Essay Sample on Business Forms and Governance

Part IA General Partnership, as Geekie and McClain (2014) articulate, is defined as two or more people carrying on as the co-owners of a business for profit. General Partnership is best suited for the manufacturing company primarily because of various factors. Firstly, a partnership is straightforward and quick in structuring the manufacturing business. The simple structure enables the co-owners to avoid registration fees, which would otherwise be used in creating corporations or LLCs, and thus, it is cheaper. Besides, as Geekie and McClain (2014) highlight, partnerships will enable investors, if they sign up for the partnership, to share the partnership profits as the main motive of entering into the partnership is making profits. Essentially, all partners will share the net profits, after deductions. Besides, there can be a provision that the partners will not share any losses associated with the partnership. Also, the partnership is more flexible regarding taxation of the co-owners, regarding the ability to flow through losses and tax benefits to the co-owners, as well as in terms of profit and loss sharing arrangements (Schler, 2011). Even though S corporations and LLCs can still offer these, they do not offer them at the same flexibility partnerships do. Besides, the General Partnership has another advantage, mainly over S corporations in that it can pass through losses, based on the partnership, instead of an actual investment or borrowing by the individual co-owners. It also has the capability of passing through losses, as well as other tax benefits without the need of individually borrowing or investing (Geekie & McClain, 2014).

On the other hand, an S Corporation would be least suited for the manufacturing company based on a variety of factors. Firstly, they are not as flexible as the partnerships. As articulated by Geekie and McClain (2014) they have a tax disadvantage in that the S Corporation cannot increase the basis of their ownership interest, and is incapable of passing through losses as it is usually based on borrowing from members or actual investment. According to Slemrod and Yitzhaki (2002), adopting an S-corporation is restrictive in terms of the type and number of shareholders, equity arrangements, and the amount of passive income, which makes it less suited for the manufacturing company compared to the partnership. Besides, it eliminates the possibility of having numerous foreign shareholders because only 14 have to be from the global financial market, thereby prohibiting foreigners from equity participation, and in effect, this prevents business expansion (Geekie & McClain, 2014). Also, as Geekie and McClain (2014) highlight, an S-corporation can only issue one economic class of stock. The shareholders do not have the benefit of obtaining an additional basis for their share of entity-level debt as partners in a partnership do.

Part II

There are various legal liabilities that can arise for the director or officer of the board. These include fiduciary role. The director may have a fiduciary role to the company, where he or she protects the organizations assets, as well as investment from shareowners (Rowe,2016). The board member may be given a responsibility to undertake the company transactions, as well as ensure that taxes are remitted in time and accurately. The director or officer may have an option of backdating, which can increase his liability risk. The management may break the law, for example, laws that relate to tax filing and IRS. Also, the officer or director can be required to make an out-of-the-pocket payment, especially if the director does not meet the clients needs regarding the manufacture of items. As Klausner (2007) notes, there are three factors that can lead to an out-of-pocket payment, the inadequacy of director and officer liability, an insolvent corporation, and a violation of the disclosure rules that are used in governing the public offering of the manufacturing company. Other legal liabilities include material missassessment in an annual report, which could significantly lead to court cases.

However, there are a variety of ways that the director or officer can reduce the chance of bearing personal legal liability of the company, which significantly reduces the liabilities. Firstly, the director should be aware that their legal liability increases when the company makes a public offering of securities (Black, Cheffins, & Klausner, 2006). As such, the director needs to show that he or she questioned the management, as well as the companys auditor sufficiently to ensure that there are no misstatements and the documents are accurate and up-to-date. Secondly, as Klausner (2007) posits, the director or officer needs to make independent advice from the companys policies, such as asking clarification on the severability provision, to ensure that it favors him subsequently or her in the event of misconduct.

References

Black, B., Cheffins, B., & Klausner, M. (2006). Outside director liability. Stanford Law Review, 1055-1159.

Geekie, J. T., & McClain, B. W. (2014). Legal and Tax Considerations In Choosing The Form of Business Under US Laws. International Journal of Arts & Sciences, 7(1), 33.

Klausner, M. (2007). Reducing Directors Legal Risk. Harvard Business Review, 1.

Rowe, B. (2016). See No Fiduciary, Hear No Fiduciary: A Lawyer's Knowledge within Aiding and Abetting Fiduciary Breach Claims. Fordham Law Review, 85, 1389-1425.

Schler, M. L. (2011). Basic tax issues in acquisition transactions. Penn st. l. rev., 116, 879.

Slemrod, J., & Yitzhaki, S. (2002). Tax avoidance, evasion, and administration. Handbook of public economics, 3, 1423-1470.