Assume that John, James, and Jane are considering creating a legal business entity to develop and market their idea for a web application. Recommend the most appropriate type of business activity (i.e., a general partnership, a limited liability partnership, or a limited liability company) for them to form. Provide a rationale for your response. 

Business accounting entities are frequently referred to as accounting entities or business entities. Any economic unit, such as a hardware store or grocery store, is a business entity. Every organization or entity has a separate existence for accounting purposes: they exist separately from their owners, creditors, employees, customers, and other businesses. This business entity concept refers to the existence of the business separate from the person.

It's time to get to the point now that you have seen the business entity concept applied to single proprietorships, partnerships, and corporations. Since accounting is thus separated from other business entities and their owners, this implies that each business form is, too. In the absence of incorporation, a single proprietorship is a sole proprietorship owned by an individual who may also manage it.

Two or more persons who have become partners have formed an unincorporated business. Frequently, the same people who own the company also run it. Small businesses and other professional practices, such as doctors, lawyers, and CPAs, often are partnerships. When it comes to partnerships, there is more risk involved with unlimited liability.

The owners of a corporation are the citizens of a state who have ownership in the company via their shares of stock. A majority of both large and small businesses are set up as corporations.

Activities performed by firms

There are different types of business ownership and these categories were described in the previous section. It is also possible to group businesses by their primary activity—service, merchandising, and manufacturing companies.

Sole proprietorships have some notable drawbacks.

Yet for some people, a sole proprietorship is simply not appropriate. The other side of being in total control is that you have to supply all the necessary skills for the business to be successful.

Pros and Cons of Partnerships

Compared to a sole proprietorship, the partnership offers many advantages. It assembles a group of talented people with various responsibilities in managing the company. Also, the business can easily access a variety of people's financial resources.

Business accounting entities are frequently referred to as accounting entities or business entities. Any economic unit, such as a hardware store or grocery store, is a business entity. Every organization or entity has a separate existence for accounting purposes: they exist separately from their owners, creditors, employees, customers, and other businesses. This business entity concept refers to the existence of the business separate from the person. Therefore, the business's accounting records should keep each business's activities separate from those of other businesses and from the owner's personal finances. Starting a new business as a sole proprietor is the most common type of business beginning. Ownership of this type is very simple for a sole owner and simply requires a tax ID number. However, businesses that are taxed or that have owners should consider other organization types. Depending on the characteristics of your business, including its nature, the number of owners, and the level of worry about taxation and liability, there are various organization types that could be the best fit.

It's time to get to the point now that you have seen the business entity concept applied to single proprietorships, partnerships, and corporations. Since accounting is thus separated from other business entities and their owners, this implies that each business form is, too. In the absence of incorporation, a single proprietorship is a sole proprietorship owned by an individual who may also manage it. Physicians, lawyers, electricians, and other entrepreneurs comprise the single proprietor category. Most small service and retail businesses are also owned by individuals. Such businesses don't require legal formalities, and they can begin with only a small investment. Because there is no “double taxation” with a proprietorship, it is the most attractive feature. Neither business entities nor partnerships are subject to taxes on their profits. Business owners and partners must pay taxes on their share of the company's income. In contrast, the owner of a company is responsible for all of its debts. Unlimited liability is known as this. Sole proprietorships that have business debts exceeding their assets can have their personal assets seized by creditors to cover their business debts.

Two or more persons who have become partners have formed an unincorporated business. Frequently, the same people who own the company also run it. Small businesses and other professional practices, such as doctors, lawyers, and CPAs, often are partnerships. When it comes to partnerships, there is more risk involved with unlimited liability. The individuals who make up the partnership are each responsible for their own actions, as well as the actions of the rest of the partners. If your partnership falls into bankruptcy due to the mismanagement of one of your partners, creditors can come after you for the partnership's outstanding debts.

The owners of a corporation are the citizens of a state who have ownership in the company via their shares of stock. A majority of both large and small businesses are set up as corporations. The corporation is a unique legal entity because it is separate from the company. The shareholders of the corporation are its owners. Shareholders have no say in how the corporation is run. The board members are elected to represent the interests of the group. All business organizations must employ accounting, and each company must use accepted accounting principles (GAAP).

Activities performed by firms

There are different types of business ownership and these categories were described in the previous section. It is also possible to group businesses by their primary activity—service, merchandising, and manufacturing companies. Any of these tasks can be carried out by companies that are part of any of the three business types. You pay to receive service from service companies. Accounting firms, law firms, and dry cleaning establishments are a part of this category. Businesses that buy ready-to-sell merchandise and then sell it to consumers engage in merchandising. Various retail outlets like car dealerships, clothing stores, and supermarkets participate in merchandising. Companies that manufacture products first purchase the materials they use and then manufacture the goods, which they then sell to other businesses or to the end customers. Steel mills, car manufacturers, and clothing manufacturers are all manufacturing companies. The financial statements generated by these businesses are the final product of their accounting processes. The information contained in these financial statements is relevant to internal and external parties, including managers and creditors, stockholders, and other interested parties. The following section provides four common accounts – the income statement, the return on retained income, the balance sheet and the cash flows statement.

Sole proprietorships have some notable drawbacks.

Yet for some people, a sole proprietorship is simply not appropriate. The other side of being in total control is that you have to supply all the necessary skills for the business to be successful. The business will close up shop after you've left. And, in essence, you are the business, so you must also rely on your own resources for financing. In addition, the sole proprietor is liable for any business losses. Unlimited personal liability means that the owner is liable for debts or disasters that are incurred by the business (such as a lawsuit from causing an injury to someone). To launch a business, a sole proprietor must put their personal assets (their bank account, their car, and even their home) at risk. While purchasing insurance can help decrease your risk, your liability exposure is still considerable. Although Ben and Jerry's ice cream business was not owned by one person, as a sole proprietorship, it was not possible for them to set it up.

Pros and Cons of Partnerships

Compared to a sole proprietorship, the partnership offers many advantages. It assembles a group of talented people with various responsibilities in managing the company. Also, the business can easily access a variety of people's financial resources. As well as putting money into the company, partners can also use their own resources to secure bank loans. One final point: Partners can be sure that the partnership will survive if they sign a legal agreement allowing the partnership to carry on after the death of one or more partners.

Even with that said, there are still some downsides. In the first place, as you know, business partners are liable for any and all financial failures. On top of that, many people do not feel comfortable sharing decision making, since it means that they must be a partner. In fact, partners are bound to have disagreements over how to manage the business, and those disagreements can sometimes threaten the future of the company. Moreover, partners are also partners in profits. As long as all partners believe they are being fairly compensated, this deal will work. However, that isn't always the case. For Ben Cohen and Jerry Greenfield, partnership ownership was especially popular. Their partnership started the ice cream business with a limited financial base and allowed them to use their individual skills and abilities. They were friends who could trust each other and who were open to sharing decision making and profit-sharing opportunities. They also weren't hesitant to bear the responsibility for one another's actions.