How to choose the right type of Business form
LAW/531
How to choose the right type of Business form
Today’s business world has many choices for the new entrepreneur to decide from when forming a business. The choices are sole proprietorship, partnership, limited liability partnership, a limited liability company, a S corporation, a franchise, and a corporate form. Development of scenarios portraying each of these forms of business will aid the entrepreneur with deciding which form will be the best choice for the business.
Sole Proprietorship
“Sole proprietorship is the simplest form of business organization. The owner of the business the sole proprietor is the business” (Cheeseman, 2010 p.530) advantages to this form of
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The formation of this type of form of business does require formal and public disclosure and has to comply with requirements set up by the RULPA or other state statutes. When forming this type of partnership Beth and Sam will need a certificate. This certificate must have to include the name of the limited partnership and the type of business this partnership will be. The certificate must show the address of the business and who will receive the formal legal notices regarding the business. Also included must be the name and business address of each general and limited partner, along with the date the limited partnership will dissolve. Lastly, the amounts contributed by each person and any future amounts that will be paid to each contributor must be listed.
Formation of the limited Liability partnership does not commence until all of the paperwork is filed with the state and county and must have the proper certificate kept current for as long as the limited partnership is in existence.
Beth, Sam, and their limited partners are doing well in their business and it is continuing to grow and prosper. Beth and Sam feel confident enough to move more in the direction of becoming a corporation, but yet feel they are not yet definite on corporation formation so in doing research they decide that they would move the company toward the formation of a Limited Liability company (LLC)
Limited Liability Company
A Limited Liability Company is neither
As a hybrid of partnerships and corporations, LLC’s provide limited liability for debts and flexibility to be taxed as a partnership or corporation (Staring and Naming a Business Presentation, 2012, Slide 5). Some specific advantages include being empowered authorities in the management of the business, diversity of members, limited liability, pass-through taxation, and less paperwork (appreciated by many). A drawback of this business structure is the need for a tailored operating agreement that specifies the specific needs of the
SOLE PROPRIETORSHIP: Sole proprietorships are the most common form of business in the United States. You and your business are one in the same. While being your own boss as its advantages, like working your own hours and collecting all profits made by the business, there are some disadvantages. For starters is coming up with starting working capital. Most Sole Proprietors have to seek funds from other sources.
Sole proprietorships are the most common type of business in the U.S. They are most commonly chosen because they are the easiest type of business to set up and give the sole owner of the company complete control of the company. There are many benefits to a sole proprietorship in regards to control, profit retention, and convenience.
Liability All liabilities are the responsibility of each partner. In the event of litigation, any creditors can go after the personal assets of each partner to recover any debt owed. But since liability is spread out between the owners, one may feel less risk is being taken. 2. Income Taxes General partnership may also benefit from pass-through taxation, meaning the partners are taxed like sole proprietors. Business income is reported on the personal tax filing while business losses can be deducted to reduce personal tax liability. The partnership itself is not subject to federal income tax. However the partnership needs to file an information return utilizing the IRS Form 1065. 3. Longevity or continuity of the organization Once the partnership agreement is fulfilled, the general partnership may dissolve. A buy/sell agreement may be included in the articles of the partnership to allow the
Sole proprietorship: Is the simplest and most common business structure. There is no legal distinction between the proprietor and the business, which means it is autonomous. You are entitled to all profits and responsible for all your business's losses and liabilities.
A Limited Liability Partnership Alternative Security Provision transmittal form must be filed as well. Once these documents are approved, the Secretary of State will return stamped copies of the forms as well as a Certificate of Registration to the partnership.
A1a: The Sole Proprietorship is the most common business form in the U.S. It offers the advantages of no-cost, easy startup, and full owner/operator autonomy with regard to business decisions.
Limited Liability Company (LLC) combines the tax advantages of a partnership with the limited liability aspects of a corporation. LLC’s are governed by the Uniform Limited Liability Company Act (ULLCA). All members of the LLC enjoy limited liability unless there is serious misconduct is committed by said member(s), or a member fails to follow through on an obligation. All this should be outlined in your preformation contract. You will have more flexibility with taxation and options on how to manage the company. It would be advisable to also have an Operating Agreement. This will dictate how management will be hired and fired, division of profits, how to transfer interest in the event a member chooses to opt out or dies. What steps to take in the event of dissociation of a partner, and if it causes the dissolution of the LLC. Most importantly how the members vote in the LLC. The weight of the members vote is in accordance with the member’s capital
LLP vary from state to state. And because if LLP has to register with each state that it do business with,
Sole proprietorship is a business organization operated by one owner. For example, you start a landscaping business by yourself.
Ellentuck, A. B. (2009). USING A LIMITED LIABILITY PARTNERSHIP AS THE ENTITY OF CHOICE. Tax Adviser, 40(2), 124-125.
4). Therefore Frank will be benefited with crating an LLC, because he does have the option of choosing.
One of the most defining elements of a new business is the business structure it assumes. This will determine the liability of its owners, how the company and its owners are taxed, how profits and losses are distributed and the company's management structure. For this reason, it is essential that new companies evaluate each type of business structure as it applies to their company's needs and chose a structure accordingly. In the instance of Joe and Jill Smith, a married couple who are opening a restaurant, a limited liability company would be the ideal structure for their business as it allows the owners to be taxed only once, provides liability protection for the owners, allows the business to grow while staying family owned and the paperwork is simple. As a limited liability company, the Smiths will benefit from the pass-through tax structure unique to this form of organization. According to the Internal Revenue Service, "the federal government does not recognize an LLC as a classification for federal tax purposes. An LLC business entity must file a corporation, partnership or sole proprietorship tax return" (Internal Revenue Service, 2012).
After the creation of a business plan, the next step to operating a business is the selection of an appropriate business structure. Different legal forms of business ownerships affect different managerial and financial factors from the business names to the tax obligations (Gregory, n.d.). The most common forms are sole proprietorship, partnership, cooperatives, and corporations. There are different types of corporations in the business world, but the two most general corporation types are S Corporation and Limited Liability Company (LLC) (Ferrell et al., 2013). The sole proprietorship is the easiest and most basic form of business ownership. It is owned and run by one individual, which is the proprietor. The individual is entitled to all profits and is responsible for all the business’s
Is the most common business type, where the business is operated and owned by a single individual. In this type of business, the sole proprietor provides capital, does not share profit or loss and runs the business alone. As such, the business and the owner are indistinguishable for tax and legal purposes (Dlabay, 2011). To differentiate this business from other business types, a sole proprietorship is discussed under the following characteristics.