Critical Analysis Paper Free Essay

Critical Analysis of Business Models of Single-owner Business and Partnership

 

Thesis statement: As the company has got attractive offers from large companies, the company needs to employ more professionals, but the safe way to do it is to change the business entity type and turn the company into partnership, where business partner or partners of the owner of Acme Fireworks may help to fulfill contracts with large companies that have made large and what are expected to be regular orders.
Background information
Acme Fireworks is a company that operates in the firework market. The company is located in its owner’s garage. At the moment, the company runs a small business and employs 15 workers. The company has one owner and is sole proprietorship. The business of the company runs successfully. The company has received several orders from large companies. New orders are likely to become regular. However, the company lacks human resources. Therefore, the company needs more employees. The employment of more employees is risky, if new contracts fail or seize. This is why the owner of the company should consider the possibility of either employing more workers at his own risk or change the business entity type for a more appropriate one to increase the number of employees safely.
Options to choose from
A. Sole proprietorship
1) Benefits
The owner of the business takes the full control of his business and can run it as he likes it. He gains all the benefits from the business and can determine what to do next, i.e. the owner can define the business strategy as he believes to be the best for his business. The owner is also the only decision maker who has the full authority and can hire or fire employees.
2) Risks
The owner bears liability with his personal assets for his business failures and losses. If new projects fail, the owner will have to cover costs through his personal assets. He may also face the pressure from unions or employees, if they want to bargain better conditions of work and other employment benefits.
B. Partnership
1) Benefits
Partnership allows the owner of the company to expand its business through involvement of business partners, who take their share of business. Moreover, partners take their share in the liability and responsibility over the business, including the employment of new workers to complete new contracts (Siurdyban, 2014). Partnership also helps to raise funds for new projects, like the fulfillment of new contracts like the supply of fireworks for large companies. Partnership facilitates addressing challenges the business may face through the distribution of liabilities or specific tasks between partners, when each partner is responsible for the specific field or aspect of the business performance.
2) Risks
Risks associated with partnership include the liability of partners for the failure of the business or contracts. Even though the owner of Acme Fireworks is liable for his part of the business as a partner, he still shares liability with other partners as well. Partnership also raises the problem of sharing revenues and profits with business partners. This means that the owner of the business will have to share profits with business partners (Nurmala, de Leeuw, & Dullaert, 2017). In addition, the partnership will raise the problem of the decision-making process because the owner will have to take decisions along with business partners that require negotiations and agreement between business partners. In case of conflicts or misunderstanding between business partners, the effectiveness of business performance and management may be compromised.
C. Corporation
1) Benefits
Incorporation is a good option to raise funds for the new project and consistent business expansion because it helps to attract shareholders and substantial investments into business development. The owner of the business will share liabilities with other shareholders but his liabilities will be limited to his share in the company only without his personal assets. The corporation will open opportunities for the considerable growth of business and allow the company to grow as long as there are contracts to fulfill.
2) Risks
The major risk associated with incorporation of the company the owner of Acme Fireworks may face is the risk of losing control over the company because depending on the share the owner reserves for himself in the company, he will share the rest of the company with other shareholders. Moreover, the management of the company will become more complicated because the balance between interests of shareholders and stakeholders may be difficult to maintain. One more important and challenging risk is the growing complexity of taxation and accounting that may require extra investments into accounting to comply with existing legal norms and fiscal regulations.
Partnership as the best option
A. Personal asset protection
One of the major advantages of partnership compared to sole proprietorship as well as other forms of business entities is the personal asset protection. At the moment, the sole proprietorship puts personal assets of the owner of the business puts his personal assets under a threat, in case of his business failure because this form of business entity involves persona asset liability of the business (Saha, 2010). The development of the company as a partnership will protect personal assets of the owner because he will not bear any liabilities with his personal assets, in case his company confronts some financial problems or fails to fulfill large contracts, for example. The personal asset protection is an important advantage of the partnership for the owner of the company because he may take risks within his share in the partnership only.
B. Pass-through taxation
Pass-through taxation is another advantage of the partnership which can bring the owner of the company considerable benefits. The income is not taxed at the business level. Instead, business profit and loss are passed through to partners for reporting on their personal tax returns. In such a way, the owner of the company will personalize his taxes in terms of the partnership and will be liable within his share in the partnership and is taxed at the personal rather than business level. Therefore, the taxation is quite simply, transparent and easy that does not need any complex accounting as is the case of corporations, for example.
C. Full oversight
Partnership still provides the owner of the company with the opportunity to control the company, its management, operations and development. The partners conduct the oversight over the company This means that the owner of the company can control how the company perform, how employees operate, how contracts are fulfilled and control all other aspects of business as he does now, when the company is the sole proprietorship (Boyles, 2001). The only difference is that other partners will also have the same right and opportunity to conduct the oversight but such full oversight is likely to increase responsibility of employees, who feel the stricter oversight from the part of owners of the business.
D. Investment potential
Partnership also increases the investment potential of the business because each partner brings in his/her share into the business and invests into the business development. For example, the owner of Acme Fireworks may invest his business as it is, including his garage, 15 employees, technology used, and so on, while new partners may bring new employees, add new facilities which the company may use to fulfill the contracts with large companies. In case the large companies refuse from their orders, the partnership may simply split up and the owner of the company can just stay with his part of his business as it used to be before the partnership (Tuten & Urban, 2001). In such a way, the owner of Acme Fireworks brings customers, while business partners bring facilities and more employees.
Conclusion
Numerous benefits and advantages of partnership compared to sole proprietorship or corporation make the partnership the best option to choose from. The owner of Acme Fireworks should just find business partners, who are capable to invest their share into the business and help the company to meet the increased demand and to fulfill the large contracts. The owner of the company will take minimal risks but have to share liabilities as well as profits and revenues with business partners. The decision-making process will also involve business partners. On the other hand, the owner of the company will enhance oversight over the company performance because partners will also do oversight along with him.

References:

Boyles, D. R. (2001). The exploiting business. The Journal of Educational Foundations, 15(3), 63. Retrieved from http://molloy.idm.oclc.org/login?url=https://search-proquest-com.molloy.idm.oclc.org/docview/205236977?accountid=28076
Nurmala, N., de Leeuw, S., & Dullaert, W. (2017). Humanitarian-business partnerships in managing humanitarian logistics. Supply Chain Management, 22(1), 82-94. Retrieved from http://molloy.idm.oclc.org/login?url=https://search-proquest-com.molloy.idm.oclc.org/docview/1890525683?accountid=28076
Saha, N. (2010). Limited liability partnership – A new dimension of business. Management Accountant, 45(4), 318-321. Retrieved from http://molloy.idm.oclc.org/login?url=https://search-proquest-com.molloy.idm.oclc.org/docview/577282614?accountid=28076
Siurdyban, A. (2014). Understanding the IT/business partnership: A business process perspective.  Information Systems Frontiers, 16(5), 909-922. doi:http://dx.doi.org.molloy.idm.oclc.org/10.1007/s10796-012-9388-3
Tuten, T. L., & Urban, D. J. (2001). An expanded model of business-to-business partnership formation and success. Industrial Marketing Management, 30(2), 149-164. Retrieved from http://molloy.idm.oclc.org/login?url=https://search-proquest-com.molloy.idm.oclc.org/docview/204595649?accountid=28076

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"The terms offer and acceptance." freeessays.club, 17 May 2016

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"The terms offer and acceptance." freeessays.club, 17 May 2016

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"The terms offer and acceptance." freeessays.club, 17 May 2016

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"The terms offer and acceptance." freeessays.club, 17 May 2016

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