...paper will concentrate on two important structures that can be used when starting a business and those are a limited liability corporation (LLC), and a limited liability partnership (LLP). This report will identify two advantages and two disadvantages when using an LLC and LLP. It will also give the authors description of a personal business idea, along with the writers choice of corporate governance, and what the advantages will be of choosing either and LLC or LLP. Limited Liability Corporation A Limited Liability Company (LLC) is a business structure allowed by state statute, owners of an LLC are called members, most states do not restrict ownership, and so members may include individuals, corporations, other LLC’s and foreign entities (IRS, 2012). It is a corporate structure whereby the members of the company cannot be held personally liable for the company's debts or liabilities (Investopedia, 2013). For tax purposes it is important to remember that in order to be classified as an LLC two or more members need to be a part of the corporation. An LLC has many advantages, one of the most appealing advantages for members of a LLC are the taxation rules because owners avoid double taxation. Another advantage of an LLC is that in most states an LLC is very easy to form, and having limited liability attracts many business owners to form an LLC. One more advantage of an...
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...hybrid. The owners of a limited liability company are shielded from the personal liability of the corporation, and all profits and losses pass directly to the owner’s without taxation of the entity. In order to form a limited liability company, the articles of organization must file with the state and pay the associated fees (uslegal, Limited Liability Corporation Law & Legal Definition). A limited liability company is owned by its members. If the limited liability company uses managers, the members will more closely resemble stakeholders as they do not make management decisions. If the LLC does not use managers, then the members will be more like partners as they will have a direct say in the decision making of the company. There can be an unlimited number of owners in an LLC. Limited liability corporations are not required to hold annual meetings and keep minutes as corporations are. An LLC has a limited lifespan, and can be dissolved due to death or withdrawal of a member (uslegal, Limited Liability Corporation Law & Legal Definition). A limited liability partnership is a general partnership that chooses to be treated as a limited liability partnership by registering with the Secretary of State. This is the method of choice by many attorneys and accountants because it shields the partners from liability, is more flexible and is given partnership tax treatment (uslegal, Limited Liability Partnership Law & Legal...
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...proprietorship, the partnership, and the corporation. The share of corporations and partnerships in the overall economy becomes ever larger. In this paper, limited liability corporations and partnerships are analyzed with respect to their comparative advantages and disadvantages. Limited Liability Corporation Limited liability corporation (LLC) is one of the organizational forms that provide owners with limited liability. The LLC is permitted in most US states and gives its owners limited liability and taxation as a partnership. LLCs work well for corporate joint ventures or projects developed through a subsidiary (Gitman, 2009, p. 8). According to Bagley (1994), the LLC “is a statutory business entity that fits between the corporation and the partnership.” Basically, the LLC can be said to fill the business need recognized, but not satisfied, by the S corporation and the limited partnership. As for its main features, the LLC gives the owners limited liability and taxation partnership. The LLC offers three fundamental advantages. The first advantage is the pass-through tax treatment. In other words, there is no double taxation in the case of an LLC. The second advantage is the ability of members to deduce business losses on their personal tax return. The third advantage is about...
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...needs of many entrepreneurs as well as professional. These two business entities, known as Limited Liability Company (LLC) and Limited Liability Partnership (LLP), have forming, control, taxation, and liability components, which must be fully understood in an effort to identify their advantages as well as their disadvantages. The Restaurant and Sports Bar Lou and Jose are entrepreneurs that want to open an establishment that will offers its patrons a place to dine, while they watch their favorite sports teams in action. Although Lou and Jose have an abundance of drive and ambition, they lack the required capital to open the business. Miriam, a wealthy investor, is interested in providing that needed capital in return for a percent of ownership in the business. Since Lou and Jose are more than willing to take on the day-to-day issues of running a business, a limited liability company (LLC) might just proof to be the best type of business entity for the three of them. Limited Liability Company A limited liability company (LLC) “is an unincorporated business entity that combines the most favorable attributes of general partnerships, limited partnerships, and corporations” (Cheeseman, 2010, p. 267). For Lou, Juan, and Miriam the depth and scope of these favorable attribute will depend on the state statute that govern their LLC. In other words, because LLCs are “creatures of state law”, they differ from one state to...
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...a Limited Liability Corporation (LLC), Limited Partnership (LP), and the Limited Liability Partnership (LLP) will be explained. This includes the advantages and the disadvantages of both while starting up a new business. Many decisions go into starting a business and determining the form of entity the business will take is an important decision to establish. Different factors contribute the decision but every aspect needs to analyze. Limited Liability Corporation: LLC According to Gitman (2009), Permitted in most states, the LLC gives its owners, like those of S corps, limited liability and taxation as a partnership. But unlike an S corp, the LLC can own more than 80% of another corporation, and corporations, partnerships, or non-U.S. residents can own LLC shares. LLCs work well for corporate joint ventures or projects developed through a subsidiary (p. 8). Both shareholders and stockholders can split its profits and tax benefits in any percentage. Each member files their own tax return separately and the LLC files for informational purposes. In an LLC the advantages of a partnership and corporation structures are combined. In addition a limited liability company the owners of a LLC have the liability protection of a corporation. This means that business creditors of an LLC may not pursue the personal assets of LLC members in an attempt to recover business debts. Like a corporation an LLC exists as a separate entity. Members of an LLC cannot be held personally liable...
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...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. Investors and silent partners that are not taking on a managerial role are exempt from liabilities. If those same investors and silent partners are in managerial roles the courts can make them as liable as the partner assuming responsibilities for the legal consequences of the business ("Limited Partnerships and Limited Liability Partnerships", 2014).. Unlike the LLC members the LLP partners...
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...Liability Corporations The “Internal Revenue Service" (2012) website states that a Limited Liability Company (LLC) is a business structure allowed by state statute. LLCs are popular because, similar to a corporation, owners have limited personal liability for the debts and actions of the LLC. Other features of LLCs are more like a partnership, providing management flexibility and the benefit of pass-through taxation. There are advantages and disadvantages to being in an LLC, let’s start with providing the advantages, advantage one is taxes, when you are in an LLC there is no double taxation, advantage number two is liability, an LLC offers the same protection against liability that a corporation holds. The disadvantages, disadvantage number one is number of owners, an LLC must have at least two owners or members, disadvantage number two is taxes, an LLC must pay self-employment taxes. Roles of Limited Liability Partnerships According to "Nolo" (2012), a limited liability partnership (LLP) is a partnership in which some or all partners (depending on the jurisdiction) have limited liability. It therefore exhibits elements of partnerships and corporations. In an LLP, one partner is not responsible or liable for another partner's misconduct or negligence. This is an important difference from that of an unlimited partnership. In an LLP, some partners have a...
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...file as a Limited Liability Partnership. Most states permit certain professionals such as accountants, lawyers, and doctors to operate as LLPs. LLPs and LLCs combine the most favorable attributes of general partnerships, limited partnerships, and corporations. LLPs are taxed as partnerships unless they choose to be taxed as a corporation. Akiva and Tara would benefit from paying taxes as a partnership because partnerships are not taxed at an entity level but rather through a system of “flow- through” taxation. This form of taxation allows members to avoid double taxation by paying taxes only on their individual income. LLPs also offer legal liability protection. Partners are limited partners who stand to lose only their capital contribution if the partnership fails. Partners are not personally liable for the debts and obligations of the partnership beyond his or her capital contribution. Also an LLP can designate in its articles of organization as member-managed or manager-managed. In a member-managed LLP, the members share the responsibility of managing the company. In a manager-managed LLP, members designate managers to manage the LLP. When members designate a manager or managers, members no longer have the right to manage the LLC. However, a manager may be a member or nonmember of the LLC. When Akiva and Tara establish their birth clinic, they will first need to find Workers’ Compensation Insurance. Depending...
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...the aspects of his or her business. The owner can take any managerial decisions that he/ she wants to take. Disadvantages Raising capital for a proprietorship is more difficult because an unrelated investor has less peace of mind concerning the use and security of his or her investment . The investment is more difficult to formalize other types of business entities have more documentation. The enterprise may be crippled or terminated if the owner becomes ill. The business is the same legal entity as the proprietor; it ceases to exist upon the proprietor's death. The enterprise rests exclusively on one person, it often has difficulty raising long-term capital. 2. Limited liability partnership (LLP) Following are the advantages and disadvantages of LLP: In an LLP, one partner is not responsible or liable for another partner's misconduct or negligence. This is an important difference...
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...factors that should be considered when choosing a business entity: liability, taxation and record-keeping (Entrepreneur.com). Liability Bill and Darlene need to determine to what extent they need to be insulated from legal liability. This can depend on the kind of business they’re planning to start. A business that has a large amount of fixed assets that require hefty investments may mean the potential first year losses will be higher than expected so it would be better to limit their personal liability for the business losses. A Limited Liability Partnership (LLP), a Limited Liability Company (LLC), or a corporation can allow them to insulate their assets in the case they are found legally liable for damages. An LLC allows any entity to be owners but they offer more flexibility than a corporation. This is important if Bill and Darlene decide to grow their business and add more members since there are no limits for an LLC yet they still retain the tax advantages of a partnership with pass-through...
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...this we must first know what is Limited Liability Corporation and liability partnership. According to smallbusiness.chron.com a liability corporation or company is 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 as they like, and corporations are allowed to be members. LLCs enjoy freedom from the state-mandated membership and management reporting requirements that corporations have. Most important, LLCs do not have to pay taxes. Instead, their profits and losses are passed through to their members' individual tax returns in the same way as a partnership. As a result, members enjoy the advantages of avoiding the "double taxation" of corporations as well as receiving tax relief from the poor performance of their LLCs. Also according to smallbusiness.chron.com a liability partnership is LLPs have the same tax advantages of LLCs. They cannot, however, have corporations as owners. Perhaps the most significant difference between LLCs and LLPs is that LLPs must have at least one managing partner who bears liability for the partnership's actions. With an LLP, whoever is in charge is legally exposed in the same way owners of a simple partnership are exposed. Silent partners and investors in an LLP receive liability protection as long as they do not take on a managerial role. If they do, a court could pierce the veil of liability protection. With the above...
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...links. Then answer questions 1-3. 1. Is it difficult to form an LLC? What legal requirements must be met to form one? Forming an LLC seems fairly easy. You must choose a name not already used in Minnesota for your business and have LLC within the name. Example being, “My Business, LLC.” You must file Articles of Organization with the Secretary of State. You must appoint an agent that would receive papers on the company’s behalf, if for an example you were sued. You must make sure you are complying with all tax codes and regulations. Each year, the LLC must file an annual file renewal with the secretary of state. If you plan to do any business outside the state you must also register that with the Secretary of State. What department within a state’s government should you contact for information on forming an LLC within your state? You would contact the Secretary of State for more information. 2. Why should LLC owners prepare an operating agreement for their company even though such an agreement is not legally required in most states? The operating agreement gives the individual members of the LLC protection from liabilities. It also clarifies all verbal agreements and now makes them easier enforceable because it is in a written document. If there is no operating agreement then any disputes fall into state default regulations, which may not be in anyone’s favor. 3. How are LLCs taxed? How does...
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...The objective to start a business is to achieve business aims by maximizing its profits. A business is established with a single person or by many people. The legal forms of business are: Sole Proprietorship, Partnership, Limited Liability Partnership, Limited Liability Company, S corporation, franchise, and corporate form are the legal forms of business. The common impacts these forms of businesses have are: liability, tax, legal, and managerial. Sole Proprietorships Sole Proprietorships are the simplest form of business because they have one owner and do not require any registration from federal, state, or local governments. This type of business is suitable for a person who prefers to start a small grocery store, plumbing, consultancy, or a tutor. Sole Proprietorships needs a small amount of capital to start the business. This type of business does not have stocks. A sole proprietor owns the assets. At the same time, he is responsible for all his debts. Sole Proprietorships taxes are straightforward and the reported income on this type of business is reported as regular income. There are no legal restrictions in this business and are flexible for many types of enterprises, products, and services. General Partnership Partnership is a business, when two or more partners combine and share equal responsibilities on the liabilities and operations of that business. This type of business can be preferred if there are two licensed partners to start a business. A good...
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...Legal Forms of Business Mike Robertson LAW531 May 7, 2012 Julie Benes Legal Forms of Business The well-informed businessperson understands choosing the correct business form is important. The type of business form determines what type of business organized, how money flows in and out of the business, how the business and owners are taxed, and the levels of risk to owners. There are several types of business forms. These types are sole proprietorship, partnership, Limited Liability Partnership (LLP), Limited Liability Company (LLC), S Corporation, franchise, and corporation. The businessperson needs to have an understanding of which business form is justified for their business startup. The beginning businessperson looks at the sole proprietorship a majority of times because of its simplicity (Anthony, 2011). A sole proprietorship is the simplest form of business organization. The owner of the business, the sole proprietor, is the business. There is no separate legal entity. Sole proprietorships are the most common form of business organization in the United States (Cheeseman, 2010). One example of a business that becomes a sole proprietorship is an independent contractor. The future business owner completes work for a business, but they are not an employee of these companies, they are considered self-employed and therefore a sole proprietor. Most person call this “moonlighting.” For example, if an electrical contractor with a full-time job also does home electrical...
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...Legal Forms of Business Michelle Impellizzeri LAW/531 January 21, 2012 J. Thomas Witek, JD Legal Forms of Business To start a business, choosing the best form of operation will depend upon the type of business the owner wants to undertake. When selecting a form of business the owner should ensure that the form best meets their needs. “The selection depends on many factors, including the ease and cost of formation, the capital requirements of the business, the flexibility of management decisions, 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...
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