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Business Organizations - Legal Case Solution

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Initializing a business includes making several decisions. These decisions impact the sustainability of the business because they lay the foundations of the business. In this scenario given, the business type recommended is that of a limited partnership. The reason is that the partners are equal contributors to the business. Also, the partnership needs to raise capital for which a third limited partner is required. Furthermore, there are some concerns about ending the relationship that arise in the initial stages because a partnership does include conflicts. The partners need to devise ways to ensure that the ending results in equality among the partners and there are no ethical concerns raised that result in tarnished relationships.

Following questions are answered in this case study solution

  1. Initially, what type of business organization is best for this business venture? Why?

  2. How will you raise the required capital? How does the answer to this question influence the answer to the preceding question?

  3. As you enter into this business relationship, what concerns do you have about how to end the relationship should that become necessary? How would you address these concerns in the process of creating a business organization?

  4. What ethical concerns do you have as you consider these questions and how would resolve these concerns?

Case Analysis for Business Organizations - Legal Case Solution

1. Initially, what type of business organization is best for this business venture? Why?

Initially, the business organization would take the form of a partnership. This is because all the partners would enjoy equal managerial positions. This is because each of them will contribute equally to the business and will be liable equally for the liabilities that the business has. According to Kimmel, Weygandt, and Kieso (2009), the major advantage is that it integrates the resources and skills of the individuals involved in the partnership. Also, since the partners, in this case, would not be required to leave their jobs, and the partnership is easily formed, the partnership form of business is best suited to this situation. Furthermore, there is freedom from regulations imposed by the government. Since this business will not be able to reap benefits for five years or so, the advantage of the freedom from government regulations is a perfect fit for the company.

2. How will you raise the required capital? How does the answer to this question influence the answer to the preceding question?

Since the business is quite capital intensive, the capital cannot be raised by each of the partners contributing to the raise in the capital. A loan would not be granted for such a large amount because the company is not expected to reap profits for the next five years. One other option is to convert the general partnership to a limited partnership by adding a partner that raises the capital. In the limited partnership, another partner is added to the partnership. This partner is used to raise capital for the business. Also, the limited partner is not involved in the managerial functions of the partnership. However, in this case, the partner who is limited (raises the capital) is not liable. The general partners are liable for the business personally (Sherman, 2012). The raising of the required capital changes the best-suited business venture type for the situation. The change is from a general partnership to a limited partnership.

3. As you enter into this business relationship, what concerns do you have about how to end the relationship should that become necessary? How would you address these concerns in the process of creating a business organization?

The options available for the ending of the partnership could be selling the shares of partnership to someone else. This could include the buyout option in which the other partners do not have the power to protect the business. However, this is the most common way of ending partnerships. The business needs to be valued through legal measures and the value of the partner who decides to leave needs to be determined. Through this method, they can make their claim on the assets of the business. One of the major concerns is also related to the conflicts among the partners and the way in which to resolve these conflicts.

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