As with any kind of business formation, there will always be, to some extent, negative aspects associated with the creation. To this date there is no perfect form of business entity. When deciding on which entity is best suited for a business, there are many things to be considered. Prior to deciding on a business structure, some major points to be thought about are both the legal and tax ramifications associated with the entity chosen. Another criteria that should be considered are the costs connected with the entity type. These cost include the cost of formation as well as any continuing administrative cost that may be incurred. (“Choose Your Business,” 2011)
This paper will focus on the Limited Liability Company, commonly known as LLC. Limited Liability Companies are a comparatively new form of business structure. It came about in 1977 once Wyoming was the first state to consent to such an organization, which merged the tax advantages of a partnership with the limited liability benefits that come with corporations. It took more than ten years following that decision for the Internal Revenue Service, or IRS, to declare that an LLC would be considered a partnership when pertaining to federal taxes. During this time, none other than the state of Florida had introduced any LLC laws. This was due to the uncertainties surrounding LLCs when it concerned the tax outcomes of the entity. (Cartano, 2008)
One tax issue that Limited Liability Companies possess, with respect to taxation, are issues involving self-employment taxes. An S corporation’s capacity to diminish and sometimes completely do away with self-employment taxes is one of the foremost causes for why an LLC will get passed up as the entity of choice. Self-emplo...
... middle of paper ...
...ago: CCH.
Choose Your Business Structure. (2011). Entrepreneur, Retrieved from http://www.entrepreneur.com/article/38822-1
Cody, Tom, Hopkins, Dem A., & Perlman, Lawrence A. (2007). Guide to Limited Liability Companies. Chicago: CCH.
Internal Revenue Service, (2011). Self-Employment Tax Social Security and Medicare Taxes) Retrieved from http://www.irs.gov/businesses/small/article/0,,id=98846,00.html
Meade, Janet. (2006, June). Minimizing Self-Employment Tax of LLC Managing Members. The CPA Journal, Retrieved from http://www.nysscpa.org/cpajournal/2006/606/essentials/p32.htm
Mridula, B. (2010, January 31). Self Employment Taxation in an LLC. Retrieved from http://www.brighthub.com/office/entrepreneurs/articles/62926.aspx
Tax Implications: LLC Versus S Corporations. (2008, January 8). Retrieved from http://www.hutchlaw.com/news-resources/library-detail.php?id=13
Corporation – “A business organization that exists as a legal entity and provides limited liability to its owners.” (Longenecker, Petty, Palich, Hoy, Pg. 205) The main advantage of a corporation is that the business liability falls onto this entity instead of the individuals that own it. The disadvantages of this organization are found mostly in its formation. A corporation is expensive to create and requires compliance with state
LLCs must typically pay more fees to file as LLCs compared to some other business entities or sole proprietorships. Additionally, many states require yearly renewal fees. However, these fees are usually less than what some other corporations have to pay. Because of the protections afforded to LLCs, some types of businesses are ineligible to file as LLCs. Banks, insurance companies, and medical service companies are examples of businesses that can not be a LLC. Another big disadvantage is taxes. Although LLC’s allow owners to avoid federal taxes, you may actually end up paying more than it would with a different corporation, depending upon the nature of the business. Working with an accountant and/or tax lawyer is a really good idea when planning your business and forming your LLC but can also be quite expensive. The LLC business form is a relatively new concept. As a result, not a lot of cases have been decided surrounding LLCs. Case law is important because of predictability. If you know a court has ruled a certain way, you can act in a specific way to protect yourself. But if not many laws have been established yet, there is a certain vulnerability with your corporations that could expose you to greater
We have decided that each of us will invest $100,000 into the business and organize a limited liability company. (We are assuming that we all have the required net worth of $300,000 per person as per Jimmy John’s requirements) (Jimmy Johns Co., 2014). If one business member decides to leave the company, the company and the other members will have the option to buy out that member all as set forth in our operating agreement.
Retrieved from http://www.entrepreneur.com/startingabusiness/. startupbasics/business structure/article78032.html, Retrieved May 22, 2011.
Being the owner of LSU, Joe probably operates as a sole proprietor. It is recommended that the business change its entity selection to limited liability company (LLC). The main advantages to an LLC are the protection the LLC owners receive from business creditors, and the fact that the owners can still participate in the management of the business.
Zott, C., Amit, R. And Massa, L. (2011) ‘The Business Model: Recent Developments and Future Research’, Journal of Management, vol.37, no.4 pp.1019-42 [Online]. Available at http://jom.sagepub.com/content/37/4/1019 [Accessed 24th November 2013]
The most common tax mistakes that small business owners make are mixing business and personal finances, choosing the wrong legal entity, claiming too many deductible expenses, missing out on valid deductions, not understanding payroll and employer tax, poor record keeping, filing late or not at all, working with the wrong tax professional, and not using the right tools (Mire, 2016). This paper aims to examine the most common tax mistakes that businesses make, particularly within the restaurant industry, and determine ways to prevent them. Each form of legal entity has its advantages and disadvantages; it is important that business owners understand them so that they can select the entity that works best for their organization come tax season
For sole traders the price of the car is taken into account as to how
Limited liabilities. This means only the financial liability of each shareholder is affected so that of his or her share is only effected and only what was bought under the business is liable for debt claim.
Debated what type of business identity your business could operate under. There are a multiple of ones to choose among, including: limited liability corporation (LLC), C Corporation, S corporation, sole proprietorship, or partnership. Reviewed any legal requirements or limitations for the area you wish to conduct your business in. When you are ready to decide upon your business identity Besides the initial brainstorming you should conduct prior the even beginning to establish your business identity, there are also steps you need to take during the actual process. Establishing your business identity can be a difficult process in you are not adequately prepared.
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
Organizations can be configured in many different ways. Their overall classifications can be summarized by characteristics of complexity within the system, the level of formalization, and the centralization of decision-making power. The structure of each organization is influenced by many factors. Such factors include; the goods and services provided, the overall individuality of the staff providing the service and producing the products. The overall beliefs and values of the individuals performing the services that are being delivered, the technology that is utilized to help deliver the services and aid in product production, as well as the needs, desires, and generalized characteristics of the consumer population that requires or demand the product or service. (Yoder-Wise, 2007, p. 145) The organization will have different operating priorities based on its ownership. The main goal behind most business is to make money. The private owned institution strives to make its shareholders money, while a non-profit institution reinvests all of its revenue back into the orga...
Limited partnerships, like The Book Nook, hold several advantages, especially for limited partners, like Ben and Bob. The main advantage for limited partners is that their personal liability for business debts is limited. A limited partner can only be held personally responsible up to the amount he or she invested. Limited partners enjoy a protected investment, knowing they cannot lose more money than they've contributed.
...onclusion, registering a business is no easy task. To create a business involves a lot of time, effort and devotion towards building a company that might even take years to become profitable. With the right business idea, plan and financing one can lay the groundwork for a successful business.
"Advantages and Disadvantages of Sole Proprietorships ." New York Times 5 June 2007: Web. 6 Dec. 2013. .