BUS 311 Business Law I
January 19, 2015
Opening a business has many different parts form type, to formation and taxation. If I were to start a business it would be a sole proprietorship. My main reason behind this choice is because I would want full control of my own creation or business. The business would be my personal income, so any amount I make would be claimed on a personal income tax so the profits or losses would be of my own success or failure.
Sole proprietorship is a form of business entity with the least amount of legal formalities. The owner assumes sole responsibility for the operations and finances of the business entity, the owner’s personal property is tied directly to the business, and therefore the owner assumes unlimited risk of this person assets. The main advantage are it’s easy to create and maintain the business and the owner are legally the same. There are no fees with this type of entity and the owner reports all profits and losses on their person income taxes. The disadvantage of this type of entity is that the owner must pay income tax on all profits. Also the owner is responsible for any debits or judgments the business incurs and can have their personal property seized to settle business obligations.
Partnership- type of business entity that requires and agree between two or more people to form a business. All profits and losses and responsibilities are shared. Each partner is held liable for the debts of the business. A partnership does not file business taxes, but must file an informational return. Each partner must file profits and losses on their own personal taxes. Partnerships are easy to create and maintain, there are no fees associated with this type of business entity. The disadvantages is that all owners are jointly and personally liable for any debts, judgments or liabilities of the business.
Corporation- this type of entity is separate from its owner. Corporations provide the shareholders with the most protection from liability and responsibilities from debts and contracts. Profits for a corporation are taxed at a corporate level, when income is earned and is also taxed on an individual shareholder level. The advantage of a corporation is that liability for the debts the business incurs. Also there is less tax liability when split between stakeholders. This type of business entity does cost there is complicated paper work to file with the Secretary of State. A corporation must pay its own taxes as a separate entity (Perez, 2012).
LLC or a Limited Liability Company is a combination of the corporate and partnership forms of business. In a LLC parties control shares of the operations and like corporations, their liability for the operations of the company is determined by their level of involvement. However, like partnerships, income tax is not paid at the LLC level, but rather it is passed through and taxed at the shareholder level. This is somewhat complicated form of business and should be discussed with an attorney and accountant to see if this type of company suits your needs. This type of business allows the owners to enjoy limited liability for the company’s debt. The profits and losses can be allocated based on the percentage owned (Perez, 2012).
The owners can choose how the LLC will be taxed whether as a partnership or a corporation. The main disadvantage is the type of entity is more expensive than a corporation or partnership.
The structure your type of business assumes is important in determining your limitations and liabilities. Depending on the type of structure you choose additional or more complicated forms and expenses can occur with different entities. If you are not sure if there are others involved about what type of entity to form consult an attorney to seek the best possible fit for your business.
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