Contracts for various business entities
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Contract Creation and Negotiation for different business entities
There are four types of business entities: sole proprietorship, partnerships, corporations, and limited liability companies (Hearn, 2017). A sole proprietorship is a business entity that is managed and owned by one person. The person who owns the business is in charge of running all the daily activities and makes all decisions regarding the company. Partnerships are entities owned by two to fifty people who have a similar interest in running a business intending to make profits. In partnerships, the people involved in the business run a business and have not yet formed a limited liability company. The partners may or may not have a formal agreement that states that they are partners. This is because, generally, the law assumes that a group of people working together in business are partners. Corporations refer to business entities that limit the personal liability of the business owner because the business is created and sanctioned by state law. Limited liability companies are similar to corporations because a limited liability company limits the personal liability of the owner of a company. People who own limited liability companies are called members, and they can hire other people to run their companies. People who are hired to run limited liability companies are called managers. In all these business entities, the creation and negotiation of contracts differ due to the differences in authority among the four business entities.
Sole proprietorship contains the simplest legal structure among all the business entities. This is because the owners are their boss and are responsible for all their liabilities (Patru, 2018). Therefore, the advantage is that the business owner does not need to consult before creating and negotiating a contract for his business. Another benefit of a sole proprietorship is that it lacks all the corporate paperwork and business formalities that delay contracts. The only disadvantage about the sole owner creating and negotiating a contract is that the contract lacks all the financial and legal protections contained in other business entities. Such protections are made to protect the business from losses resulting from theft or other calamities.
Partnerships are similar to sole-proprietorship because they lack the financial or legal protections contained in other corporations and limited liability companies. The difference between the partnerships and sole proprietorship contracts is that the contractual agreements in outline the responsibilities and roles of each partner or co-owner of the business. Therefore, all the partners in the business must participate in creating and negotiating contracts (Dong &Rim, 2019). Their participation in negotiating contracts depends on their involvement in the initial agreement of partnerships. The advantage of partnerships is that all the partners are included in contracts because they involve the business that they are all a part of, making the creation and negotiation process fair. The disadvantage is that partnership contracts lack all the legal bindings that are meant to protect the business from any potential problems.
Corporations are the most complex in their legal structure due to their governing. Since corporations are governed by a board of directors, they are different from partnerships and sole proprietorships. Once corporations are established, the business founders no longer have an opinion or free-will to make any negotiations or decisions involving in the business (Hiller & Shackelford, 2018). Therefore, corporation owners do not have an opinion on the formation and negotiation of contracts. The whole board of directors negotiates the contract on behalf of the corporation. The advantage of this business entity is that the formation and negotiation of contracts involves a group of people giving their opinions, which leads to wise and fair decisions. The disadvantage of this business entity is that there may be disagreements during negotiations and formations of the contract, which leads to delays in the implementation of contracts, taking a long time for the corporations to progress.
Limited liability companies are hybrid entities that are created and sanctioned by state laws. There. Members of limited liability companies can create and negotiate a contract unless a manager is chosen to do it on their behalf. In most cases, managers are hired to create and negotiate a contract for the company (Lacraru, 2018). The advantage of managers being in charge of contracts is that the process is fast because there are no people to disagree with the contract, which slows down the creation and negotiation process. The disadvantage of this form of creating and negotiating contracts is that there is autonomy that occurs in the creation of the contract, and this may led to the creation of a contract that does not benefit the limited liability company.
In summary, a sole proprietor signing a contract for the business is that he or she is responsible for all the failures and successes of the business. Partnerships and corporations ensure that all business members participate in negotiating contracts, which is advantageous because it is a union of minds, thus increasing the chances of a better contract. Limited liability companies have the most undesirable contract negotiation. When an external manager is hired to negotiate on behalf of a company, he may make mistakes because he is not fully aware of the company and its needs.
References
Dong, C., & Rim, H. (2019). Exploring nonprofit-business partnerships on Twitter from a network perspective. Public relations review, 45(1), 104-118.
Hearn, E. N. R. (2017). Business Entities. In The Musician’s Business and Legal Guide (pp. 10-17). Routledge.
Hiller, J. S., & Shackelford, S. J. (2018). The firm and common pool resource theory: Understanding the rise of benefit corporations. American Business Law Journal, 55(1), 5-51.
Lacraru, A. (2016). Reflections on Management Contract concerning Individual Employment Contract in limited Liability Companies. International Journal of Academic Research in Business and Social Sciences, 6(9), 230-242.
Pătru, R. Ș. (2018). Considerations Regarding the Legal Regime of Authorized Natural Persons, the Sole Proprietorship, and Family Businesses in Romania. David Publishing Company www. davidpublisher. Com, 17(5), 252-256.