Legal, Social, and Economic Environments of Business

Last Updated: 08 May 2020
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This an inventor with little financial skills and no managerial skills, knows nothing about manufacturing and has minimal start up capital but he has an idea of an appliance that he hopes will be successful. This entrepreneur believes that in spite of the inherent risks associated with similar products, his has a big potential to have widespread applications as is the case with the ‘clicker’ and the ‘3-prong power’. The market for this type of product is saturated but however if it proves unique then it will most likely generate significant sales despite the down turn or negative growth rate in the housing industry.

Business organizations Types of business organizations range from a one person business (sole proprietor), through partnership where two or people are working together in collaboration, to a public incorporated company (the corporation) (Cole, 2003). In sole proprietorship, the individual has full control of the business and assumes full liability for the debts, and income or loss of the business (My Own Business 2010). The advantages of sole proprietor include, minimal start up formalities, complete autonomy to run business, profits belong to owner, no public disclosure.

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Disadvantages include, owner is fully responsible for business debts and the running of the business (Cole 2003). A partnership consists of two more partners who, like sole proprietorship will assume unlimited liability for the debts of the business but with income and expenses reported separately for tax purposes (My Own Business 2010). The advantage include, fewer formalities, sharing of knowledge and skills, no obligation for public disclosure, sharing of profits (or losses), enhanced business management.

The disadvantages include, each partner is liable for business debts even if occasioned by the actions of the other partner or partners and partnership lapses with the death of a partner. In a corporation there are many investors but they are not obligated for the debt of the company. The advantages of the corporation are, investor’s liability in the event of business failure is limited to the nominal value of their shares and the company is a separate legal entity.

The disadvantages include, for small companies, ability to borrow is limited and the formalities for setting up the corporation are lengthy (Cole, 2003). Recommendations As stated, this investor does not have sufficient funds and has no managerial skills, but has an idea of the appliance he wants to manufacture. This rules out the sole proprietorship. He therefore needs a partner or partners who will fund the business and inject into business managerial skills such as marketing, product development, sales management, finance among others.

Alternatively, with sufficient funds, the partners can skilled personnel to augment the required managerial skills. Due the length procedures of starting a corporation it may not be prudent for this investor to contemplate setting such business organization. He should start with partnership and if need be incorporate the business at an appropriate time in future. References: Business Organization. Article in My Own Business 2010. Available at <http://www. myownbusiness.

org/s4/ > accessed on June 5, 2010. Cole, G. (2003). Management Theory and Practice. 6th Edition. Published by BookPower. Entrepreneurship. Article in Network Solutions 2010. Available at <http://www. businessdictionary. com/definition/entrepreneur. html> accessed on June 5, 2010. Types of business organizations – Sole proprietorship. Article in BUSINESSFINANCE. com 2010. Available at <http://www. businessfinance. com/books/StartABusiness/StartABusinessWorkbook010. htm> accessed on June 5, 2010.

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Legal, Social, and Economic Environments of Business. (2018, Jun 01). Retrieved from

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