BUS FPX 3021 Assessment 3 Business Entity Implications for Contracts

Student Name

Capella University

BUS-FPX3021 Fundamentals of Business Law

Prof. Name

Date

Business Entity Implications for Contracts

Sole Proprietorship

Sole proprietorships operate solely under the discretion of one individual, who makes all decisions regarding contract creation, negotiation, and approval. While this structure offers considerable flexibility, it also exposes the individual to unlimited liability for any contractual obligations the business incurs. Profits from the business are reflected on the individual’s federal income taxes, simplifying tax management but potentially increasing the tax burden. The sale of the business, whether in part or whole, is the sole responsibility of the individual, minimizing obstacles to sale negotiations.

General Partnership

General partnerships resemble sole proprietorships but involve at least two individuals, each with equal authority to engage in contract activities. However, without binding partnership agreements or conflict resolution mechanisms, disagreements among partners can impede contract processes. Like sole proprietors, partners face unlimited personal liability, share profits equally, and are taxed individually. Selling one’s share requires agreement according to partnership terms or state law, with unanimous consent needed for selling company assets.

Corporation

Corporations are governed by a board of directors responsible for contract creation, negotiation, and approval. While board diversity enhances decision-making, it may slow progress compared to partnerships. Corporations limit liability to the legal entity, protecting personal assets from lawsuits except in cases of serious misconduct. Corporate profits are taxed at the corporate rate, often lower than individual rates, benefiting larger businesses. Stock ownership facilitates investment but complicates sales, requiring shareholder approval for significant decisions.

Limited Liability Company (LLC)

LLCs operate similarly to general partnerships, with managers handling contract matters as designated in state documents. This structure suits individuals seeking ownership without direct involvement in management or those desiring external management assistance. LLCs limit liability to the business entity, safeguarding personal assets. Unlike corporations, LLCs lack boards of directors and stock issuance, with profits taxed at individual rates. Sale negotiations mirror those of general partnerships, with ownership transfer subject to agreement terms.

References

Rabil, J. (2020, January 9). 4 types of business entities. Launch PLLC. https://www.launchstrategylegal.com/2020/01/09/4-types-of-business-entities/.

U.S. Small Business Administration. (n.d.). Choose a business structure. SBA.gov. https://www.sba.gov/business-guide/launch-your-business/choose-business-structure.ship/896/

BUS FPX 3021 Assessment 3 Business Entity Implications for Contracts