As an entrepreneur one will have to choose a business structure and state in which to register. Why is this important? Well, keep in mind that every state has certain business taxes and business breaks. Since we are in California we will discuss California business entities. Keep in mind that there are important factors to consider when choosing a business entity are: Liability personal), taxes as mentioned earlier and what is called special circumstances/requirements e.g. bylaws when an S-Corp or Corporation. What business entities are there?
According to Ortega, Sole Proprietorship is the easiest business entity to form and formation generally does not require the assistance of a business law attorney (n.d.). As an entrepreneur, an important
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General partnership- is a business formed by two or more people jointly agreeing to carry on the partnership. All of the partners in a general partnership are jointly and severally liable for the business obligations, meaning any of the partners can be held responsible for the wrongdoing of the other partners (n.d).
Limited Partnership - A limited partnership is a business entity that is comprised of a general partner or partners that manage the business and one or more limited partners that contribute capital to the business. It is important to note that unlike the general partnership, the limited partner is not personally liable for partnership obligations.
Limited Liability Partnership (LLP) - The Limited Liability Partnership, which provides limited liability protection to each partner, is designed for specific services such as Public Accountants, Lawyers, Architects etc.
Limited Liability Company (LLC) - Are a hybrid of a partnership and a corporation in that they combine the pass-through treatment of a partnership with the limited liability of corporate shareholder. Like other business entities…. require the filing of the Articles of Organization with the state and additional documents should be prepared and kept onsite at the business including a formal operating
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According to CA. Gov, (n.d.) an S corporation is a corporation formed under state civil law or any business entity. An entity that has elected to be taxable as an S corporation for federal tax purposes is also treated as an S corporation for California tax purposes. An S corporation generally offers liability protection to its owners (shareholders) and is a conduit where the profits or losses of the S corporation flow through to the shareholders, partners, or members. Key features the researcher likes:
• An S corporation does not pay federal income tax.
•Under California law, the S corporation is subject to a 1.5 percent tax on its net income and is a conduit similar to a partnership.
•The items of income, deductions, and credits flow through from the S corporation to each shareholder through the California Schedule K-1, Shareholder’s Share of Income, Deductions, Credits, etc. Each shareholder is responsible for paying taxes on their pro rata share of the S corporation’s items of income, deductions, and credits.
•A separate bank account and separate records are required with this form of
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.
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
Capital is a major factor for decision making. Since the business involves a group then the three forms of business exposes the group to a greater capital availability. The liability of members is also an important factor. The partnership offers unlimited liability to the members of the partnership while the corporation and Limited Liability Company allows the members limited liability and thus their personal assets cannot be interfered with in the event of a liability. The decision making process is for the business associations but the input of all members results to the making of good and informed decisions. Finally, the taxation practices for various forms of associations informs the decision. Corporations are often taxed twice whereas the LLC and partnership business is taxed
The limited partner only risks what they invested in the business. The downside is if the limited partner becomes active then they could potentially lose personal assets. The S corporation is a more favorable tax option on income. The disadvantage is there is certain requirement that must be met. The LLC is a great option. With this type, the risk is only what is invested unlike sole proprietorship. It is easy to set up, and has tax advantages. The downside is if a corporation wanted to switch to C, it would have to pay additional taxes. I do believe the option they picked is best for them at that time. C has tax advantages. If they started with LLC and later wanted to change, it would cost them. C is a great way to get capital as well.
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.
There are two types of partnerships to be aware of. A general partnership is where the partners are both involved in the day to day operations of the business. A limited partnership is when an investor has contributed to the business, but is not involved in the day to day operations. The Uniform Business Partnership Act (UPA) was designed to encourage uniformity from state to state, but it
Murray, Jean. A. PLLC--Professional Limited Liability Company. About.com. Retrieved 22 April 2014.
...g. Businesses structures and regulations are strong and firm which help businesses around the nation. The rules and regulations from the federal government help and keep the people safe. Starting a business is easy and profitable. It may be easier to start a sole proprietorship rather than a corporation. But many can receive help from family or friend and start a partnership where there is help and support of a partner. There are advantages and disadvantages for all forms of business. There are endless opportunities for the American people. There optimistic attitudes can lead them to great wealth.
There are many different types of business structures, but if you own and operate a business that it is a sole
A General Partnership is composed of two or more persons (usually not a married couple) who agree to contribute money, labor, and/or skill to a business. Each partner shares the profits, losses and management of the business and each partner is personally and equally liable for debts of the partnership. In terms of asset protection, general partnerships can be even worse than sole proprietorships.
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.
Finally I will state whether or not I agree with the given statement.cobd bdr sebdbdw orbd bdk inbd fobd bd. When a company receives a certificate of incorporation it has a 'separate legal personality'. In law the company becomes a legal person it its own right. The fundamental concept to become familiar with when starting up a business is the idea that the business has a legal personality in its own right, particularly when it assumes the form of a limited liability company. This essentially means that if one commences business as a limited liability company, then the corporation... ...
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
Sole proprietors because they are the owners, do not have to pay business taxes, however, the owner must pay taxes on the income that is collected from the business as a part of his or her own personal income taxes. Despite the fact that the business is owned and run by the sole proprietor, there is a definitive need to comply with any licensing requirements in the particular state where the owner is doing business. This includes zoning ordinances, local regulations as well as the necessary paperwork attributed to the business running smoothly. There is a nominal amount of paperwork associated with the sole proprietorship in comparison to the other types of business entities, which makes it an even more attractive business to operate ("Advantages and Disadvantages of Sole Proprietorships").
4. Control: the members of the LLC have the ability to set up control of the corporation as they see fit.