Betty Wilson’s venture of opening a Christian Coffee House in Belmont, NC, presents her with abundant opportunities in selecting a business form. She is considering the following types of entities: 1) franchise, 2) sole proprietorship, 3) partnership of some sort, 4) corporation of some sort, 5) LLC, or 6) even as a joint venture. We will briefly explore each business option and give Betty concise recommendations as to what business form to pursue as well as what business partners to engage.
A franchise is a legal agreement between franchisers and franchisees that consents use of the franchise’s trademark and trade name or marketing plan to sell products or services (Kubasek, Brennan, & Browne, 2012, p. 791). Through a franchising arrangement franchisee can profit from implementing another’s efficacious business model. One of the most attractive advantages is the high probability of success of 90 % as compared to 20 % for small businesses (Staring and Naming a Business Presentation, 2012, Slide 9). Other advantages include established franchise reputation, operational support and training, product research and development, and better access to financing. On the downside, business plan rigidity can deprive the quality of customer service and hinder a creative business owner. Thus, both the Clayton Act regulates business competition and price discrimination (15 USC §§ 12-27; 36 Am J1st Monop etc §§ 141, 142) and the Sherman Act is a federal antitrust act (15 USC §§ 1 et seq; 36 Am J1st Monop etc. § 141) protect the public and small business owners from monopolization and market power.
Sole proprietors own an unincorporated business on their own and this type of business constitutes the most predominant form of business enterprise in the United States (Kubasek, et al., 2012, p. 758). Advantages of a sole proprietor include complete decision-making power, flexibility, easiest and inexpensive to start, enjoyment of all profits, no corporate tax payments, and reporting losses and income on personal tax returns. A sole proprietorship is treated as one entity with the owner. The most significant disadvantage is total personal responsibility for all debts and liabilities, which constitutes the element of risk that drives away investors to more solid business ventures (Kubasek, et al. 2012, p. 758-759).
General. Similar to sole proprietorship, this type of entity is uncomplicated and less costly to create. This is an association of two or more individuals who contribute labor, money, property, and skills and consequently share in the profits of the business. A general partner exists only if the profits are shared and do not only receive a wage or salary (Kubasek, et al., 2012, p. 759). Some of the most enticing features are sharing in the decision-making control, authority different aspects of the business (i.e., management, capital, etc.), and simplified taxing. As with a sole proprietorship, a disadvantage is that each partner has unlimited personal liability for all debts, contracts, and torts. And similarly to any conglomerate of people, differences in views, standards, performance, and expectations can undoubtedly clash and encumber profitable business management. Limited. Limited partnerships consist of both general and limited partners (Staring and Naming a Business Presentation, 2012, Slide 4).
The main difference of limited partnership to general partnership is that limited partners are not liable in sharing the debts outside the funds they contribute to the partnership. A limited partner is vastly disengaged in management decisions and operations and function solely as contributors of capital. One of the main advantages of this business structure is that they enjoy direct contact to the flow of income. In North Carolina, limited partnerships are strictly controlled by the Uniform Partnership Act (1941, c. 374, s. 1; 2000 140, s. 101(j); 2001 487, s. 20.) administrates the creation, operation, and liquidation of all partnerships formed. Finally, at any time a limited partnership agreement is breached, the business entity is treated as a general partnership.
A corporation is a separate legal entity that possesses distinctive liabilities and privileges than that of their members or shareholders. As an investor, a corporation’s advantage is liability for their own investments especially in risky investments (Kubasek, et al., 2012, p. 760). Among the various types of corporations for Betty to select from, an S corporation is an enticing venture for new entrepreneurs given that it grants limited personal liability for debts, sharing of corporate profits, and taxation relief. Double taxation is a main disadvantage of C corporations but not for S corporations. The General Corporation Law (Corp C §§100-2319) treats S corporations similarly to partnerships for taxation purposes.
Limited Liability Company (LLC)
As a hybrid of partnerships and corporations, LLC’s provide limited liability for debts and flexibility to be taxed as a partnership or corporation (Staring and Naming a Business Presentation, 2012, Slide 5). Some specific advantages include being empowered authorities in the management of the business, diversity of members, limited liability, pass-through taxation, and less paperwork (appreciated by many). A drawback of this business structure is the need for a tailored operating agreement that specifies the specific needs of the company.
A joint venture is a business partnership that usually involves a specific purpose or goal for its formation and the partnerships dissolve after the goal is attained. The Internal Revenue Service (IRS) normally does not recognize a joint venture as a legal entity so it is treated as a partnership (Staring and Naming a Business Presentation, 2012, Slide 8). This is advantageous in that the partners equally distribute authority to govern, share profits and losses, and contribute labor, money, property, efforts, and skills to expand the success of the business project (Kubasek, et al., 2012, p. 759). According to the Small Business and Work Opportunity Tax Act of 2007 (Public Law 110-28), the only type of qualified joint venture that cannot be treated as a partnership it that of an unincorporated business between a husband and wife. The main disadvantages of joint ventures are uneven collaboration, expertise, management styles, and research to reinforce sound decisions.
Business name. To determine corporate name availability, Betty must comply with statutory requirements to allow her to name the coffee shop “Gathering Place.” After utilizing the search engine for the Department of the Secretary of State North Carolina to determine the name availability “Gathering Place,” generating fifteen results. The businesses range from motels, publishers, books stores, churches, and pastry and coffee shops. Under the hospitality industry, two food service businesses resulted that are Gathering Place Café & Sweet Treats, Inc. located in Archdale, NC and The Gathering Place and Bake Shoppe of Fayetteville, NC. Some of the basic apprehensions to the name is that it is confusingly similar and it doesn’t target the desired consumer market.
Because it is in a town with no businesses with the same title, Betty can definitely brand her business with the “Gathering Place” title. Business type. In hindsight, a LLC would grant Betty needed flexibility given the diversity of interested business partners. This business structure is well suited for individuals who can invest into a new venture and have many interested parties as well as needed beneficiaries of taxation privileges. The Delaware Limited Liability Company Act (C § 18-1101(b) set precedent to the freedom of contract of LLC’s and obligations set forth in operating agreements. Betty would be legally well protected if she entered business with John (husband), Alice (sister), or Erma (neighbor). My recommendation would be for Betty to include John and Erma in the business endeavor and keep Alice outside the endeavor given the strong opposition of her husband.
We can find numerous Bible passages that warn against unequal yoking (i.e., 2 Corinthians 6:14). I would advice Betty to enter into an LLC with her husband John and Neighbor Erma. In spite of her confused perfection of her “Christian” worldview, Erma can prove to be a good business partner and profit from being in business with a mature Christian such as Betty.
Clayton Act (15 USC §§ 12-27).
Corporations Division for Department of the Secretary of State North Carolina (2012). Retrieved from http://www.secretary.state.nc.us/corporations/searchresults.aspx?onlyactive=OFF&Words=ALL&searchstr=gathering%20place Delaware Limited Liability Company Act (C § 18-1101(b).
General Corporation Law (Corp C §§100-2319).
Kubasek, N. K., Brennan, B. A. & Browne, M. N. (2012). The legal environment of business: A critical thinking approach (6th ed.). Upper Saddle River, NJ: Prentice Hall. Liberty University (2012, Spring). Staring and naming a business. Legal Issues in Business class presentation. Retrieved from http://bb7.liberty.edu/bbcswebdav/pid-15354309-dt-content-rid-74512567_1/courses/BUSI561_D10_201220/presentations/Module%207/index.html Small Business and Work Opportunity Tax Act of 2007 (Public Law 110-28).
Uniform Partnership Act of North Carolina (§§ 59-31).
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