Legal Profit-making in Business

Posted: October 17th, 2013





Legal Profit-making in Business

            A business is an activity undertaken in order to generate income. It involves trading goods and services for money to the consumers. The main aim of a business is to make profits in order to increase the wealth of the proprietors of the firm. Businesses may be either privately owned or owned by the state. There are also some businesses that are non-profit organizations but they are a minority in the field of business. There are some laws that govern the running of the business sector (Stross, 12). These laws ensure that there are no malpractices in the sector. The main responsibility of the business to the government and its customers is to make profit legally (Nickels et al, 120).

There are some rules that were formulated in order to regulate how the businesses run their affairs with respect to its customers and the government. Some factors affect how a business is organized. The size of the firm is one such factor. This affects the departmentalization and how the business will be ran. The country of origin of the firm and the sector it belongs to is also important. This is because different countries have different laws and this affects their operation especially if they are foreign companies. Tax laws and their advantages to different firms are also another factor to consider when organizing the business.           This is because some tax laws apply to some companies but do not apply to others especially based on their size. Requirements of disclosure and compliance are another factor that affects the organization of businesses. This is because different businesses are treated differently in the case of the information they are required to disclose to the authorities. The types of business organizations also influence their own organizations as they differ from the rest. Types of business organizations include sole-proprietorships, partnerships and limited liability companies (Schlenker et al, 98). These businesses have varied methods of organization.

A business owned by a single person is referred to as a sole-proprietorship. Such an organization also generates profits for its owner. The owner of such a business may operate the business by himself of may employ other people. This business is remarkably simple to start since it does not include tiresome law processes in order to set it up. Another benefit of this business is that the owner, without unwarranted advice, makes all the decisions. This ensures that the business runs exactly how the owner wants. The only disadvantage of this business is that the owner has unlimited liability for any debts incurred by the business (Spadaccini, 24).

This means that the owner’s personal assets may be used to settle any debts that the business owes to its creditors. The government does not pay much attention to people running these businesses as they do to the larger businesses. This, therefore, predisposes such businesses to illegal activities since the possibility of their activities being detected is rather low. Sole-proprietorships do not have to give an annual report of their taxes as the other organizations do. This makes them the most suitable covers for illegal activities and this habit is becoming common, as the criminals have discovered this. As much as running a business includes incurring expenses and at times suffering losses, this should never be a motivation for business people to get involved in illegal trades.

However, the issue of morality has stopped only a handful of people from venturing into this form of business. This is because the risk of suffering losses is surprisingly low and the profits made are supernormal. This is, however, wrong because such businesses encourage insecurity in the neighborhoods that they are located. The business has a responsibility to the community around it to ensure safety and that its’ operations does not affect them in any way. As much as the owner will be increasing their wealth drastically, he or she will be doing this at the expense of the other people in the community surrounding them. This is wrong, and every business should honor its responsibility to its’ immediate community

A partnership is another form of a business organization. It comprises of two or more people, but its maximum number of partners is ten. All the members have unlimited liability for any of the debts incurred by the business. This is a better than a sole proprietorship since the debts are shared out amongst the partners in the firm as opposed to incurring them al alone. In the case of decision-making, there has to be a majority number in agreement with the decision to be made. This business is a profit generating one but the partners who formed it share the profits obtained. There are three classifications for partnerships, limited liability partnerships, general partnerships and limited partnerships.

Such an organization requires submitting an annual report of their activities to the government. This report gives a summary of the organization’s activities carried out throughout the year. If the government notices any problems with these documents, it may launch an investigation to ensure that the business is not taking part in any illegal activities. This investigation may take place secretly in order to acquire the most conclusive report on the conduct of the business. It is much difficult to take part in illegal activities at this level since the government is keen with such businesses, unlike the smaller ones.

However, not all partnerships in America make their profits legally. At this level, it is more common to find that they engage in crimes like corruption and swindling their clients. Illegal activities like smuggling of drugs or precious stones are rather rare in this field of business. The profits made by a business should be made legally in accordance with the law. This is to ensure that the firm complies with the laws governing their operations. Firms that take part in the unlawful acts are ignoring their responsibility to abide by the stipulated laws of the industry.

More often than not, if such partnerships are discovered, they may be closed down, or the involved people may lose their jobs. Even if the firm recovers from this, they will have lost their customer base since they have lost their trust for the business. In the case of swindling of the clients, the firm is sued must comply with the fee that they are asked to pay the clients. This may drive the partnership to bankruptcy whereby it will be placed under receivership. When the organization is under receivership, the partners do not control the running of the firm. All the decisions are made without their consent, and they may negatively influence the progress of the firm.

Another form of business ownership is corporation. This is a business organization that is a different entity from its members, legally. This means that the members of the corporation have limited liability. Moreover, their personal assets are not usable to cover the debts of the business. This element ensures the safety of the members’ personal property in the case of accumulated debts. In the other forms, the members have unlimited liability and their assets may be used to cater for losses incurred by the organization. These corporations may be state owned or privately owned. For a privately owned corporation, shareholders who appoint a board of directors to oversee the activities of the firm own it (Kahn et al, 57).

The board of directors also hires the managerial staff. Such organizations require submitting their financial statements that illustrate the net worth of the corporation to the government (McGuiness, 68). These documents help the government to analyze the activities of the firm and decide on the taxation rates. Such firms are rarely involver in illegal activities due to the presence of government scrutiny involved. In the case of such a corporation being involved in illegal activities, it may be closed down or placed under receivership just as in the case of partnerships. However, since the corporation may be state owned the board of directors is disbanded and a new board elected in their place.

Cooperatives are the final form of business ownership. Members have limited liability since the business is a separate legal entity from the members (Birchall et al, 45). They have members and not shareholders as in corporations. The members are the decision makers in the firm and have equal powers such that none of them has a higher authority compared to the rest. There are two types of cooperatives, consumer and worker cooperatives. Consumer cooperatives are made up of consumers of a certain product who decide to come together in order to purchase the commodity in wholesale in order to save some money. In some cases, they also sell these products in retail in order to make profits. Worker cooperatives are mostly formed in order to improve the working conditions in their different organizations. Cooperatives are considered fundamental to the ideology of democracy.

Business ethics are principles that govern businesses morally (Gavai, 20). Several problems may arise in business environments. These ethics enable solving of such problems and avoidance in the future. Corporate social responsibility is one such business ethic. It requires that the business do nothing that may harm the citizens around it (primum non-nocere). Another such law is the requirement of these organizations to provide their financial documents at the end of their financial year (Moon et al, 38). They are also required to allow any investigation into their actions as long as the government sanctions it. This law was put in place to regulate activities of the business and to ensure that their activities comply with the regulations of the country. These legislations also ensure the firms are careful to follow all the laws in order to avoid any trouble with the law. Making profits is the main aim of every businessperson. They hope that the profits that they make will be able to cover all their expenses.

In economic situations like inflation, the profits made may not be as high as they usually are and this may cause some businesspeople to resort to illegal methods of wealth generation. These methods may yield supernormal profits initially, but when the arm of the law eventually catches up with them, they will lose everything they own. This makes it is vital for organizations to make their profits legally. Illegal businesses also pose a significant danger to society. Drugs for instance expose teenagers to drug use that may harm their health. The owners of such business should consider the implication of their business to the society around the firm. Concisely, the responsibility of the business begins and ends with making profits in the legal way.


Works Cited

Birchall, Johnston, and Lou H. Ketilson. Resilience of the Cooperative Business Model in Times of Crisis. Geneva, Switzerland: International Labor Organization, Sustainable Enterprise Program, 15th feb.2009. Web. 18th Sept. 2012.

Gavai, A K. Business Ethics. Mumbai India: Himalaya Pub. House, 20th April.2010. 18th Sept.2012.

Kahn, Douglas A, Jeffrey H. Kahn, and Terrence G. Perris. Taxation of S Corporations in a Nutshell. St. Paul, MN: Thomson/West, 2008. Print.

Linstead, Stephen, and Alison Linstead. Thinking Organization. London: Routledge, 2005. Print.

McGuiness, Kevin P. Business Corporations. Markham, Ont: LexisNexis Canada, 2008. Print.

Moon, Chris. Business Ethics. London: Economist, 2nd Dec.2001. Web. 18th Sept. 2012.

Nickels, William G, James M. McHugh, and Susan M. McHugh. Understanding Business. Boston: McGraw-Hill/Irwin, 2005. Print.

Schlenker, Lee, and Alan Matcham. The Effective Organization: The Nuts and Bolts of business value. Chichester: John & sons, 2005. Print

Spadaccini, Michael. Business Structures: How to Form a: Corporation, Partnership, Llc, Sole Proprietorship. Irvine, CA: Entrepreneur Press, 2007. Print.

Stross, Charles. The Revolution Business. New York: Tor, 2009. Print.

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