Jan 12, 2018 in Business

The Business Environment

The scenario entails an inventor who enjoys working around the home and can perform duties such as cooking, cleaning, remodeling and doing minor repairs at home. This is an indication of the diverse nature of the inventor and the ability to tackle different problems at home. The inventor lacks financial and managerial skills. Notably, the inventor also has a brilliant idea concerning a new form of home appliance that is more effective but lacks adequate funds for start up. The inventor’s spouse is also concerned about the idea and the amount of family time it would take.  The idea of a new home appliance seems effective because it is deemed to eliminate the dangers and inefficiencies associated with other existing appliances. The market place is also saturated with annual growth of only 2% and sales could increase with the new invention.

Advantages and Disadvantages of Different Legal Forms of Business Ownership

Sole Proprietorship

A sole proprietorship is one of the key legal forms of business ownership. It refers to a business owned and operated by one person. A sole proprietor may get some assistance from family members in cases when he/she needs support. One of the advantages of a sole proprietorship is that it involves faster decision-making.  Adamson & Morrison (2011) assert that the process of decision-making is faster as the sole proprietor does not have to consult other parties but bases his/her decisions on what he/she deems right for business growth. This is unlike partnership businesses where consultations must be followed. Another advantage of a sole proprietorship is the entitlement to all the profits earned from the business. It is worth noting that a sole proprietor owns and runs the business alone and is entitled to all profits alone hence full enjoyment of the benefits of the business.

The inability to raise adequate capital for business operations is one of the key disadvantages of a sole proprietorship. Partnerships and corporations have wider access to large amounts of capital.  It should be noted that one person owns the business and it may be difficult for him/her to raise substantial start-up capital. Another disadvantage is fatigue resulting from the performance of all duties related to the business. This could even limit family time as the businessperson is supposed to ensure all duties are performed properly within the required period.

Partnership

A partnership refers to a mutual relationship that exists between two or more individuals with the aim of making profit. Notably, individuals with a common objective and similar interests form a partnership with the aim of achieving similar objectives.

One of the key advantages of a partnership business is the ease of raising start-up capital. Partners always contribute different amounts of capital unlike in a sole proprietorship where one individual is supposed to accumulate the start-up capital. Fontana (2010) reiterates that this is vital in ensuring that a business has adequate funds for operations hence promoting stability. Another advantage of a partnership is the division of responsibilities. Partners can share duties such as managerial functions, financial management, and supervisory duties, hence fostering efficiency. Partnership is also advantageous because it leads to better making of decisions emanating from exhaustive consultations.

One disadvantage of a partnership business is slowed decision-making. The process of making decisions is delayed by the wide consultations that are supposed to be conducted. A sole proprietorship is faster in terms of making decisions because of the absence of consultations. This may lead to loss of opportunities. The sharing of profits is also a disadvantage because each partner only receives a part of the entire profits.

Corporation

A corporation is a legal company created to perform particular functions. A corporation could be public or private.  Longenecker, Moore, Palich, & Petty (2006) confirm that a public corporation is advantageous because of the ease of raising capital through the issue of shares to the public. It can raise more funds than a partnership because shares are sold to the public. This is the easiest form of ensuring that adequate capital is available and operations are effective. Corporations are also advantageous because they employ highly professional managers, hence ensuring effective performance of duties.

However, there are certain disadvantages of public corporations because they involve a complex process of formation. The process requires many legal items such as the memorandum of association, articles of association, the prospectus, and the permit. Partnerships and the sole proprietorship are easier to form compared to corporations.

Decision

A partnership is likely to succeed in the given case, as it would solve the problem of raising the start-up capital by facilitating funds through contributions. Additionally, it would resolve the managerial problems experienced by the inventor, as there is the sharing of duties according to fields of specialization. Family time would also be available, as most duties are shared and the inventor would not have to engage in all operations. Therefore, a partnership business is the most appropriate solution.

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