The first step in starting any business is choosing the right structure. Often, business owners will consult with a lawyer before they start a company to make sure that all of their forms are in order. Business owners can choose from common business structures like sole proprietorships, C corporations, partnerships, limited liability companies (LLC) and S corporations.
Limited Liability Companies
An LLC is considered an entirely separate entity from the business owner. This means that the corporation is responsible for the debts and keeps the profits. If the business fails, the owner is not liable for the losses. It is taxed like a sole proprietorship if there is one owner. When there are multiple owners, an LLC is taxed like a partnership.
…show more content…
Complexity: General taxes, partnership tax rules and other regulations make an LLC exceptionally complex when it comes to accounting.
Unattractive to Investors: Venture capitalists generally do not invest in these companies because they are pass-through entities.
Sole Proprietorships
A sole proprietorship is when the owner is personally liable for any debts or lawsuits incurred by the business. States do not require a separate business form or taxes to be filed by the sole proprietorship. Instead, the owner reports all of the company's profits and losses on their own tax return. While a sole proprietorship is easier to create and operate, it does leave the business owner liable for any lawsuits or costs incurred by the company.
Benefits:
Inexpensive: Organizational documents, filing fees and legal fees are not required.
Avoid Double Taxation: Unlike a C corporation, the owner and the business pay taxes together. This means that the owner is not taxed twice on some of the company's income.
Simplicity: Owners do not have to file any documentation other than possibly registering the company's name.
…show more content…
Unlike a C corporation, an S corporation can only have a limited number of shareholders. These shareholders must all by United States residents or citizens by law. Like a C corporation, an S corporation must record meeting minutes and host annual meetings. At the end of the fiscal year, the owner reports all of the profits and losses from the company on their personal tax return. One of the benefits of using an S corporation is that it allows you to separate your personal finances from business debts.
Benefits:
Pass-Through Treatment: Profits and losses from an S corporation flow directly to the shareholders. If the business is enjoying significant profits, this is ideal for individual shareholders.
Simple Conversion: As the business grows, owners may want to convert it to a C corporation to gain venture capital. With an S corporation, it is relatively easy to change to a C corporation.
Protects Against Personal Liability: Like a C corporation, an S corporation provides investors and owners protection against the company's debts and liabilities.
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
As SBA.gov points out, because you and your business are one and the same, the business itself is not taxed separately, the sole proprietorship income is your income (Sole Proprietorship, n.d.). Because the company does not for see large profits during the first year and they will be off set with expenses creates an advantage for us. In addition to this, there are low to no costs for creating a sole proprietorship other than the DBA filing fee. Since our booking keeping will already be setup for a sole proprietorship it will not be difficult to transfer the company to a LLC. Once the company transitions into the LLC, our personal liability will be removed. As the company grows over time with the LLC, it will be easier to add new shareholders or partners on since there are no limits within a
The core company types offered nowadays is a sole proprietorship, partnership, limited liability company (LLC), and corporations. A sole proprietorship is a company with a singular proprietor that makes all key decisions for the company. A characteristic of a sole proprietorship is that owner is responsible for each and every liability of the company, and the company ceases to exist upon the death of the companys owner. The proprietor assumes all the hazards of the company, and all private assets are used for collateral, even if they are not used in day to day business activities. A partnership is an arrangement involving two or more parties that merge into one entity to pursue a company endeavor for revenue. Each affiliate contributes cash, assets, workforce, labor aptitudes, and each affiliate splits the revenues and debts of the company. Similarly, each affiliate accepts unrestricted personal accountability for the debts of the business. Limited partnerships reduce the amount of personal accountability each individual assumes for the liabilities of the company founded on the percentage each
There are many different types of business structures, but if you own and operate a business that it is a sole
Owners take financial part of the corporation by having stocks and bond, and they expect financial return for that. All these owners can be differing from one another and each one of them can have different preferences such as money, morality, obligations, loyalty. Supplies ...
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.
My objective is to make sure I do not go over budget and have to cut costs down the road. I will also use my personal assets as collateral to keep the company going. This collateral is my savings of 100,000. I know opening my own business will not be easy, but I am willing to take the chance. Opening a business is a big risk. There are many factors that it will take make the business a success. This is marketing, promotion, advertising, using social media, and making sure all aspects of the company is protected from liability if it is sued in the future. The limited liability is a good format to use to start up a company. Members of the LLC business get to determine how they would like their business to be taxed. The profit and losses from an LLC are not taxed directly, but instead could be taxed through the personal business tax of the business owner. An LLC company is very easy to create due to less paper work and can keep a good legal
5). Even though there are two owners of the McGee Cake Company it is still similar to a sole proprietorship. A LLC will allow the same aspect of ownership and also the protection that a corporation has. The protection that a LLC will offer is legal protection for any legal actions brought against the organization rather than the legal action being placed solely on the owners. Also a LLC does not have to disclose financial records to the United States Securities and Exchange Commission
It is vital for a potential business investor, to analyse the different business structures available in the UK, so that they can choose the structure that is most appropriate for their business needs or goals, while also considering the legal and financial ramifications of each. There are three basic business organisations in the UK, with each having their individual features, merits and demerits. The structure an investor will choose depends on factors such as the size of the business, available capital and liability of its members.
An additional advantage is that a sole proprietorship can be easily organized. It’s easy to start your own business. First of all, it costs very little money to start your own business. As a sole proprietor, you have minimal legal requirements. The owner doesn’t have to establish a separate legal entity.
Section 4 of the Registration of Businesses Act 1956 defines a sole proprietorship as a business established, owned, funded by both the financial and management run by one individual. It usually involves a small-scale business. These types of businesses often owned by one person, where all business depends on it. The sole responsibility of the owner is unlimited. If the business failed and was declared bankrupt, creditors can sue the owner of the claimed debt. Tho...
This form is extensive and requires a tremendous amount of involvement of all members. The advantages of this business form is all liability is retained by the corporation, however, if the bank is requiring specific personal guarantees by the brothers, either they agree or offer assets as collateral to alleviate no other liability other than the assets pledged. This form allows the business to be a separate unit from the owners and shareholders. Shareholders own the business and are limited in their liability solely for the amount invested into the company. This means the owners are not managing the business, meaning shareholders elect a board of directors to manage the business. The business and shareholders are taxed on the profits and dividends respectively. This indicates the business is double taxed and is much higher in this form than in all of the other forms. However, the Subchapter S Corporation provides for the same flow through benefits of the LLC. The significant difference is the corporation is established by the Federal Government instead of at the ...
A limited liability company exist on there own right this means that the companies finances are distinct from the personal finance of there owners so if the company falls in to debt the company will be liable not the owners.
Corporations can be classified as follow: Public Corporation is established to administer public business that will benefit the general public. These types of corporations are created and owned by the government and the shares are publicly treated. Private Corporation is formed by private individuals primarily for private purposes and not public ones. (Charitable and religious, banking and manufacturing corporations.) Profit Corporation is formed with the primary goal to make profit.