Harlow’s Partnership Assignment Help

Executive Summary

Businesses in any industry, either they are formed as sole proprietorship, on partnership or as incorporation, all these forms of business structures have their own advantages and disadvantages over the others. Similar was the case with Harlow’s family, their business of Motels which started in 1982 on partnership basis among the family members and later by 1999 the family established their business as one of the most successful motel business in the industry now needs to consider if they should incorporate their business or not.

Though in the beginning, starting a business on partnership basis was recommended but now since the business has escalated, it is now time for the family if they really want to incorporate their business and become share holders in their business rather then staying as owners. Definitely by incorporating any business it has more benefits as compare to operate the same business on partnership basis, for example people will have more confidence in incorporated businesses, transfer of ownership of shares is easy in incorporated businesses as compare to businesses that operates on partnership and most importantly the life span of incorporated businesses is ongoing even if one of the share holders die.

Keeping in mind all these reasons, it is advisable for both Becky and Harold to consider their business format and incorporate their business if they want to enjoy the profits for the long period.

Introduction

The case study is about a family owned business of Motels. The family opened their first motel in 1982 and from then onwards the couple Harold and Becky progressed in their venture. Over the years the family was able to establish 7 motels, each comprising on 100 rooms. At present the business is operating on a partnership basis, but recently been advised by their accountant that it will be beneficial for the family to incorporate their business, as incorporated businesses have more benefits and advantages as compare to partnership.  

Advantages and Disadvantages of Partnership

Partnership can be defined as the relation that subsists between partners carrying on a business in common with a view to gain profits.

Setting up a new business alone is never easy, as there might be restraints related to finance, management, experience or even skills. It is for these reasons; many people look out to form some sort of partnerships with the like-minded people or with someone who either have the required skills or funds. At present both Harold and Becky are working as partners in their motel business, they have line managers to look after their motels but the major decisions are still made by the two partners. In the process of setting up any form of partnerships in business there will be advantages and disadvantages of it, such as:

Easy Formation

The overall process of forming up partnership can be easy, all it needs is mutual understanding on the various aspects of business in either oral or written format. Though written format is preferable in most cases. 

Large Resources

Partnership can be between two or more people, generally two to three partners are preferable in most of the cases, as it will be easier to have mutual consent on various business maters. At the same time, all the partners will be able to accumulate large resources as more than one contributes capital. With the help of added financial strength by all the partners can be utilized in order to be able to increase the overall scale of operation of the business.

Diverse Skills and Expertise

Not everyone is capable of doing everything by himself, as for this reason by having partnership in business, diverse skills and expertise can be achieved as each individual will have his or her own skills and expertise that can be utilized in the similar way.

Sharing of Risks

As partners in any business are committed for sharing profits, they are also responsible for sharing loss in business if any. The overall share of risk for each partner is relatively less in comparison to sole proprietorship.

Disadvantages of Business Partnership

There’s no doubt that partnership form of business is comparatively better than sole proprietorship form of business, however one cannot justify it as the only best option available to entrepreneurs, mainly because of the disadvantages that are associated with partnership.

Limited Capital

In any form of business there is a limit to the maximum number of partners that the business can have, which may result in restricting the amount that needs to be raised for the business (Kumar. C, 2009). Large-scale business like Haslow’s Motel require large capital in order to be able to grow further without any limitations.

Instability

With firms that are based on partnership, there’s always a risk of instability, because a large successful organization can be dissolved due to the death or lunacy of any partner. There might be disputes between partners which might be hard to resolve.

Public Confidence

In most of the partnership businesses it has been clearly observed that public has not that high confidence in the organization, as they may suspect that the organization is making huge profits and are not publishing those accounts publicly.

Decision Making:

Under the partnership agreement, one partner is not solely responsible for making any decisions on his own, as for this reason one has to consult other partner for his approval. At times on occasions it is possible that disagreements might take place.

Contrast the advantages and disadvantages of a partnership with those of a corporation

For any business, the choice of which type of organizational form would be best suited is mainly based on deciding the scope of the firm and the nature of ownership. Same is the case with Harlow Motel business, so far they had their business based on partnership, but there are options available to them to further grow their motel business, such as to form a corporation. Corporation is generally considered as a separate legal entity, incorporated through a legislative or other registration process that is completely separate from its owners (Solaris. S, 2011). Harold and Becky will be considered as partners in the business as they do not own any shares in the company.

Compare and Contrast between corporation and partnership.

Provide your opinion on whether the Harlow’s should incorporate

Considering the case of Harold, when the family started their business in 1982, it was just a startup business at that time and comparatively small and new which took the family almost 11 months to make break even. Now almost after 20 years the family now owns 7 motels each comprising of 100 rooms.

With the current structure of partnership they have in place has helped them achieved the desired result, but with the similar functionality and system they are restricted to further grow in their business. In order to be able to expand and grow their business it is important to realize the importance of incorporating their motel business that will help in raising further revenue and by being shareholders in the company both Harold and Becky will have less risk. Once the business is incorporated, it will be easier for Harold and Becky to buy some shares for themselves that will maintain their control of the operation and use other shares for various other purposes.

One of the biggest advantage that Harold and Becky would have if they decide to incorporate their business, is that by incorporating their business the corporation would have unlimited life span. Even if one of the members die, their business will continue to operate.

Would the limited liability company option be of value to them?

A limited liability company can be described as a flexible form of enterprise that comprises of elements of partnership and corporate structure. In simple terms it can be stated that a limited liability have certain characteristics of both a corporation and a partnership (Keatinge, et al, 1992).

Since Harold already admitted the fact that operating 7 motels at the same time is a bit difficult, though he is glad and lucky enough that the managers he got to manage his motels are really doing great job. However at some stage both Harold and Becky would be considering to sell of their business to a third party and then take retirement. Considering from their perspective, the advantage of forming a limited liability company is that if once formed the company/business will have an everlasting life, all its directors, management and employees will act as an agent of the business including Harold and Becky as well. In case if any director dies, leave, retire the business will remain in existence. Another major advantage for Harold and Becky that can be achieved by forming a limited liability business is in the form of organizational structure. A flexible structure can be formed agreed upon by the company owners, unlike corporations that have a board of directors who oversee the major business decisions within the company (Keatinge, et al 1992).

Having Ltd., Inc., or even Corp. as part of any company’s name will definitely help in increasing the business, mainly because of the fact that people perceive corporations as being more stable as unincorporated businesses (Ward. S, 2008).

Conclusion

Both Harold and Becky Harlow are in the business for almost 20 years now and over the years the family has been able to establish their business as one of the most successful motel business in the industry. However in the next few years the couple might have to sell their business and take retirement from their business. Else another option been offered by their accountant to consider is to incorporate their business and become the shareholders of their own business, by doing so the family wont be completely responsible for the performance of the business however they will still be enjoying profits from it. In case if for any reason the business makes loss even then the family wont have to bear the loss on their own besides all the shareholders will be responsible for it. So keeping in mind the nature of business and the industry the business operating in, it is highly advisable for the family to incorporate their business.

References:

1. J, 2010, ‘Four Advantages of a Corporation over Other Organizational Forms’, viewed on 9^th Dec 2013 <http://www.brighthub.com/office/finance/articles/15807.aspx>
2. C, 2009, ‘What are the Advantages and Disadvantages of Partnership form of business?’, viewed on 10^th Dec 2013 < http://www.preservearticles.com/201101153420/advantages-and-disadvantages-of-partnership.html>
3. S, 2008, ‘Should You Incorporate Your Small Business?’, viewed on 8^th Dec 2013 < http://sbinfocanada.about.com/cs/startup/a/incorporatadv.htm>
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5. Keatinge et al. 1992,“The Limited Liability Company: A Study of the Emerging Entity,” 47 Bus. Law. 375, 383-384