Business Entities

General partnership is the appropriate business entity in opening the restaurant serving liquor at a New Jersey beach Resort with three people equally contributing an amount of capital and time to the venture. Two or more partners contributing capital or expertise comprise a general partnership. A general partnership is easy to create and manage because there are no required formalities. This eases the establishment of business for inexperienced investors. Control is also clear and simple Pbecause the general partners are the managers or the allocation of managerial responsibilities depends on the agreement of the parties.

The partners also pay taxes individually as self-employed taxpayers. However, there is also a downside since the partners can also become personally or ‘jointly and severally’ liable for the acts or omissions of the partnership concurrent with the equal division of profit among the partners. (Cheeseman, 2006) This type of business entity requires a high degree of trust that fits the situation since the partners comprise siblings and friends equally contributing time and money to the venture.

There are also other types of business entities, with pros and cons, fitting different ventures. Sole proprietorship refers to a business by a single owner, who is in charge of creating, controlling and managing the business. This is also simple to establish and easy to control because there is only one person making business decisions. Payment of taxes is at an individual level. However, the sole proprietor could also be personally liable for business obligations and torts. (Cheeseman, 2006) This did not fit the needs of the restaurant venture since there are three contributors of capital who are willing to participate in management.

General partnership with limited partners is another business entity with two or more people forming the partnership including limited partners who are without personal liability. This involves formalities especially the filing of articles of association. Business income is taxable at the individual level. This has a downside. Personal liability accrues only to the general partners, which means the burden to ensure the fulfillment of obligations rests upon the general partners, albeit limited partners contribute valuable capital investments. (Cheeseman, 2006) This does not match the needs of the restaurant venture since there may yet be no need for outside investments.

Limited liability partnership is another business entity constituted by two or more people requiring the filing of the articles of association and the creation of an operating agreement. This has the effect of shielding the partners from personal liability. Business income is also taxable at the individual level. However, lack of personal liability comes at the cost of having to contend with formalities and loose commitment of the partners creating risks of liability. (Cheeseman, 2006) This was not selected for the restaurant venture to do away with the unnecessary burden of formalities.

Limited liability company is a business entity established by filing articles of organization and forming an operating agreement. Control rests on the members or managers with shares protected from seizure by creditors, heirs or spouses. The owners of the company hold protection from personal liability. The company can have a limited number of private investors sharing in the profit. Tax payments can be business income at an individual level or at business level. This also carries the downside of more complex management and control. (Cheeseman, 2006) This fits larger firms and ventures that are more complex.

Corporation is a union carrying on an industrial enterprise established through articles of incorporation and bylaws. Shareholders elect the directors and shares could be subject to seizure. Shareholders are not personally liable for company debt. Two forms of companies emerged, the C Corporation and S Corporation. The difference is the special tax status election of the S Corporation so that these pay taxes at the shareholder level not at the corporate level. (Dignam & Lowry, 2006) This also works for large firms and complex ventures.


Cheeseman, H. R. (2006). Business law (6th ed.). New York: Prentice Hall.

Dignam, A., & Lowry, J. (2006). Company law (3rd ed.). Oxford: Oxford University Press.