...Limited Liability Corporation and Partnership Jacob Sanchez FIN-419 December 22, 2014 Michele Huss Limited Liability Corporation and Partnership Introduction Many people attempt to start businesses annually and need a little guidance on what their best choices are for forming the blueprint of their future endeavors. Limited Liability Corporations and Partnerships are a couple choices that can be chosen by some entrepreneurs. They have some things in common, and also have distinct differences. This paper will discuss how each type of business entity is formed, the tax benefits, some advantages and disadvantages. Lastly, these things will be evaluated to determine under what circumstances one should be chosen over the other. Limited Liability Corporation A Limited Liability Corporation, from now on an LLC, is a less complex formation of a corporation. It is formed by filling an articles of organization with the states Secretary of State office. This article will include the business name, the members, and in some states an operating agreement. (U.S. Small Business Administration, n.d.) In an LLC with more than one member an operating agreement is ideal, for structure and regulation. In most instances it will provide a roadmap of rights, arrangements, and profit sharing and loss. (U.S. Small Business Administration, n.d.) Taxation is an important aspect of forming a business, an LLC has many choices for taxation. An LLC can opt to file as a corporation, in which...
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...Limited Liability Corporation and Partnership Paper University of Phoenix FIN/419 November 26, 2012 Every business has a basic idea of the entity in which to establish. Capitalization and protection is the main focus to establish the business with a question of which type of entity should a business use to move forward. Businesses have a host of factors when making this decision, the most common forms of these entities are, partnership, corporation, sole proprietorship, and S corporation. A Limited Liability Company (LLC) is a business structure allowed by the different state statutes. The following will list two of these entities and the business entity which I would choose. Limited Liability Corporation Limited Liability Corporation has a unique quality of being structured like a regular corporation, and having the attributes of a partnership. In a Limited liability corporation the owners are protected from personal liabilities, which are similar to a corporation, but have the tax advantages of the partnership. This means the creditors of the business may not pursue any of the personal assets of members of the LLC to recover any business debts. Also if a member of the LLC has any personal debt, the creditors may not attempt to recover from the corporation. LLC owners, called "members," can manage their businesses or hire professional managers. In addition, LLCs enjoy a lot of flexibility. For instance, they can have as many members...
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...Limited Liability Corporation and Partnership Paper K. Smith FIN/419 June 2, 2014 The thought of running your own business can be very overwhelming. There are many things to be considered when starting a business. It involves writing a business plan, choosing a location, knowing whether to get a loan or start the business with another individuals. Knowing whether or not you will start the business as an individual or with a partner will help with the next question. How will you structure the business? In this paper I will discuss the roles of the Limited Liability Company (LLC) and the Limited Liability Partnership (LLP). I will also include my opinion as to why I would choose an LLC or an LLP if I was starting a new business. A limited liability company (LLC) is an entity in itself somewhat like a corporation; an LLC can conduct business, open a bank account and obtain a tax identification number. Owners of an LLC can choose to run the business themselves or hire someone for the day-to-day affairs of the business. An LLC can have one to several members including corporations as members (Paul, 2011). The owners of an LLC have limited liability meaning they are not liable for the debts and liabilities of the company. Creditors cannot hold the owners of an LLC responsible for payment from their personal assets if the assets of the company are not enough to pay a debt. The LLP must have one person responsible for the legalities of the company not including silent partners...
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...Introduction: The three basic legal forms of businesses in the United States are Sole Proprietorships, Partnerships, and Corporations. However, each of these forms can have variations and a hybrid called a limited liability company can be formed in all US States that exhibit the characteristics of both a partnership and a corporation (American College, n.d.). The following are some of the forms of business existing in the United States and their characteristics: a. Sole proprietorship b. General partnership c. Limited partnership d. C-corporation e. S-corporation f. Limited Liability Company This report contains an overview of some of the forms of business organizations that exist in the United States. Because of the federal system of the U.S., the many forms of business organizations are subject to the laws and regulations of the state where they operate or are registered. Both federal and state taxes are also taken into account by business owners and financial advisors in the choice of the business form (Perez, 2009). Liability, tax consequences, and legal implications are generally the most important actors business owners consider when choosing a business form. a) Sole Proprietorship The most basic of the forms of business organization is the sole proprietorship where the business is owned by a single person. There are more registered sole proprietorships in the U.S. than the other forms of business. In addition...
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...LIT1 Task 1 Part A (the report) SOLE PROPRIETORSHIP: A sole proprietorship is the simplest, quickest and cheapest form of business to start making it the most popular types for first time business owners. A business owner and a sole proprietor may operate under different names, but legally, they are the same entity. Which leads to one of the biggest disadvantages of becoming a sole proprietor; the owner is responsible for all debts and fault created by the business. One of the major advantages to starting a sole proprietorship is the simplicity behind the formation. There is very little paperwork that needs to be filed at the inception and it takes very little work to keep the business compliant with state and federal laws. Another advantage to a sole proprietorship is taxes. Any money made by a sole proprietor is considered income to the owner. The profit is claimed as income on the owner’s annual tax filings. * Liability: Because there is no legal separation between an owner and the business in a sole proprietorship, the business owner is unlimitedly liable for any debt or fault of the business. Even if the sole proprietorship dissolves, the owner will be liable for the debt. If the debt is not taken care of in a timely manner it will could affect the owner’s credit rating and lead to future earnings being garnished. * Income Taxes: Taxation of a sole proprietorship happens once, at the income level of the owner. Any profit made by the company is considered an...
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...a sole proprietorship assumes all responsibilities, liabilities and profit of the business. • Liability- One major disadvantage of a sole proprietorship is the liability. As a sole proprietorship both the owner and business are one and the same and therefore both are subject to any unpaid debt. If the business has debt that is unpaid then the owner has the same unpaid debt and creditors could go after the individual. The same for if the owner has debts separate from the business the creditors could go after the business. As a sole proprietorship business, liability insurance could be purchased to help abate the liablity. • Income Taxes- As a sole proprietorship business, there is no double taxation as associated with a C-corporation. A sole proprietorship business deducts business expenses on a Schedule C of their personal Taxes. A disadvantage of a sole proprietorship is you will be taxed on total profits of the business and be subject to self-employment tax. • Longevity/Continuity- The longevity of a sole proprietorship business is the life span of its owner. If the owner dies without selling or passing the business on to a relative the business no longer exists. • Control- An advantage of the sole proprietorship is that the owner has complete control of the business and makes all decisions. On the other hand, there is no input from other viewpoints and can be a disadvantage when considering on expanding or continuing the business. • Profit Retention-...
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...to choosing a sole proprietorship would be minimal state and federal regulations, which make it easy to control and manage. Another is the cost to start a Sole Proprietorship is minimal. It is a good form of business for someone who is starting out small. In many cases this type of business can be operated out of the owner’s home. All business decisions are made by the owner, therefore he or she is entirely responsible for the operations, financial and legal aspects of the business. Some disadvantage to a sole proprietorship would be. The owner has unlimited liability and his personal wealth and assets are at risk to claims against the business. Another would be that raising capital is difficult for a sole proprietorship and is usually limited to the owner’s personal funds or credit available based on his personal credit history. Another key point to a sole proprietorship is that the business is not required to file or pay taxes. The sole proprietorship is a tax reporting entity, not a tax paying entity so the business taxes are filed at the personal rate of the owner on his personal income taxes. Business Services Sole proprietorship (May 20, 2008). Retrieved on (March 9, 2010) from Iowa Secretary of State. http://www.sos.state.ia.us/business/sole.html Key Characteristics • • • • The owner is completely and solely responsible for all liabilities of the business including debts and actions against the company. He has unlimited personal liability. Taxes are reported with the...
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...Part A (The Report) Sole Proprietorship A sole proprietorship is the most common form of forming a business in the United States. The individual that forms the sole proprietorship and the business is one in the same. For example, if the business owes creditors money, the individual who created the sole proprietorship business has to pay the bill. When entering into contracts the individual is actually agreeing to the contract since the person and business is one in the same. The biggest advantage of doing business under a sole proprietorship is that it is extremely easy to form since the individual creating the sole proprietorship is the business. They are fully responsible for all aspects of the business including making good on payments, collecting monies from customers, and providing the goods or services to their clients. Another reason individuals create sole proprietorships is the flexibility they gain by owning their own business. Since they do not have anybody to report to they can do as they please as far as hours, vacations, expansion, or direction of the business. However, there are many disadvantages that come with a sole proprietorship business. Since the individual is the business they are responsible for all financial responsibilities. They are responsible for ensuring all payments to creditors are paid on-time and in full. If the individual runs into financial issues they are responsible without protection. Also, sole proprietorships can only have one owner...
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...sole proprietorship, all control of business decisions rests with the owner. • PROFIT RETENTION – All profits generated from a sole proprietorship are income for to the business owner after all the business debts and obligations are satisfied. • LOCATION – There are no legal requirements to start a sole proprietorship on a federal level however each state has different requirements for filing for licenses and permits. • CONVENIENCE/BURDEN – The convenience of having a sole proprietorship is that the owner has full control of the business in every way. The main problem with sole proprietorships is that they are difficult to get funding for which increases the difficulty of starting a business. GENERAL PARTNERSHIP: • LIABILITY – As each of the business partners is jointly and severally liable for any and all business debts and liabilities. Their personal assets can be used to satisfy business debts regardless of knowledge of wrongdoing or malpractice. • INCOME TAXES – Each...
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...and operated by one person. * Profit Retention – At the owner’s discretion if funds are spent or re-invested back into the company as long as debt and obligations are paid. * Location – Sole proprietors need to comply with licensing requirements in the state in which they‘re doing business as well as local regulations and zoning ordinances. * Convenience/Burden – A convenience of sole proprietorship is that the owner pays taxes on income from the business as part of his or her personal income tax payments. A sole proprietor might consider it a burden when investors hardly invest into their company. GENERAL PARTNERSHIP General Partnership is a business organization consisting of two or more persons that have entered into a contract known as articles of partnership and share profit gains as well as losses. A major advantage of general partnership is that you have someone to share equal responsibility of the...
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...Partnerships vs. Corporations Tracy Kamke Professor Edward Hastings ACC317 March 9, 2014 A partnership is an association owned by two or more people to carry a business or trade with each parnter contributing money, property, labor, or skill and all partners expecting to share the profits and losses. A corporation is a separate entity that has its own rights, privileges, and liabilities separate from its members. Whether you choose to be a partnership or corporation, depends on how much your federal income tax will be. There are different types of corporations and many different partnership types. There are two different types of corporations. You have the C Corporation, which has the toughest tax bracket; you are subject to double taxation. The first tax is on the company's net earnings, and the second tax is that each shareholder must pay tax on his or her dividend. A C Corporation can reduce or eliminate its federal income tax liability by distributing its income to the shareholders who perform services for the company (Battersby, 2008, p.10). The other is the S Corporation which resembles the partnership and report entities like partnerships. Partnerships are not taxable entities and are not subjected to federal income tax. In a partnership, you are required to file a Form 1065 to report the results of the partnership's business activities. There is a general partnership which is two or more partners that participate in management of...
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...government restrictions, personal liability, tax considerations, and the like” (Cheeseman, 2010, p. 529). The major forms of business organizations are, sole proprietorship, partnership, limited liability company, limited liability partnership, corporation, S corporation, and franchise. This paper will define these forms and provide individual scenarios of each and why they were chosen. Sole Proprietorship “A sole proprietorship is the simplest form of business organization. The owner of the business, the sole proprietor, is the business” (Cheeseman, 2010, pg. 530). An example of a business that would benefit from sole proprietorship would be someone who creates floral designs and sells them for a profit. In this scenario, sole proprietorship would be the optimum business form as it is the easiest business to establish and does not cost a lot. As the sole proprietor, the owner has the rights to make all business decisions, to include staffing, merchandise pricing, and hours of business. Additionally, the owner would own all the business, have the right to all the profits, would not pay taxes at the business level, and has the ability to sell the business at any time. Partnership A partnership that involves two or more partners can either be a limited partnership or a general partnership. A general partnership is a type of business that involves two or more...
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...only the money initially invested in the business but also personal assets. * Income Taxes – Due to you being the sole owner there is no separate business income tax filing for a business under Sole Proprietorship. Business income or loss is reported on the sole proprietor’s personal tax return, and any tax is paid at the individual level. * Longevity / Continuity - The Sole Proprietor is the sole owner, with no partners in the business, if the Sole Proprietor becomes disabled, retires or dies the business is dissolved. A business operated under Sole Proprietorship does not offer the perpetual existence of a corporation. * Control – Control of a business that is under sole proprietorship falls under the sole owner. Under a Sole Proprietorship you are not permitted to bring in any business partners, if you do then this would become a General Partnership Business. * Profit Retention – All profits gained under Sole Proprietorship belong to you the owner. However, you are also responsible for any bills incurred prior to any profit being taken. * Location - Expanding or moving a business that is under “Sole Proprietorship” is not very complicated. To move, you register your name or the business’ name to the state you are moving to. The only rule for a business that is operating under Sole Proprietorship is that it must be formed in the United States. Using a Doing Business As “DBA” name allows a Sole Proprietor to legally do business under a name other than their...
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...three friends have is to form a general partnership. The general partnership has the most potential liability for all of then out of the three options. A partnership is not treated as a separate legal entity, therefore all of the owners would have unlimited liability, even Norm the friend who won't even be there. This means that all the assets that they all invested and their personal assets would be liable if creditors came after them or if they were sued by someone. Also another downside for Norm is that partners are all agents for each other. This means that anytime one of the other partners makes a decision concerning the business, Norm has been bound to that contract. So even though he will not be anywhere near the new business, any decisions made by the people there will make Norm liable to any adverse consequences. Another reason Norm wouldn't want this as an option is that all owners share joint and several liability for all debts. This means that a third party can sue all of the partners or just him for any decision that Laverne or Shirley made that brought the action. Norm would not even have to know about it. The general partnership benefits in ease of debt financing because of this kind of liability. Since all of the owners have unlimited liability, if one of the partners defaults on the loan, banks can go after not only the partnership, but each owner as well. However, it is harder for a general partnership to raise equity financing due to the unlimited...
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...liability one is responsible for depends greatly upon the election of a particular entity whether it is a Limited Liability Partnership, Limited Partnership, Limited Liability Company, S corporation, C Corporation, or a Business Trust. Within each of the different organized entities federal law has provided each organization with separate and distinct procedures in accounting for its assets in relation to its tax liability (Drucker, 1989). Limited Liability Partnership A limited liability partnership more commonly known as a LLP engenders aspects of both partnerships and corporations, two entities that will later be explored in greater detail. One should elect to enter into a limited liability partnership if investors wish to partake in the management of the business. Just as in a partnership or limited liability company, the profits of a LLP are dispersed among the partners for tax purposes, ultimately avoiding the problem of “double taxation” which is often exhibited in corporations. Similar to that of the shareholders of a corporation all partners in a LLP have a form of limited liability, however contrary to corporations partners actually possess the authority to manage the business directly. In the state of Texas a partner is not individually liable for debts and obligations of the partnership incurred while the partnership is a registered limited liability partnership. The...
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