...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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...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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...Being a desiring business owner, critical examination must be placed into the various business structures when opening your business. Each business requires the correct planning and structure in the business agreement. Without an agreement delineating the relationships between the members, managers, partners and shareholders, the court applies default provisions. There is a significant possibility that the default provisions dictating the law will not align with the needs of the organizers. The most common methods of business operations are as sole proprietorships, partnerships, limited liability companies and corporations. As such, after careful review and revision of the different business organizations, I have decided that I would establish a Limited Liability Company (LLC). A Limited Liability Company, quite simply is a company whose liability is limited. That’s the short version. The longer version is that a limited company is a type of company which when set-up allows an entrepreneur to keep their own assets and finances separate from the business itself. This means that people who have invested in the business (the shareholders) are only responsible for any company debts up-to the amount that they have invested and no more. It is therefore a good way for a business to get investment and run without risk to a personal wealth. Essentially a Limited Company is seen as an entity in its own right, which can be subject to legal action. As a separate body, a...
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...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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...(called a "flow-through" entity) is not taxed but its owners are each taxed (more or less) on their proportionate shares of the entity's income. The leading forms of pass through entity (further explained below) are: Partnerships, of various types. "S-corporations" (S-corps), as distinguished from C-corps. Limited liability companies (LLCs). A sole proprietorship such as John Doe Plumbing or Marcus Welby, M.D. is also considered a pass through entity even though no "organization" may be involved. The first major consideration (in this case, a tax consideration) in choosing the form of doing business is whether to choose an entity (such as a C-corp) that has two levels of tax on income or a pass through entity that has only one level (directly on the owners). Losses are directly deductible by pass through owners while C-corp losses are deducted only against profits (past or future) and don't pass through to owners. The major business consideration (as opposed to tax consideration) in choosing the form of business is limitation of liability, that is, to protect your assets from the claims of business creditors. State law grants limitation of liability to corporations (C and S-corps), LLCs, and partners in certain forms of partnership. Liability for corporations and LLCs is generally limited to your actual or promised investment in the business. Different Types of Business Entities C and S-Corps The S-Corp...
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...Chapter 28 Employee vs. Independent Contractor Employee – If the employer exercises a considerable amount over the details of the work, you have an employee status. If the work is usually done under the employer’s direction, you have an employee status. The employer supplies the tools. If the person is employed for a long period of time, you have a employee status. If the method is by time period, you have an employee status. An employee may not require as much skill as an independent contractor. * Employer exercise a considerable amount over the details of the work * Work is done under employer’s direction * Employer supplies the tools * Worker is employed for a long period of time * Method of payment is by time period * Employee may not require as much skill as an independent contractor * Independent Contractor – The worker is engaged in an occupation or business distinct from that of the employer. If the work is done by a specialist without supervision, you have an independent contractor status. If the worker is employed for a short period of time, you have an independent contractor status. If the payment is made at the completion of the job, you have an independent contractor status. An independent contractor may require more skill than an employee. * Worker is engaged in an occupation or business distinct form that of the employer * Work is done by a specialist without supervision * Worker is employed for a short period...
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...Business Entities Jessica Perez BUS 311 Business Law Instructor: Janet Fiorentino 12/1/2014 As the manager of Acme Fireworks, I need to gather information to help the owner determine whether or not he should continue to be a sole proprietorship or if he should switch to another business entity. I will help him do so by explaining each entity and how they relate to his business situation. I am the manager of Acme Fireworks, a fireworks retailer who sells fireworks, puts on ground display fireworks, and large aerial display fireworks. The company started in the owner’s garage two years ago and now has 15 employees that you manage. The company started as a sole proprietorship, and the owner has never changed the entity. The owner has informed me that the company has received inquiries from several large businesses wondering if the company could create several fireworks displays on a regular basis. The owner told the inquirers that the company could fill such display orders, and a price per display was agreed upon. It was discussed that most of the cost for a fireworks display is for skilled labor, insurance, and the actual service of setting off the fireworks. No other details were discussed. The owner is anticipating that new employees will need to be hired, but he is worried that if the large orders for fireworks displays do not continue, the company will not have the funds to pay the new employees. The owner is now considering changing the business entity, but he...
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...Chapter Six Business Formation: Choosing the Form that Fits Review Questions 1. Describe the basic features that distinguish the four basic forms of business ownership: sole proprietorships, general partnerships, C corporations, and limited liability companies. 2. Why do many entrepreneurs initially set up their businesses as sole proprietorships? Why do many successful entrepreneurs eventually decide to convert their sole proprietorship to some other form of ownership such as a corporation or LLC? 3. How do limited partnerships and limited liability partnerships differ from general partnerships and from each other? 4. What advantages help explain why virtually all large companies are organized as C corporations? 5. What steps are involved in forming a C corporation? 6. Describe the relationship between a corporation’s common stockholders, its board of directors, and its chief executive officer (CEO). 7. How does a merger differ from an acquisition? What is the difference between a horizontal merger or acquisition and a vertical merger or acquisition? Give a real world example of recent merger to illustrate each type of combination. 8. Compare an S corporation with a limited liability company. Why do you think limited liability companies are currently more popular than S corporations? 9. What are the main advantages and disadvantages of a business format franchise arrangements for the franchisee? For the franchisor? 10. What is a Franchise Disclosure...
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...business: sole proprietorship, limited liability partnership, Limited Liability Company, S corporation, franchise and corporate form. This paper will also discuss the justification as to why this business form is preferred. Sole Proprietorship. Suzie owns a shop that does body wraps that helps individuals have slimmer waists and thighs. People are wrapped like mummies and the elastic wraps are saturated in a mineral solution to help assist in breaking down fat. She owns a small shop in a strip mall downtown. A Sole Proprietorship is a business that is owned by one person, and is commonly known as a small business. It is preferred by individuals who want to start their own business because they can make all the decisions regarding payroll, hiring and firing of employees ("Doing Business as a Sole Proprietor,") Business owners of this type file their own taxes. The owner can also sell the business without the approval from others, since they own the business outright. Personal liability is also a factor when opening a business as a sole proprietor. If for example, a customer gets burned by the wraps that are used and the customer sues Suzie, she will have to hire her own attorney utilizing her own funds. This can become very costly and personal assets may be at risk. She will also have to look into obtaining liability insurance for issues such as injury, burglary and the like (Cheeseman, 2010, Part VIII). Partnership. Chris and Jeremy decide to open a Barber shop...
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...Assignment 1: Partnership vs. Corporation Due Week 7 and worth 240 points Use the partnership and corporate tax returns for the practice sets titled, “Pet Kingdom” and “ROCK the Ages, LLC” that you prepared in Weeks 3 and 5 in order to complete this assignment. Write a four to five (4-5) page paper in which you: 1. Compare and contrast the tax rules and treatment applicable to corporations and partnerships. Indicate the major way in which the tax treatment affects the shareholders or partners. The tax rules for a corporation are taxed at a different level than the various business structures. Corporations are the only business structure that are required to pay its own income taxes based on the profits received. The corporation requires it to file a tax return using Form 1120 and pay taxes at a corporate income tax rate on any profits. When deciding on what amount must be paid at a corporate level, the amount of tax due must be estimated and are due by the end of the year and quarterly payments are recommended. The shareholders are affected by the corporation tax rules, because they are taxed based upon being owners and working for the corporation and required to pay taxes on their salaries and the bonuses they receive like any regular employees of a company. It must be understood that salaries and bonuses are being deducted as business expenses, so that means that the corporation does not pay taxes on them. A corporation is taxed on all its profits because it does not...
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...Part A (the report) SOLE PROPRIETORSHIP: This business entity is the most common business used in the United States. This entity is owned and ran by one individual where there is no legal distinction between the owner and the business. This legal name of the business is the owner’s name; however, the business may operate under a fictitious name by filing a DBA. This person is legally accountable for all elements of the business including finances, loans and debts. One of the advantages of doing business as a Sole Proprietorship is that it’s easy to create. Another key advantage is the autonomy. Since the owner or individual is the business, he or she may decide for themselves whatever business decision they feel is needed to make, including the business finances. Some disadvantages would be that it is impossible to bring in others to do business being there can only be one owner. This also makes it difficult to raise capital in terms of seeking investors. Tax planning can also be challenging for the sole proprietor. Since there is no legal distinction between the owner and the business, all the income generated by the business is treated as ordinary personal income to the owner. • Liability: Sole Proprietors have unlimited liability. There is no difference between the owner and the business. Therefore, the owner is personally liable and responsible for all the business obligations and debt. Doing so makes all of the owner’s personal assets reachable to creditors. • Income...
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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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...RANULFO ALEJADO ACC/537 Financial Accounting Basic Accounting Concepts and Business Structures Executive Summary Most businesses nowadays either sole proprietorship, partnership or corporation should prepare financial statements in accordance with the Generally Accepted Accounting Principles (GAAP). Financial statements are the major source of financial information that would help management, creditors, and investors in their decision making. Financial reporting is one of the responsibilities of the company in communicating financial information, which guides in investment and credit decisions, assessing cash flow prospects, and about company’s resources, and claims to its resources. Accrual and cash basis of accounting are the methods employed in recording financial transactions, which affect the credibility of its financial information. Generally Accepted Accounting Principles Generally Accepted Accounting Principle (GAAP) is a helpful guide in financial reporting. For the past half a century, less than 50% of the GAAP issued are still effective today. These were reviewed and revised in accordance to the investors, and creditors information needs (Fisher, 1998). GAAP are set of standards and procedures that have substantial authoritative support. The organizations responsible in its development are the Securities and Exchange Commission (SEC), American Institute of Certified Public Accountants (AICPA), Financial Accounting Standards Board (FASB) and Government...
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... 1 Husniyah McNeill FIN/571 Professor Timothy Dreyer July 9, 2015 BUSINESS STRUCTURES 2 Business Structures A business entity is an entity that is comprised of a group of people organized for profitable or charitable purposes. Business entities include organizations such as corporations, partnerships, charities, trusts, and other forms of organizations. Business entities are subject to state income tax depending on the laws of the state or states where they conduct business (taxes.about.com). There are three basic types of business structures: Sole Proprietorship, Partnerships, and Corporations (University of Phoenix, Films on Demand, 2011). Depending on the type of business structure one chooses to operate under, will determine how a potential business owner will operate in the business sector. Sole Partnership According to the film on demand video, Sole Proprietorship is considered to be the most common and simplest form of business. Many small businesses operating in the United States are sole proprietorships. An individual proprietor owns and manages the business and is responsible for all business transactions associated with the business (allbusiness.com). Some advantages of being a sole proprietor is that a sole proprietor has complete control and decision-making power over the...
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