This article discusses two aspects related to the case study provided. The first will be to describe the business model that the people mentioned can form. Second will be the ethical aspect regarding the actions of Adam. Just to mention, the idea of opening the business, Dazzling Doggies Day Spa (a pet grooming shop) is proposed by Adam and Laura who are not only willing to contribute to the start-up costs, but also ready to participate in the daily running of the business. On the contrary, Laura’s mother, Beth, is ready to contribute towards the startup costs of the business but does not want to participate in the day to day running of the business. Additionally, she is not willing to have personal liabilities in the business.
According to the case study, forming a business partnership among the three individuals will be the best idea. First, it is important to understand the meaning of a business partnership and see how it will be the best model for the three individuals. Lehavi (2017) defines a partnership as an agreement between two or more people who have decided to join efforts to establish a business with the aim of generating revenue. Individually, the people who agree to form the business are referred to as ‘partner’ but are collectively known as ‘firm’. Conventionally, all the partners are supposed to contribute the necessary capital and share the responsibilities of the business.
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Nevertheless, there are different types of partnerships. Not all partnerships require that all members contribute capital or share responsibilities equally. Some partnerships can have members who participate in the day to day operations of the business (active partners) and still have those who do not take party in the daily running of the business (dormant or sleeping partners) (Lehavi, 2017). The dormant partners are allowed to contribute towards the capital of the business and share in the profits and losses. Also, partnerships can be formed on the basis of liability. On this basis there are limited partners and general partners. Limited partners are only allowed to contribute towards start-up costs but are not allowed to take part in decision-making. On the contrary, general partners have the autonomy of making individual decisions and are personally liable for the profits or losses of their individual actions.
From the description above, Laura’s mother, Beth, can be a dormant member in the partnership while Laura and Adam can be active members. With regard to liability, Beth can be a limited member while Laura and Adam can be general members. The advantage that Beth has is that she will have time to attend to her personal matters and still share in the profits of the business. Her general limited membership may also be advantageous in that she will not take part in meetings which may be time-consuming. However, she will still share the losses of the business in case there are any. There are also demerits associated with Beth’s type of membership. First, Laura and Adam can make bad decisions which may result into losses. Because a partnership requires that all members share the losses equally, she will incur losses of which she did not make any decision. The amount of profit which Laura is given also depends on the honesty of the active members. Because in most instances Beth will not know the exact amount of money that the business earns, the active members may give her inaccurate financial reports. Laura and Adam have the advantage of making decisions concerning the daily running of the profit. Having few people making decisions increases the efficiency of running the business. Beth’s contribution also increases their capital base.
Another reason of why a partnership will be the most appropriate is that it is relatively easy to establish. There are not many legal hurdles in registration of a partnership. The most important thing is to have an oral or a written agreement. The establishment of a partnership is akin to a sole proprietorship only that a partnership has more members and an extensive source of capital. Setting up of the Pet grooming shop will only require compliance with the stipulations of the relevant authorities such as an operation permit, tax compliance and a certificate from the veterinary office that certifies the business.
Regarding Adam’s actions of using the business finances to settle his personal bills, it is unethical. First, he uses the money without the knowledge of the other two partners. His actions are equal to stealing. In a partnership, it is not prudent for any partner to use money meant for the business to settle personal issues. The growth and progress of any partnership depends on the integrity of each member (Seitanidi & Crane, 2013). Because Beth and Laura are unaware of Adam’s actions, it is likely that Adam will deny squandering any money. Even if Adam has urgent issues, it is important for him to inform the other partners so that a better solution is sought. The ultimate result of Adam’s actions, if not controlled is that the partners will be suspicious of each other. The lack of trust among the three partners will be the beginning of the crumbling of the business. Adam’s unethical behavior may also have legal implications. Because Beth is a dormant and limited member, she might decide to sue the two for squandering money meant for the business operations. The business will have to close at one point. It is important that Adam realizes the impact of his actions and takes corrective measures early enough.
References
Lehavi, D. (2017). Business Partnership Essentials: A Step-by-Step Action Plan for Succeeding in Business with a Partner, 2nd Edition . Boston: De Gruyter, Inc.
Seitanidi, M. M., & Crane, A. (Eds.). (2013). Social partnerships and responsible business: A research handbook . Routledge.
