The first instruction God gave to Adam and Eve was to multiply and have dominion over all the earth and the things in it. While the family unit enables us to fulfill the first part of that command, business activities best empower the domination of the world. Elegido (2006) quotes Pope John Paul II as having supported the notion of man's responsibility to dominate the earth, and the power then comes from harnessing business activities towards that end. The basic aim of businesses is to solve some human needs and make life better for others. It elevates the goodwill of one person and allows them to impact on the lives of numerous other people. Businesses, with their devotion to doing better than their competitors, have brought about the greatest, most profound changes in the quest for world domination. From medicine to education, to education, and space explorations like are being done by Tesla Inc., the power of business to effect changes is very profound indeed.
For the sake of organization, businesses are governed by rules and regulations formulated and executed by secular governments. Enterprises also give back to the community (somewhat involuntarily) through taxes. The taxes serve as the government's share of the profits a business makes off their business activities and are used to provide social amenities for the populace. Depending on their ownership, membership, and scope of operations, businesses fall into four categories namely; sole proprietorship, partnerships, corporations, and limited liability companies. It is, therefore, the God-given responsibility of a competent businessperson to figure out which business model is best suited for their enterprise.
In this paper, we shall examine the forms of business organizations with the aim of finding one that is suitable to the case under study. In the case study, Alex, Bill, Carl, and Devon have inherited an organic farm, which neither is capable of running. None of them is interested in running it, so Xavier, the current manager, is to continue with his position after the transition. The hypothesis for the paper is that the brothers need a model in which they can minimize their taxation, maintain ownership control, and have a say on major decisions. However, the model must allow for the management of the business by non-owners. The paper will examine all four models of business organization, giving the pros and the cons of each before recommending the most suitable for application in the case study.
The assessment of the different types of business organizations will answer several pertinent questions such as the costs of setting up the model of operation, the complexity of government regulations on the operation of a particular business model, and the amount of control available to the owners in each model. Our paper shall also examine the responsibilities of the owner in each model, the sharing of profits, and special taxes levied on each type of business organization. In the more complex forms of business models where founders are answerable to boards of directors and other shareholders, the paper shall examine the skillset required to run a business, along with the relationship with other owners, and establish a line of succession. Finally, we shall examine the financial needs of every model and personal liability accrued in each model of business organization.
In the sole proprietorship form of business organization, the owner maintains full control of all aspect of the activities (Skripak, Cortes & Walz, 2016). They make all the important decisions, oversee the day-to-day running of most or all of the business activities that go into the operation of their businesses, and enjoy all the profits the business makes. More attractively, income from sole proprietorship businesses counts as personal income and is only charged as such. The owner needs not pay any special income taxes to the state or federal governments (Schwidetzky, 2009).
The cost of this autonomy is that sole proprietors are fully liable for the risks that come with the running of their businesses. Any loss incurred by the business digs into the personal income of the proprietor, and the proprietor settles personally the liabilities incurred by the business. The wealth of the owner of a sole proprietorship business enjoys no immunity from possible repossession in the event of the business being insolvent and being unable to settle its liabilities (Skripak, Cortes & Walz, 2016).
In our case study, the sole proprietorship form of business would be suitable for allowing the family to maintain ownership of the farm. As the sole owners, the four brothers can decide to place a manager to oversee the day-to-day operations of the farm and only monitor the long-term goals. This form of business organization is also suitable for minimizing formalities and complexities. The taxation, bookkeeping, and other business activities can be managed easily from a central point of the owners without having to deal with a large group of shareholders, government policies on fair competition, and long chains of authority. Alex, Bill, Carl, and Devon, as the joint owners, would make decisions pertaining to the farm such as the proposed expansion to include a vineyard. Taxation would also be less complicated compared to other business types as the business would be taxed once and the remaining profits divided amongst the brothers after paying farmhand employees.
However, the brothers would be liable for all the activities of the business and all outcomes arising from them. For example, the farm organizes a festival where visitors enjoy the corn maze, pumpkin patch, and other amusements. If a tourist to these events were to get injured, the brothers could be held liable on behalf of the company. Another huge issue would be the registration of the business. Since a sole proprietorship is tied to the person of the owner(s), a different business entity would exist after the Dad's passing because sole proprietorships dissolve upon the death of the owners (Skripak et al., 2016). To be a valid sole proprietorship, one of the brothers would have to register it and enter into a non-related contact with the brothers on ways in which the profits would be shared and their collective responsibilities as joint owners.
The sole proprietorship model of business is unsuitable for our current case where joint ownership is very necessary. Adopting sole proprietorship would mean that one of the brothers would have to be the legal owner of the business and thus be legally liable for the settling of business debts such as the loan that is to be granted by the bank to expand the business. The only other option is to subdivide the land or the farming operations and have one of the brothers responsible for it. However, that would be too complicated and might end up creating unnecessary strife. Furthermore, the two options; having one brother registered as the sole proprietor or giving each of them one section, comes alarmingly close to breaking the rule of "making certain that humankind is served by riches and not dictated by it" that was espoused by Pope Francis (Mele & Fontrodona, 2017). The relationship between the brothers and their cousin Xavier is likely to deteriorate when one of them feels the huge burden of financial liability for the farm. The fact that all of them have indicated the desire to share no liability for the farm makes the consideration for sole proprietorship moot.
The partnership is the first form of business organization that is complex enough to warrant a legally binding agreement that governs the running of the business. The partnership agreement specifies the rights and responsibilities of each partner. According to Skripak et al. (2016), details stipulate in the agreement include; contributions of every member and the total capital raised for the setting up of the business, the ratio of profits liable to each partner, their responsibilities, exit clauses, dissolution, and dispute settlement. Partnerships may either be general, meaning that each partner is liable for their share in the whole enterprise, or it might be limited, protecting the partners' personal assets from possible repossession to settle business debts. However, the limited partnership would still feature a general partner responsible for the running of the business and responsible for its liabilities. This differentiation in liability is likely to call what is defined by the Vatican II as the divided family life between the four brothers, or the virtual enslavement of one of the five to the business (Harrington et al., 2014). For taxation purposes in partnerships, the government levies a charge on the share earnings of each partner in form of income tax. In matters of taxation, the partnership would be similar to the sole proprietorship business where one person is taxed for all profits of the business, except that in this case each individual is taxed for their share of the farm profits. The lower amount of profit eligible to each would actually be advantageous because the tax brackets would be lower, resulting in less taxation overall (Todd, 2011).
In our case, all four brothers might enjoy equal share capital in the inherited farm or they may agree on a differentiated contribution according to age. The elder brother, who gets the largest chunk of their father's inheritance, could then become the general partner who enjoys no protection from unlimited liability. Unless the brothers make Xavier a partner in the business, they would have to be involved in the direct running of the business, if only to protect their liabilities. According to Bible principles, humans are supposed to dedicate themselves to everything and accomplish every task to the glory of God (Elegido, 2006). Employing Xavier to run the business would entail the absconding of their duties as partners and would be contrary to both the economic and Christian ethics governing partnerships (Kuzmina, 2013). Even though the four brothers would have trust, the most important quality for partnerships according to Skripak et al. (2016), their insufficient skills in the running of organic farms still make them incompetent to make business decisions in their shared management of the business as partners.
Corporations differ from partnerships and sole proprietorships in that they are legal entities capable of entering into contracts, owning property, suing and being sued, and independent taxation (Skripak et al., 2016). The corporation is the ultimate business organization for limited liability as this feature is one of its strongest characteristics. The brothers and any other family members invited to own a part of the business would be the shareholders with a monetary investment in the form of stock. A board of directors would them be elected in cases where the number of shareholders is great or the shareholders can sit on the board. The sitting of all brothers in the board of directors would be the best idea for our case as it would give them the opportunity to monitor the running of the business without being involved in the day-to-day running of the farm. The manager (Xavier) could be both a shareholder and the appointed manager, in which case his employment would be protected by his being a member of the board of directors (Martinez & Gustafson, 2004).
As mentioned above, shareholders in a corporation enjoy limited liability even in the event of bankruptcies, which would be attractive to the brothers, as they have reiterated their desire to keep the business separate and avoid mixing liabilities. Incorporating the farm would mean that anyone dealing with the business would be d...
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