The legal organization that the proposed business assumes will be a partnership.In choosing this business orientation for our proposed organic farming initiative; various factors were put into consideration. Liability, profit/loss sharing, decision making and control, continuity and agency were considered. After carefully weighing the pros and cons associated with these factors, a partnership was considered the ideal choice. The source of financing, product acceptance, financial risk, and workload were also carefully weighed in to come up with the decision.
The partnership was chosen because it was advantageous in terms of financial risk for the investors. Within the partnership, one member volunteered to be a general partner. This created room for other people to freely join the initiative. The advantage of this approach is that more people are willing to join in the partnership since their liability is limited (Brigham and Huston, 17). This implies that if the organic business fails to kick off due to heavy liability, their personal property will not be attached to the debt.The partnership is thus a limited partnership with freely transferable interest.
However, the main financial advantage of the partnership is the ability to pool funds fromdifferent sources. This ensures that no one single investor commits a lot of money. The ability to pool numerous investors also provides cushion for the investors in the event that the business makes loss. Losses will be expected in the initial year of the project as capital expenditure is being catered for by the business. The investors will be able to share in the losses during this particular period before they start reaping profits. The other advantage of this form of legal organization is the sill variety. The members of the partnership will have skills that will complement each other (Jackson, 1). The incentive of becoming a partner and owning a part of the business is also hopped to attract employees who will be dedicated to the business’ course. The business will also have a better chance of raising capital due to the increased number of partners. The partnership is also a good prospect since there is no double taxation.
Disadvantages and How to Deal with them
The agency problem is one of the anticipated problems. This problem arises when the company hires outside help to deal with the business’ affairs (Short, 4). To solve this problem the partnership has opted to create a management team from the existing partners. The company will source for qualified partners to run the organization. In the event that the pool of partners fails to make the cut, the company will make the managers partners within the organization. This helps in avoiding conflict of interest that is brought about by the agent-principle relationship.
The other disadvantage that is usually related to partnerships is the fact that all partners equally share losses due to risks of few partners. To ensure that this does not happen, the business will put the general partners in the board of management and the limited partners will have little participation in the daily running of the organization (Jackson, 1). This approach has been taken because the general partners have more to lose when reckless decisions are made than the limited partners.
Jackson, Tom. “The advantages and disadvantages of setting up an LLC. (Ask the lawyer).(Limited Liability Company)(Brief Article).” Air Conditioning, Heating & Refrigeration News 5 Aug. 2002: 2. Print.