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Form and aim of business organization
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Recommended: Form and aim of business organization
TO: Fred Klingman, President of Mar Vista Custom Woods
FROM: Jeremy Newns, Contracted business analyst
DATE: June 11, 2016
SUBJECT: Recommended form of organization
You have asked me to analyze your plans for future growth and recommend the best form of business organization to accommodate that growth. I have also taken into consideration you’re your two main concerns of increased liability and ability to add investment in capital assets.
I recommend that you transition from a sole proprietorship to a limited liability company or LLC. This will allow you to take advantage of certain favorable tax treatments, as well as personal liability protection, for the “members” involved. I will list some key areas where you will benefit from operating
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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 will be more tax deductions available to you after Forming an LLC. A few of these deductions include benefits like a retirement plan, medical expenses, business trips and client entertainment. The IRS audit rate for an LLC is much lower than that of a sole proprietor. You can own and be employed by an LLC at time same time, eliminating the self-employment return from your list of necessary tax documents.
Once salaries and overhead are paid, the members of an LLC can determine a method of sharing profits that makes sense for their membership based on seniority or a member’s investment. If a company does not have a defined profit sharing formula, the profit is then shared according to each member's ownership percentage. Profit distributions are not salary. Salary paid to members/employees gets taken out of revenue prior to determining the amount of profit available to
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.
According to the Washington State Legislative, in the event of the death, resignation, or removal of the sole remaining manager occurs with regard to the sole remaining manager, and unless the limited liability company agreement provides otherwise, the limited liability company shall become member-managed unless one or more managers are appointed by majority vote of the members within ninety days after the occurrence of such an event (1994, sec. 25.15.185). The manager or owner need make sure they be prepare for situations like this because this can harm the company in so many ways. Tasks can decrease and this put more work on other employees. It is important that the managers recruit other individual from time to time so the company can have some fresh and new ideas to better the company. It is good that the limited liability company takes risks, but make sure they know the risk they are
Limited Liability Companies (LLC) is “a form of business organization with the liability-shield advantages of a corporation and the flexibility
While there are a lot of advantages and disadvantages that go along with each kind of business ownership, I think the two options I like most are the LLC, and C-Corp options. LLC stands for, Limited Liability Company and C-Corp stands for, Corporation. The LLC is currently the most realistic option, while the C-Corp is more of a goal. While both of these are different, they both share one HUGE advantage and that is the limited liability that comes with them. Today's world is full of people looking for any reason to sue you. Choosing one of these two options makes the company reliable for any legal issues versus the owner/owners. So in short when they sue, they can only take the LLC's assets, not the owners.
-Profit Retention: The profit of an LLC is split between the members based off the amount of interest the each have. All members are taxed based off their share.
The major issues facing the company comprises of there being multiple businesses with different demands. There are separate levels of performance and success as well as growth chances for each of the sector and the firm needs to tackle with issues in each of these divisions (Dube, J.P., 2004).
Perpetual Existence: An LLC has a separate legal existence from its owners. They may die or sell their shares, but the LLC’s continues to exist. It stops existing after the management has successfully concluded the striking off process to dissolve it.
When it comes to handing over the business to a successor, you have two main options: either keeping the business in the family or finding a non-family successor either within the company or outside of it.
For someone with aspirations to own there own small clothing store , sole proprietorship may suit them best. An individual who seeks a business venture into law/medical may want to do a general partnership. One example would an individual who is seeking to open there own beauty shop would fit best to choose a sole proprietorship.
I would choose a sole proprietorship because it is a very informal business structure. Unlike corporations, partnerships and limited liability companies, a sole proprietorship usually has limited legal requirements. You may have to procure professional or local licenses in minimal cases, but you don 't have to file merely for becoming a proprietor.
Once your business is established and running, it has formed a foundation to have the potential to be successful. This does not mean that it is going to; many businesses have failed just after six years of being established (Refer to figure 1.1). This is due to the carelessness and getting ahead of the business potential. Many young owners get caught up in their first year of success and that is where the real problem lies. You want your company to last for decades and sometimes even surpass your life. In order for that to come true, the company has to still keep referring back to that basics and renewing its values and goals every ear. That is the true formula for a successful company.
Unlimited amount of members- You must have more than one owner otherwise you can be taxed as a sole proprietor. Members do not necessarily need to be citizens of the country and can an owner that is another owner of another LLC. Also, LLC are not required to have a board of directors or shareholder meetings, less paperwork and record
The business plan will also be useful in facilitating the adoption of a strategy that will help the business prosper in the modern market. The plan will be a critical tool that will help in the production of a reliable strategy for attaining the goals and objectives. The proposed business plan will be implemented in three years time. Within the first three years, the business i...
Corporation by Estoppel does not create a corporation it only operates to prevent a person from raising questions regarding the existence of the corporation its capacity to act and own property.