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Business Entities

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A partnership is a form of a business entity in which a business relationship exists between people who hold a common interest of making profit. The type of business described in this case is a partnership since Bill, John and Mary have opened a restaurant and defined their roles in order to make profit from the business. There are three kinds of partnerships in business recognized by law. They include those recognized by the Under Partnership Act of 1890, the Under Limited Partnership Act 1907 as well as the Under Limited Liability Partnership Act 2000. These types of partnerships differ in terms of the nature of agreement and liability which befalls different stakeholders. For example, in the Partnership Act 1890, partners have unlimited joint liability for several partnership obligations in case the firm is unable to pay. In some partnerships, the liability of partners is tied to the amount that they contribute. There are many forms of partnerships, but the ideal one in this case is the limited liability partnership since members will have limited liability and will be expected to operate as agents of the enterprise, thus act in the best interests of the firm.


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The ideal form of partnership in this scenario is that formed through the Partnership Act of 1890. According to this act, partnerships can be formed through word of mouth as compared to other ventures where a written contract is required. This form of partnership is very important and can work for Bill, John and Mary since it occurs at will and does not have to be a fixed time partnership. In this case, the partners can agree on the amount of time they intend to work together in the partnership. Nonetheless, it is significant for the partners to conclude a legally-binding contract. A signed or written agreement can also serve as a tool for reference in future interactions among the members. A legally-binding agreement takes the form of any other contractual agreement, thus imposes the requirements that are stipulated in the writing of contracts. Furthermore, the members of the partnership already meet the minimum threshold of two members or two partners.

The first legal issue that arises from this case is the violation of an agreement by one of the partners. Violation of the terms of agreement that governs the partnership can also be seen as a violation of the contract. The terms and conditions that bind partners together in the partnership form a contract between all members or all partners (Carpenter, Bauer, & Eiderdown, 2010). Any violation of these terms is a violation of the contract itself. For example, by ordering a piece of equipment that is worth £10,000, Bill violates the agreement on the total amount that a partner can use in a single purchase. In this case, the other partners John and Mary can take a legal action against Bill for the violation of this agreement. The violation in this case is the fact that Bill misappropriated money without informing the other business partners about the purchase of a cooker. Additionally, Mary violated a significant aspect about the partnership since she got into a contract, which was binding the other members in the partnership. The decision to relocate to a better residence for the partnership was binding to the other members, thus it tied them to a new location or decision (Rumelt, 2011). Indeed, this is a violation since she made a decision that would bind all members and thus required consultation with the other partners. However, their partnership agreement did not stipulate how the process of making such decisions should take place.

Secondly, a legal issue arose due to inclusion of Jim in the case despite of the fact that Jim is not a partner and does not take part in any business activities. Indeed, Jim is not a member of the partnership since he is only the financier but not a part of the team that works in order to ensure that the business is running constantly. In this case, Jim does not have direct interests in the business venture. Furthermore, in Scotland, a partnership is a legal person, which means that it has a right to engage in different activities using its legal identity as compared to relying on the identity of its owners. The registration of a partnership assigns it rights to operate legally as a separate entity (Eisner, & Cohen, 2010). Furthermore, it is evident that the partnership or restaurant business is an agreement between three main parties who are John, Bill, and Mary. The only agreement in which Jim is involved is the agreement with John, his son, whom he lent the money to start a business. Therefore, the issue of involving Jim in a legal charge is not feasible in this case.

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Finally, the issue of fulfillment of responsibilities is equally evident and eminent in this case. In terms of liability, the partnership act states that in case a partner does a wrongful act to a third party, then the firm is equally liable for the action as the partner is (Freer, & Moll, 2011; Magistrale, 2015). Indeed, in this case, the liability of causing food poisoning to a client at the restaurant will affect the partner as it will affect the entire partnership entity. Since John deals with meal preparation, he holds significant liability for Dot’s food poisoning case. Indeed, he holds equal liability as the partnership that is facing the accusation in this case.


A limited liability company is an entity that holds features both of partnerships and companies. A limited liability partnership brings together members who maintain limited liability rather than joint liability. The advantage for Jim and John in engaging in this kind of business agreement is that the legal liability partnerships are legal entities. However, in terms of the liability spread, an individual is said to be liable due to his or her own negligence. Therefore, when a partner acts negligently or applies little or no care on specific issues regarding running the business, it is clear that the aspect of assumed liability applies. The certificate of incorporation, which lists out the issues, will govern all the transactions and business dealings of the partnership (Sloan, Legrand, & Chen, 2012; Muehlhausen, 2013). Furthermore, since Jim is merely a lender or financer of the project, the limited liability partnership allows John to issue Jim a floating charge to lenders in a similar manner to a company. Furthermore, the aspect of accountability is brought in due to the issue of filing and publishing the annual business reports. The duo will also benefit from the fact that limited liability partnership requires that all members should assign tasks to each other. In this case, each partner will have a specific responsibility that he or she must meet (Kubasek, Browne, Dhooge, Williamson, Herron, & Barkacs, 2015).

Another significant advantage for both Jim and John is that each partner will be required to act as an agent for the partnership or business entity. Whilst enjoying the aspect of limited liability, each partner will be required to act as an agent and thus safeguard the interests of the partnership in other forums (Cabrelli, 2011; Clark, Osterwalder, & Pigneur, 2012). Indeed, acting as an agent or having a principal-agent relationship between the partnership and the individual partners is important since the actions and performance of a partner will be judged based on the guidelines of a principal-agent relationship. Such a relationship compels the partners to act responsibly and avoid breaking agreements as seen in the case of Mary and Bill. More benefits of the limited liability partnership emerge from the fact that normally they will act through an internal agreement. The internal agreement provides rules on how the parties in the partnership are expected to interact (Mancuso, 2013; Davey, & Powers, 2016). The partners will also take part actively in making decisions such as how to proceed in the organization in case of insolvency. The limited liability partnership provides the most ideal form of partnership for Jim and John since it presents a wide array of opportunities and regulations, which ensures that the relationship between partners and with other parties is well regulated.

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Jim and John can use an alternative approach in order to regulate the business entity. The alternative to limited liability is the one that was introduced in 1907. The advantage of this form of partnership is that it provides options through which partners can join a business entity. For example, an individual can be a general partner and thus enjoy unlimited liability from the partnership. On the other hand, there can be limited partners who have limited liability in the business entity. Limited partners are required not to take part in the managerial issues or drawing of capital or any other risk being liable in the business (Sloan, Legrand, & Chen, 2012; Clark, Osterwalder, & Pigneur, 2012). Furthermore, in Scotland, limited partnerships lead to the creation of legal persons, which creates an additional advantage for both Jim and John. Limited partners will oversee the issue of book keeping through inspecting the partnerships books of accounts. Furthermore, these entities have to be registered at the Companies House. The entities will undergo the process of taxation as partnerships while dissolution can only take place due to issues other than death or bankruptcy of a limited partner.

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The alternative of operating as limited partners in the organization will be significant for both Jim and John since it limits exposure to risk as well as regulates interactions between the duo and other partners in the partnership. Clearly, Jim and John will work with people who operate more responsibly since they will be acting as agents on behalf of the partnership rather than by themselves independently. Through acting as agents, the individuals or partners in a partnership are more likely to act responsibly since they will be held accountable for their actions. The issue of limited liability will be advantageous to the organization as well as to all partners since the scope of liability revolves around the issue of risk and loss. Furthermore, the partnership will create a legal person to whom the law can be applied. Thus, the legal person will provide support if any legal issues such as the one observed in this case arise. Although the determination of all issues in this paper is unclear, it is imperative for the organization to change its structure in partnership in order to avoid such issues in the future. All the partners must respect the partnership agreement in order to ensure that all the activities of the partnership are transparent and adhere to a specific arrangement.

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