Milestone Four: Conclusion
Conclusion: Advantages and Disadvantages of Different Business Entities
For Mr. Jones it was important to review all business types and ensure he had all the information to make a well-informed decision. He needed to understand different options offered for both him and his daughter since he is considering giving her a percentage of the business. Below is a breakdown of the distinct types of businesses.
Bob is looking for this business to help him and provide for a future for his daughter to carry on the business. A C Corporation provides growth potential and investment opportunities while keeping the business and personal finances separate. A C Corporation can have unlimited shareholders and potential investors
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The corporation will file its own yearly taxes on form 1120. Bob and potentially his daughter will receive salaries and potential bonuses where the payroll taxes will be withheld and at year end they will receive a form W-2 to use when they file their taxes for the year. They will also have to report dividends on their individual tax returns if any dividends are paid out by the corporation. The owners are protected from any liabilities as long as they adhere to the rules of a corporation. I do recommend that they ensure they have a strong team made up of tax accountants and legal advisors to help ensure they are maximizing all tax deductions that are out there for them to use to help reduce the tax liability for the corporation as well as for themselves personally.
Below is a summary of the advantages and disadvantages of each type of business entity.
A sole proprietorship is an easy set up and comes with many tax advantages, but it is geared more towards a smaller business (Rodeck, n.d.). With Mr. Jones’s desire to be in business with his daughter and have her own a percentage of the company it does not seem to be the correct path. Even with this information and knowing it is not the way to go, below are some advantages and disadvantages for the sole proprietorship:
Advantages of a Sole
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The Corporation needs to file with the state the articles of incorporation and follow a more formal protocol for business than a sole proprietor or partnership. A partnership and sole proprietorship are each less expensive and no more complicated than a verbal agreement or handshake.
• Limited to one class of stock
• An owner/employee which has 2% or more of the shares cannot receive tax-free benefits
• Owners will sometimes pay taxes on the distributions they may not have received if said profit was reinvested in the company
Forming a C Corporation for Mr. Jones’s business is the recommendation. A C Corporation is a separate legal entity and has many advantages and disadvantages to do so. Making Mandy a 40% owner to start allows for a smoother transition of ownership should Mr. Jones decide to leave the business, or should he pass away. Doing so helps to avoid the ‘gift tax’ if she were not part owner when the business was established, and it would also help to avoid estate taxes if Mr. Jones passed away. With our recommendation the advantages far outweigh the disadvantages.
Advantages of a C Corporation
• Unlike an S Corporation there is no limit to the number of shareholders.
• Tax deductible business expenses
• If an owner leaves or passes away the C Corporation will still
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
A nice advantage to owning a S corporation is that it is limited liability which means that the owner/owners of the company
Finally, I will discuss which type of corporation I prefer. A Review of Corporate Roles and Duties The Role of the Board of Directors. The corporation’s business is carried out by its management, under the direction of the Board of Directors. The Board, and each committee of the Board, has complete access to management. Also, the Board and committee member’s have access to independent advisors as each considers necessary or appropriate.
In the case of Borden v. Baldwin, (Bordon, 1971) the court makes the distinction between the distributions made to members while the corporation is still in operation, and distributions that are made upon its dissolution. In this case, a non-profit corporation created for hunting sold its property and moved its location. The members had agreed that the proceeds of the sale would be used to pay all of its debts, and that the remaining proceeds after debt elimination was to be put in a trust to be used to support the operations for three years. After the three year period, each member was to have the option to end the membership and withdraw his share. After three years, during which the hunt club acquired new members, the new members did not
Task One E1 They type of businesses 1. Private and Public enterprise 2. Limited Liability 3. Franchising I will define each type of business with some advantages and disadvantages. For The Coca-Cola Company ... ...
There are many different types of business structures, but if you own and operate a business that it is a sole
After purchasing the day spa, the first order of business was to create a partnership agreement between myself and my partner. After coming to a consensus on the terms, we met with an attorney who formalized our agreement and incorporated our business. We decided to incorporate so we would not be liable to pay the debts of the corporation if were to be involved in any litigation.
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
An average person has an innovative plan to start a business. It begins with an idea but what should they do afterwards. If someone wants to start a business they must ask themselves several questions. What is the size of the business? What level of control do they want to have? What are the business risk and vulnerabilities? What are the initial startup expenses? All of these questions will help them decide which legal form of business they should choose. As a legal form can have significant implications for your personal risk in the business as well as your potential for financial returns (Page 6 of 17 - How to Incorporate | Inc.com. (n.d.). Retrieved from http://www.inc.com/how-to-incorporate/130). The three different types of legal business forms are sole proprietorship, partnership and corporation. All of these have their advantages and disadvantages. Asking those questions and exploring the advantages and disadvantages, a potential business owner will be capable of deciding which legal form they should pursue.
Another benefit C-corporation has over partnership is perpetual existence. Partnerships continual existence is tied to the partners; contrary to C-corporations, their owners are independent of the business. That is, corporation existence is indefinite, irrespective of shareholders’ death or departure from the entity. The Tax rule governing C-corporation is reflected in IRS Form 8832 (www.irs.gov). Based on the above-enumerated benefits of C-corporation over partners; C-corporations would be the appropriate choice of recommendation from
A registered company, as an artificial person is separate from its members and exists only by virtue of the Companies Act under which it is incorporated. When a business is incorporated, it becomes a separate legal entity and, therefore, can be sued and sue without affecting the shareholders personal assets. This was established in “Salomon v A Salomon Co.Ltd”. Separate legal personality is known as the veil of Incorporation. This protects the shareholder and places the responsibility of the company onto the directors. These duties are outlined in the Companies act 2014.
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.
"A corporation is a business that, although owned by one or more investors, legally has the rights and duties of an individual. Corporations have the right to buy, sell, and own property. Corporations may make legal contracts, hire and fire workers, set prices, and be sued, fined, and taxed. A business must obtain a charter of incorporation from a state legislature or Congress to be legally recognized as a corporation."(Watson, p211) While corporations didn't exist until the mid to late 1800s, the idea of the corporation had existed since the early 1600s. It all started with English merchants who started trading companies to help fund the early colonies. If the colonies thrived, the stockholders reaped in the profit. (Watson, p211)
There are several advantages and disadvantages with the sole proprietorship. The advantages of a sole proprietorship based on the article in the New York Times include:
For Bob Beech, it is preferential to incorporate his company. A corporation, or incorporated business, gives him the authority and rights to fully protect his assets, transfer ownership at the time of requirement, wholly or in part, the ability to sell stock by going public and making money out of it, tax benefits, save for retirement and have a good credit rating.