Traditionally, the role of a business is business. All business organizations engage in contracts and adhere to the business law. For this reason, management of different organizations has a task of creating, negotiating, reviewing, seek for approval and adhere rules of the contract. Ideally, an organization has a task to distinguish itself as a specific legal entity and determine how it will handle its contracts (Crispin, et al., 2016). The following study evaluates the role of contract business entities in partnerships, sole proprietorships, corporations, and Limited Liability Company in the context of contract law.
Contract creation and negotiations
A sole proprietorship is a form of business owned by one person. The sole proprietor identifies a business opportunity, harmonize the resources, and start the business. All the transactions in the business occur because of the decisions of the proprietor. Unlike a corporation, the business is not a separate entity from the business. The sole proprietor creates a contract and sign under his names. Besides, the sole proprietor is also involved in the negotiations of the contract with the relevant contracting agency (Crispin, et al., 2016). Partnership form of a business is an agreement two or more persons uniting to start a business. The parties draft a written agreement stating rights of each partner; responsibilities, share contributions and sharing of profits as required by state law. All the partners contribute in the creations of contracts and the negotiations process (Miller & Cross, 2012).
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Two or more people form a limited liability company. The partners enter into an agreement by drafting laws that govern the operations. The set laws include name of the company, the duration of business, voting rights, how the LLC will be managed and percentages for the interests. The management of the LLC in collaboration with its members creates contracts. The managers of the LLC negotiate a contract on behalf of the shareholders. This differs with corporation, which is formed by a group of people. Corporations have rights and liabilities that differ from the owners. The law recognizes the corporation a separate legal entity (Crispin, et al., 2016). Since a corporation is a separate legal entity, it can enter into contracts on its name. The management negotiates contracts with vendors and drafts a legal binding to protect the interest of the company and that of the vendors. Analytically, sole proprietorship is the simplest and the best option regarding the speed of creation and negotiation of a contract.
Approval of a contract
In sole proprietorship form of business, the owner bids for contracts under his/ her name. However, the validity of the contracts is the signature of the sole proprietor and the vendor. A written agreement between the sole proprietor and the contracting partner is approvable by the law. Partnership enters into a contract where the majority approves (Hillman, 2012). Ideally, when a partnership wants to enter into a contract with a vendor, the shareholders have a stake in the decisions. Despite the outstanding contributions by shareholders, the procedure for entering into a business relationship with a customer must be a legal binding. In this case, the partnership and the customer draft a written agreement to protect the interest of both parties as required by the law. In LLC, the shareholders approve the contract. After the customer and managers for the LLC write an agreement, the shareholders approve the contract before commencing the operations. In cooperation, the company enters into an agreement on his name (Hillman, 2012). The persons appointed manage a cooperation makes bids for contracts, and enter into an agreement with the client. The managers approve the contract provided there is a written agreement between the parties involved. The sole proprietorship is the optimal in the context (Miller & Cross, 2012).
Contract liability
A sole proprietor is liable for the loss incurred in the process of running the business. Ideally, if the sole proprietor enters into a business contract with a client, he/she is responsible for the outcome because the law recognizes sole proprietor by name. In partnerships, the partners are liable for the loss and the share of the profits that result from the business transactions. In situations of contract with a client, the profits or loss arising from the engagement is equally distributed among the partners (Miller & Hollowell, 2010). In an LLC, the company is a separate legal entity and is liable for its debts. However, in the case of high-level business decisions, the company the laws hold the shareholders responsible for the debts. Partnership is most desirable in this context because members share liabilities equally.
Choosing a type of business entity
A sole proprietorship is the simplest during formation because of the few legal formalities. However, it is flexible because the proprietor can make decisions without consultations. The partnership is relatively complex as opposed to a sole proprietorship (McKendrick, 2014). A partnership is inflexible during formation, decisions, and dissolutions. It is difficult to form a corporation because there are many legal requirements to follow. Formation of a company is complex as opposed to other business entities. The sale of corporations is a complex as its formation. It requires consultation with an attorney and private agreement with the stakeholders. An LLC company shares principles with partnerships because the shareholders are called members (Miller & Hollowell, 2010). The operations of the LLC follow written agreement and the proposals from the shareholders. The sale of the company involves following of systematic procedures as the federal laws require. Analytically, sole proprietorship form of business is the best choice of business entity. It is flexible, and the owner can sell the business at a convenient time.
In conclusion, among the four business entities, the proprietorship model is the most flexible and convenient. The sole proprietor is responsible for the creation of a contract, negotiations and carries all the liabilities. In partnerships, members are responsible for major decisions in the business. The formation of a corporation follows a systematic procedure is bound to many requirements by the law.
References
Crispin, S., Hancock, P., Male, S. A., Baillie, C., Macnish, C., Leggoe, J., & Alam, F. (2016). Threshold Capability Development in Intensive Mode Business Units. Education+ Training , 58 (5).
Hillman, R. A. (2012). The Richness of Contract Law: An Analysis and Critique of Contemporary Theories of Contract Law (Vol. 28). Springer Science & Business Media.
Mckendrick, E. (2014). Contract Law: Text, Cases, and Materials . Oxford University Press (UK).
Miller, R. L. & Cross, F. B. (2012). The Legal Environment Today: Business in Its Ethical, Regulatory, E-Commerce, and Global Setting . New York: Cengage Learning
Miller, R. L. & Hollowell, W.E (2010). Cengage Advantage Books: Business Law: Text and Exercises . New York: Cengage Learning
