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Reflection about sole proprietorship, partnership, corporation
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Corporate Characteristics Proposal
Financial Accounting II
Corporate Characteristics Proposal
Introduction here
Various Forms of Business Organizations
Before starting a new business, several decisions such as its legal structure must be made first. Five basic entity types exist in which to structure a business. These types consist of sole proprietorships, partnerships, limited liability companies (LLC), C corporations, and S corporations. When determining the type of structure to use, comparison of different factors such as liability to the owners, taxation, and management controls must be conducted.
Sole Proprietorships
The sole proprietorship has one owner that is completely liable for the actions of the company but has total control over all decisions. The profit or loss of the business is reported and taxed on the owner’s individual tax return.
Partnerships
A partnership has two or more owners who share control and management decisions of the company. Profit or loss is split between the owners based on a predetermined percentage rate, usually determined by investment or activity in the company and reported on each individual’s income tax report.
Limited Liability Companies (LLC)
A limited liability company combines the attributes of a partnership with the limits on liability of a corporation. The profits and losses of the company still pass to the owners as in a partnership, but the losses can only offset other income up to the amount the individual invested. Formal action is not required to form a LLC, but articles of organization are filed with the proper state department. Management is still controlled by the owners.
C Corporation
A C corporation is the basic form of corporation in the United States. The amount of shares of stock a C corporation can issue is unlimited and traded freely. The C corporation files its own tax return instead of showing profit and loss on the owner’s personal returns. The dividends issued to the stockholders are however, subject to individual taxes also, causing a double taxation effect. In addition, the C Corporation pays employment taxes on active shareholders salaries by differentiating between passive and active income.
S Corporation
The S corporation is limited to the amount of shares of stock it can issue to 100 United States shareholders.
Partnership – “A legal entity formed by two or more co-owners to operate a business for profit.” (Longenecker, Petty, Palich, Hoy, Pg. 202) In a partnership, the advantage for the owners is the capability to reduce the workload and the financial burden, especially if each partner has management skills that enhances the business. The disadvantages of a partnership such as personal conflicts and leadership expectations, therefore this organizational form should only be chosen once all other options have been considered.
Liability – The general partners are all responsible for the debts and obligations of the business, but the limited partners are only liable up to their invested amount.
Existing as an LLC, the company could maintain perpetual existence. An LLC can still be dissolved upon death, withdrawal, resignation, or bankruptcy of a member, unless you have provided for these situations in either a written operating agreement between the members or the articles of organization.
There are many types businesses in this world; these include Sole trader, Plc, Ltd, Partnership, Co-op and franchise. These types of businesses are all different from each other. Some of them need just one owner, some have hundreds.
All shareholders have limited liability. They are only liable for the amount they have put into the business. If a company closes down, shareholders can only lose the money they have invested. They will not be liable for anything else. Limited companies are owned by their shareholders.
According to Mallor, Barnes, Bowers, & Langvardt (2010) “modern corporation law emerged only in the last 200 years, ancestors of the modern corporation existed in the times of Hammurabi, ancient Greece, and the Roman Empire. As early as 1248 in France, privileges of incorporation were given to mercantile ventures to encourage investment for the benefit of society. In England, the corporate form was used extensively before the 16th century. In the late 18th century, general incorporation statutes emerged in the United States” (p. 1009).
Based on the facts in case study three, a limited liability company, LLC is the recommended business entity for Arcadia Sports. The justification for this choice is that Jeb has the resources to start the business and Josh has the expertise to run the day to day operations. Jeb has no desire to be involved in the day to day operations of Arcadia Sports. Also, the two have decided to split the profits. Forming a LLC will protect Jeb from any liabilities that arise during the operating of Arcadia Sports and allow him to enjoy equal profits. Members of a LLC are not personally liable to third parties for debts, obligations and liabilities beyond their capital contribution (Cheeseman, 2015).
The types of organizational forms are proprietorship, partnerships and corporations. Each has their own advantages and disadvantages. A proprietorship has three main advantages: (1) low cost for start-up, (2) it is subject to few government regulations, and (3) its income is taxed as part of the proprietor’s personal income. Although a proprietorship is a low-cost start-up company, unless the owner already processes the funds, it may be difficult to acquire funds for growth. Additionally, the proprietorshi...
One awesome advantage that comes with an LLC, other than the protection from legal liabilities like stated above, is the ease of getting it. They also take much less paperwork and effort to get started so they are fairly cheap. Another nice plus that comes with an LLC is that you have fewer restrictions on how you can divvy out your money(profit sharing). In my opinion corporations actually have two of the best advantages out of all the available options. Being a corporation allows you to sell stock, so you
There are many different types of business structures, but if you own and operate a business that it is a sole
Common stock ownership has the benefit of allowing its shareholders to vote on the organization's board of members. Usually, one share of common stock equates to one vote. Companies sell common stock through public offerings, and it's traded among investors on the secondary market. Share...
Another example of business ownership is a partnership. Examples of partnerships used in business are accounting firms and solicitors firms. A partnership has two or more owners. They work, manage and are responsible for the running of the business. Individual partners may concentrate on a certain aspect of the business where they have expert knowledge. As there is more than one owner, larger amounts of capital can be fed into the business via personal funding or bank loans. Partnerships have an unlimited liability.
Before a partnership formation is imminent, the business needs to decide on which type of partnership to form. There are three types of partnerships: (1) general partnerships, (2) limited partnerships, and (3) joint ventures. All three partnerships contain two or more owners, but all partners assume equal division of ownership, liabilities, and profits in a general partnership. Limited partnerships offer limited liability protection based on each partner’s contribution percentage. Joint ventures are classified as general partnerships with limited existence periods. Once a type of partnership has been determined, the business fulfills a series of requirements before the partnership can be successfully formed. The first step is to register
...s of a partnership are the shared profit factor, which can cause a lot of animosity among the partners if things do not go as well or if there is an unequal amount of contribution among the partners. Additionally, there is both individual and joint liability with partnerships. This can often cause dissention between the partners (“SBA”). Essentially, the sole proprietorship is the best choice because the risks are minimal because it is solely one individual, who can make the best choices and decisions and deal with the consequences that arise accordingly.
4. Control: the members of the LLC have the ability to set up control of the corporation as they see fit.