The Legal Forms of Business and Management Decision


Businesses exist in various forms, but the major distinction is between public and private businesses. Within each of these two types of business, there are various forms of businesses by certain statutes. In the public sector, the government is the main owner of corporations, but in the private sector, businesses are owned and controlled independently of the government. These business forms include sole proprietorship, partnership, and corporation. This paper examines the different forms of businesses paying attention to both their advantages and disadvantages. It also presents the management decision that is appropriate for the business issue that is the main concern of the subject matter.

The legal forms of business

The scenario

The new invention is a technology that will be used to increase the efficiency of household task performance. Even though the market is already saturated by similar products but those that are dangerous to handle, the new invention will ensure safety at home due to its unique features that will also make it distinct and likable in the market. In a case where there is an innovation or invention, it is important to ensure that no one else can steal and use it as his or her own. The first step is, therefore, to patent the invention to secure an exclusive right over the invention for a certain number of periods. To introduce the new invention, quite a large amount of capital is required. The problem is that there is little knowledge on how the innovation can be developed and presented to the market.

Sole proprietorship

The sole proprietorship is the simplest business legal form in which an individual trader and his or her business are considered as an existing single entity. A sole proprietorship is a type of business that is not registered by the state either as a limited liability company or corporation. Sole proprietorship includes electricians, electronic repairers and plumbers amongst others. One of the advantages of sole proprietorship is that it is managed by an individual which makes it easy to manage in terms of decision making. Besides, it is easy to start since it requires a relatively small amount of start-up capital. This implies that the proprietor has the choice to solely make on the mount to invest and also take full control of the business. With sole proprietorship, there is no corporate tax required for the business, there are also minimal legal costs involved in the registration process and there are also few formal business requirements during the operation process.

This type of legal business form has also disadvantages that are very important factors to be considered when choosing it as an appropriate business form. It is important to mention that the proprietor is solely liable to all the debts and liabilities that accrue during the operation of the sole proprietorship. This implies that when things go wrong or the business fails, the trader has used his or her assets to offset all the liabilities of the business (Steingold, 2009).


This can be considered as the next simplest business legal form. In this case, two or more people come together to share skills and/or expertise by first raising start-up capital based on their agreement. It has its advantages and disadvantages. Like in the case of a sole proprietorship, partnership firm of legal business is not subjected to taxation except that the taxes are charged on the incomes of the individual partners. It also, does not require to be registered by the state unless the partners wish to do so, of their own free will. In partnership, liabilities are equally shared between the partners. This implies that no one partner is at more risk than the rest. Moreover, partnership provides a quick way of raising start-up capital.

One of the disadvantages of partnership is that the partners may have different and clashing opinions for the business. This has the potential of slowing down business operations. Again, the partnership may not be equally committed in terms of time and financial contributions. Personal disputes may also arise in partnership and this may be coupled with mistrust amongst the partners which may consequently lead to collapse of the partnership. The other most important disadvantage of partnership is that any mistake made by one business partner may adversely affect the other or the rest of the partners (Bangs, 2002).


A corporation can be described as the most advanced business legal form. Corporations are owned by shareholders and are registered with the state either as unlimited or limited companies. The shareholders pull their finances together to form a start-up capital. The corporations are governed on behalf of the shareholders by the board of directors. These types of business legal forms are subjected to taxation on an annual basis based on the amount of profit made. Corporation has several advantages. One of these advantages is that corporations exist as legal entities. This implies that the shareholders and the corporations are separate legal entities. The corporations have limited liabilities protections for their shareholders. The meaning of this is that the assets of the shareholders are not at risk of being sold in case the business fails. The nature of a corporation taking into account its built-in stock structure makes it more attractive to investors who may have an interest in them. A corporation has capital incentives and the shareholders have the right to elect their board of governors and can also work as employees of the corporation. The disadvantages of a corporation include, it costs a lot of money during the incorporation process, requires a large amount of start-up capital, there are strict formalities to be followed, the names of directors must be disclosed, it is subject to tax consequences and also either voluntary or forced liquidation (Warda, 2007).

The management decision

The most appropriate business legal form, in this case, is the sole proprietorship. The limitation of start-up capital makes the sole proprietorship to be inappropriate because raising the required amount of capital takes time and given the high rate of inventions and innovations in the market, the new invention may be overtaken by other more advanced inventions. The choice of the partnership will enable the partners to pull their resources together and establish the plant to be used in producing the newly invented technology.


In cases where it is impossible to raise sufficient capital to start a business, it is appropriate to get into a partnership to engage others into pulling financial resources together to raise start-up capital. The partnership is relatively easy to start as it involves less elaborate procedures in the registration process. The partners can share ideas on how best to start producing the new products and position them in the market to start generating revenues.

Reference List

  1. Bangs, D. (2002). Business Planning Guide. G – Reference,Information and Interdisciplinary Subjects Series. Chicago: Kaplan Publishing.
  2. Steingold, F. (2009). Legal Guide for Starting & Running a Small Business. New York: Nolo.
  3. Warda, M. (2007). The LLC and Corporation Start-Up Guide. New York: Sourcebooks, Inc.

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