited liability where in instances where the owner has debts, then he is supposed to pay himself since him and business are termed as one.

Laws and regulations

In a sole proprietorship, the law states that the partner cannot transfer the shares to another person in case he no longer wants to own the business. He is supposed to sell all the business liabilities and its assets, but the person buying will be forced to form his own business (Waddell, 2008). Also, when starting this type of business, owner must choose a suitable name and probably register it to avoid copyright. The sole owner must also ensure to keep the records in check so as to show the IRS that the business is intended for profit making.

Risks arising within this business entity

This type of business also faces some risk, for instance, the business owner might suffer greatly from any losses which he might incur while running the business. A loss of a huge amount or even a decline in business might lead to the business not being able to operate especially since he has to pay the other employees to run the other branches and also meet the overall expenses (Ostrowski, 2010).

Another risk is that, since the business owner and the business are inseparable, a situation where the business has debts, some of the personal property of the owner can be used to offset the debt (Waddell, 2008). Also, due to the large number of extermination businesses Frank intends to set up, he may have trouble managing the business as a single individual and this might lead to losses being incurred and failure of the business to compete favorably with other players in the market.

In addition, the business can be faced by many risks and its existence lies on the decision of the sole proprietor, then the business might fail to attract skilled employees who might want to develop their careers. Without lack of skilled employees, the business might find it hard to exist competitively among other players in the market. Lack of continuity which might arise from situations where the owner no longer has the ability to run the business due to illness or death, this might also have a major impact on the acquiring of skilled employees who would want to develop their careers (Ostrowski, 2010).

The business might also be at risk of failing to expand or grow at that speed in which the market is growing because it might experience difficulty when from various financial institutions since the whole business is dependent or entirely run by an individual. Therefore, lack of financial aid or external investment in circumstances where the owner has no ability to continuously fund the business, might lead to stagnation in the range and quality of services offered.

Construction scenario

This is a scenario which involves Surebuild Inc., a construction company newly formed. Such a company may fall under the Limited liability type of business entity. This is because in Limited liability Company, the owners become lifetime members and they are only responsible for the capital invested and not the company. This type of business combines several features of partnership and corporation structures (Waddell, 2008).

Laws and regulations

While starting up, the company is compelled by law governing business entities to file an article of organization with the secretary of state. There should also be operating agreements which is concern with the company’s ownership, responsibilities, profit sharing and ownership changes (Waddell, 2008).

Risks arising within this business entity

Some of the risks include; easy dissolution especially when one of the members pull out or dies. In addition, the owners cannot decide to go public since they will have to change the company’s business structure to corporate structure.

Employment regulations

The law requires that the company should and that every person should be awarded equal job opportunity. The law states that persons with a disability or pregnancy stand equal chances of being employed so long as he/she meets the employment requirements (Williams, 2011). For instance Michelle; 35-year-old pregnant woman stands a greater chance of being employed since she has attained the minimum requirement for the job.


Ostrowski, S. (2010). Choosing an entity (Vol. 21, pp. 80-80): , Inc.

Waddell, W.R., & Handford, L.A. (2008). Business entities: Thomson/West.

Williams, S., Heery, E., & Abbott, B. (2011). The emerging regime of civil regulation in work and employment relations. Human Relations, 64(7), 951-970. doi: 10.1177/0018726710391687

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