...MEMORANDUM TO: Owner From: RE: Business Options Date: September 27, 2015 _______________________________________________ Changing the way you structure your business can be a frightening endeavor. You have been operating as a Sole Proprietorship for quite some time now, but it appears you have outgrown that business type. You have expressed a need to scale the business as well as a concern for your own personal liability. With those concerns in mind as well as the current state of your business, I recommend restructuring the business into a Limited Liability Company. I will try and address each of your concerns individually and explain how I came to this conclusion. As your business grows you will be opened up to substantial risk, should you decide to remain a Sole Proprietorship. You have expressed concern over debt and liabilities of the business. As an LLC you can protect your personal assets from future risk. Heaven forbid your business sustains a serious debt or claim that it isn’t capable of paying, but if does, your house, car, and personal possessions are safe from any business creditors. As an LLC you will continue to be taxed as a Sole Proprietorship with the ability to adapt to the future status of the business. You will not pay taxes on the income of the business; however profits and losses will pass through to you and be taxed on your own personal income tax returns. Should you take on another owner in the future, you will transition to be taxed as a General...
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...venture, the first and most important decision made by the owner is to review the forms of business options and determine which one would be suitable for the organization of their company. There are seven forms of business that will be discussed and different scenarios that will be developed in which each of these forms of business would be the preferred form. The seven forms of business are sole proprietorship, partnership, limited liability partnership, Limited Liability Company, S corporation, franchise, and corporate form. The selection depends on many factors – Each of these forms of business has advantages and disadvantages for the entrepreneurs (Cheeseman, 34). Each scenario will also include why the corresponding business form is most preferred. Sole proprietorship Sole proprietorship is the simplest and most common form of business (Cheeseman, 530). This form of business would be appropriate for a single business owner. The business owner would be the sole proprietor in this situation. The sole proprietor would be the only decision maker on how to conduct their business, as well as would be held liable for all activities within their business and cold be at a loss for all assets if the business is not successful. For example, Kelly opens a hair store as the sole proprietor of the business. She handles all contracts made for her and to any employees that she may hire and receives all profits made from the business. Should productivity begin to slow down and Kelly has to close...
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...1. Financial management involves decisions about which of the following: A. Which projects to fund. B. How to minimize taxation. C. What type of capital should be raised. D. All of these. E. Only A and C above. 2. When determining a form of business organization, all of the following are considered EXCEPT: A. Who owns the firm. B. What are the owners' risks. C. What are the tax ramifications. D. The physical location of the business. E. None of the above. 3. The practice generally known as double taxation is due to A. shareholders' dividends being taxed at both the federal and state levels. B. corporate income being taxed at both the federal and state levels. C. both A and B above. D. corporate incomes being taxed at the corporate level, then again at the shareholder level when corporate profits are paid out as dividends. E. None of the above 4. For corporations, maximizing the value of owner's equity can also be stated as A. maximizing retained earnings. B. maximizing earnings per share. C. maximizing net income. D. maximizing revenue E. maximizing the stock price. 5. If a company reports a large amount of net income on its income statement during a year, the firm will have A. positive cash flow. B. negative cash flow. C. zero cash flow. D. any of these scenarios are possible. 6. Income Statement Barnyard, Inc.'s 2008 income statement lists the following income and expenses: EBIT = $500,000, Interest expense = $50,000, and Net income...
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...liability purposes. There is no legal distinction between the owner and the business itself. ·Liability - Seeing as there is there is no difference between a company and the owner with a sole proprietorship, the proprietor has unlimited liability, meaning the owner of the business is personally responsible for all debts, contracts, and obligations the business has. Unlimited liability puts all of the proprietors assets (home, cars, bank accounts, etc.) at risk should a lawsuit not covered by insurance arrive, or should debts go unpaid. ·Income taxes- With no legal distinction between the owner and the business, income from the business is taxed as normal personal income. Tax rates are dependent on the state, but individual income tax is by and large high. ·Longevity/ Continuity- A sole proprietorship can only have a single owner, meaning no partners can be brought into the business. Seeing as the owner is the same as the business itself, if the owner were to die, the business also dies. The assets of the business become part of his/her estate. Sole proprietorship businesses can be dissolved as quickly as they can be created; the business assets can be sold or given away. ·Control- One advantage of a sole proprietorship is that the owner of the business has a large, near total amount of control. The owner can ultimately make all decisions within his/her business, as there are no co-owners or partners to consult. The owner is the business. ·Profit Retention- All income generated...
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...types, and that is preparation for all owners involved, no matter the role. In the event of a death, or a decision to leave the business, you should make sure that at the forming of the business, that everything is in order for all parties involved and the smooth continuation of said business. Running a business can be an exciting endeavor, but I would recommend to anyone before they start, to have everything legally in order for all the different kinds of situations you can find yourself in. Sole Proprietorship- The simplest form of business, a sole proprietorship is the most common form of business in our country. Be it because it can be managed by a single person; or perhaps it’s the lack of agreements and formalities needed for the business to run, sole proprietorships are able to operate on a small scale and responsibilities fall on only one person. In a sole proprietorship, only one person is needed for the capital and credit to start the business, and possibly that’s why we American Dreamers have turned it into the most common form of business used in this great country. What distinguishes this form from the rest, is the unshared responsibility of the owner. Characteristics of a sole proprietorship, to be considered by the owner: Liability, The owner of a sole proprietorship has unlimited personal liability, however the sole proprietor can insure against most risks and operate with near the same level of comfort as the owners of a corporation. Income Taxes...
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...BUS 415 Final Guide – 2 Sets To Buy This material Click below link http://www.uoptutors.com/BUS-415/BUS-415-Final-Guide Set 1 1) The doctrine of stare decisis concerns A. staring at the facts of a case for a long time to make sure the correct decision is made. B. making sure to do adequate research before making a legal decision C. following precedents so that legal principles announced in a case are used to determine later cases D. using constitutional law to render a decision 2) The form of alternative dispute resolution wherein the parties hire someone to review the evidence and make a decision that is binding upon the parties is called A. arbitration B. settlement conference C. negotiation D. conciliation 3) A corporation is considered a citizen of what state? A. The state where the president of the corporation lives B. It is not a citizen because it is a business C. The state where the majority of the employees live D. The state where it filed its Articles of Incorporation 4) Which of the following statements is true regarding the relationship of law and ethics? A. Depending on the circumstances, the law can require a higher, lower, or the same standard of conduct as ethics demands. B. The legal requirements will almost always be the same as the ethical requirement because the law is based on ethical standards. C. In some cases, ethics will require a higher standard of conduct than the law, but never vice versa. D. In some cases, the law will require...
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...RECOMMENDATION FOR SAVING FOR CHILDREN’S EDUCATION Facts: Facts: Taxpayers are married and have three children, ages 9, 7 & 3. Their joint income is currently $200,000 per year. Assumptions: Taxpayers will not have more children and they will not divorce. Their income is $200,000 per year and stays constant. They currently live in California and their children will attend college, specially the UC System, at age 18. So there are 9, 11 and 15 years until the children will need the funds. Due to the parents’ high income, the children will not be eligible for any financial aid. Based on additional assumptions that the tuition inflation rate is 8.3% and the current tuition amount for the UC system is $13,200, Table I shows the tuition amounts needed for each child. Table I: Tuition Amounts Need for Each Child for Each Year of College | 1st | 2nd | 3rd | 4th | Total | 3year old | $ 43,651.7 | $ 47,274.7 | $ 51,198.6 | $ 55,448.0 | $ 197,573 | 7 year old | $ 31,731.2 | $ 34,364.9 | $ 37,217.2 | $ 40,306.2 | $ 143,620 | 9 year old | $ 27,053.9 | $ 29,299.4 | $ 31,731.2 | $ 34,364.9 | $ 122,449.5 | Total | | | | | $ 463,642.5 | Issue: Based on Table I, it would be difficult to save for the children’s education based on the taxpayer’ income. We do not attempt to maximize the value of our investments due to market risk for different investments. Therefore, the overall goal is to maximize tax savings. Our...
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...structure is important because it determines how the business income will be taxed. This paper will discuss the different forms of business, give examples of each form, and justify why the corresponding business form is preferred. Sole proprietorship according to Cheeseman (2010) is the form of business in which the owner is actually the business: the business is not a separate legal entity (Cheeseman, 2010, p. 530). “An individual starts the business in his or her own name and does not require any special legal organization beyond the normal requirements such as licenses or permits” (Georgia Trend, 2006/2007, p. 34). Beauticians are great examples of a sole proprietorship. Beauty shops are usually owned by one person, while having other people working in them.This type of business form is preferred by beauticians or a plumber because it is easy, no formalities, and most importantly no federal or state government approval is required. According to Cheeseman (2010) the owner has the right to make all management decisions concerning the business, including those involving hiring and firing employees (Cheeseman, 2010, p. 530). A sole proprietor owns all off the business therefore he or she receives all of the profits. Most importantly if the sole proprietor wishes to sell or transfer the business no other approval is necessary (Cheeseman, 2010). Partnerships are a business form that consist of two or more people coming together to form a business. Each person contributes money...
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...Chapter 15 Entities Overview SOLUTIONS MANUAL Discussion Questions 1. [LO 1] What are the more common legal entities used for operating a business? How are these entities treated similarly and differently for state law purposes? Answer: Corporations, limited liability companies (LLCs), general and limited partnerships, and sole proprietorships. These entities differ in terms of the formalities that must be observed to create them, the legal rights and responsibilities conferred on them and their owners, and the tax rules that determine how they and their owners will be taxed. 2. [LO 1] How do business owners create legal entities? Is the process the same for all entities? If not, what are the differences? Answer: The process of creating legal entities differs by entity type. Business owners legally form corporations by filing articles of incorporation in the state of incorporation while business owners create limited liability companies by filing articles of organization in the state of organization. General partnerships may be formed either with or without written partnership agreements, and they typically can be formed without filing documents with the state. However, limited partnerships are usually organized by written agreement and must typically file a certificate of limited partnership to be recognized by the state. 3. [LO 1] What is an operating agreement for an LLC? Are operating agreements required for limited liability companies? If not...
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...PBL 1 GST ACT 1999 s29.40 Choosing to account on a cash basis Is the GST done on an accruals or cash basis? Cash basis GST ACT 1999 s195.1 "GST exclusive market value" , in relation to a supply or acquisition: (a) other than of a * luxury car--is 1 0 / 11 of the * GSTinclusive market value of the supply or acquisition; or (b) of a * luxury car--is 1 0 / 11 of the * GSTinclusive market value of the luxury car (excluding any * luxury car tax that is, or would be, payable on the supply of that car). What was the cost of the vehicle? $90,000 GST inclusive $57,466*60%=$34,480 $34,480*10/11= $31,345 G10 GST=$3,135 How much was the car used for business? 60% Did you use an ABN number when buying vehicle? Yes How is the Car depreciated? Straight line depreciation over 8 years What method do we use for the car? Log-book method, car has driven over 5000km What is the loss on sale of non-current asset? We sold a computer for $1,100 (GST 100). We bought it for $2,900 and had a depreciation of $1,520. So it had a written down value of $1,380 (2,900-1,520), resulting in a loss of $380. GST ACT 1999 s38.3-food that is not GST-free What are the food sales? Fresh food - $58,000(GST-free) Sandwich – $14,000 (GST 1,400) Microwave Meals – $8,000 (GST 800) Chocolate, lollies and snacks – $10,650(GST 1,065) Total – $90,650 (GST free sale 58,000) GST 1400+800+1065=3265 GST ACT 1999 s38.3(d) Beverage...
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...treat (ITT). As you known, invitation to treat does not mean amount to an offer. Section 2(a) of the Contract Act 1950 defined as something which is capable of being converted into an agreement by its acceptance. There is a different between Invitations to treat with an offer. A proposal must be distinguished from an invitation to treat (ITT) so that the proposal can be the only way to attract any party to enter the contract. Examples of Invitation to treat which is Good displayed in shop windows and shelves, Advertisement, Auctions, Catalogues and Price lists. Based on the above situation, the law of Invitation to treat of display of goods is exist which it is not a proposal to sell and invitation not capable of being accepted, In shop , owner merely holds himself prepared to consider proposals made to him at the suggested price, so an offer to buy is made when the customer puts the goods in a trolley or takes the item off the shelf, but the contract only made when the person bring the item to the cashier’s desk and pay for the item. Section 2 (a) of the Contract Act 1950 provides that when one person signifies to another his willingness to do or to abstain, he is said to make a proposal. In the case of Pharmaceutical Society of Great Britain v Boots Chemist Ltd we can know that the display of goods with the price tag is just an invitation to treat. When the consumer put the display of goods into basket or trolley only made the proposal to buy. Thus, the contract only will exist...
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...main take-away was that business owners and future entrepreneurs should always research and understand all possible business structures prior to starting a business. The example of Susan Hartzler illustrated the ideas mentioned in my main take-away. Susan Hartzler “did not know to ask” an advisor about how to set up a business structure that best suits her needs and therefore lost personal assets when she faced bankruptcy (Covel 1). The actions of Susan show how important it is to recognize that each business structure has its risks and how important it is as a business owner to comprehend these in order to protect oneself from losing any personal assets. Prior to reading the article, I believed that a Limited Liability Corporation was a type of structure that prevented the loss of personal assets in bankruptcy. However, after reading the article and being informed about Mr. Tardiff and Ms. Watson-Tardiff’s case, I learned the most about limited liability corporations because it went against my original understanding of this type of business structure. I did not realize that, despite a business being an LLC, banks require the guarantee of a personal asset like a car or home in order for a business owner to get money to run or start their business. I believed a loan under the name of the business did not require such a guarantee from the business owner. However, by learning that personal assets are often tied to loans taken out by a business owner in an LLC, I was taught that personal...
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...Business Entity concept Business entity concept or Separate entity concept or Separate economic entity concept are different names for the same concept. According to business entity concept, the business is distinct and separate from its owners i.e. business and its owners should not be treated as one and the same thing. Accepting this concept means that the activities performed by the business/organization does not have anything to do with the owner of such business/organization and same goes for the owners where any activity undertaken by the owner does not have anything to do with the business. In technical terms it suggests that assets, liabilities, income and expenses of the business should be kept separate from the assets, liabilities, income and expenses of its owners. Business can own an asset on its name. Business can incur an expense under its name. It can have a liability under its name and liabilities of the business does not mean this is to be paid by the owner of the business. A car used for business purposes is the business’ asset. Where car used by the owner for his use is owner’s asset and these two cars should not be treated under same category or classes of assets. However, everyone must not confuse separate entity concept with separate legal entity concept which became two different concepts originating from the same source because of the differences in accounting and legal approach. Example of business entity concept is a sole trader or one man business:...
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...Fin 3400 Corbett Homework chapter 1 1. In 2006, a significant indicator of the U.S. economic decline was: A. a significant drop in interest rates B. a sharp increase in unregulated Ponzi-type security sales C. rising defaults by subprime mortgage borrowers D. a large increase in loan default due to unemployment 2. The financial crisis that started in 2006 was magnified by which of the following: A. Public concern over the war in Afghanistan B. Consistently increasing oil and gas prices C. Ethical issues affecting high value investment D. Mortgage lenders securitizing large quantities of their loans 4. This subarea of finance involves methods and techniques to make appropriate decisions about what kinds of securities to own, which firms' securities to buy, and how to be paid back in the form that the investor wishes. A. real markets B. investments C. financial management D. none of these 5. This subarea of finance looks at firm decisions in acquiring and utilizing cash received from investors or from retained earnings. A. investments B. financial management C. treasury management D. none of these 7. This subarea of finance helps facilitate the capital flows between investors and companies. A. investments B. financial management C. treasury management D. financial institutions and markets 10. This is a general term for securities like stocks, bonds, and other assets that represent ownership in a cash flow. A. investment B. financial asset ...
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...Question 1 Michael Jones and his family reside on a small farm on the Mornington Peninsula outside Melbourne. Michael purchased the farm in 1984, and over the years developed the property into a successful dairy farm. In September 2013, during a routine ‘controlled burn’ operation carried out by the Country Fire Authority, the fire got out of control and burned a significant part of the Jones’ property. The fire damaged fences, sheds and water tanks and also killed 25 dairy cows, as a result of which, Michael lodged a claim for $250,000 against the Country Fire Authority. Preferring to avoid bad publicity, the Country Fire Authority agreed to settle Michael’s claim for a lump sum of $200,000, which Michael accepted on 15 December 2013. As a result of this experience, Michael and his family decided to give up farming and move to the city. He sold his remaining cows and dairy equipment to his neighbour for $140,000 and put the farm on the market for $2.5 million. Despite much advertising, Michael received no offers for the property. On the advice of a friend in the real estate industry, Michael decided to subdivide and develop the property. To this end, he engaged surveyors, town planning consultants and lawyers to bring about a change in the zoning of the property. Having obtained permission from Council, he set about subdividing the property into 100 residential blocks and organized the water supply to each block. He then arranged the provision of roads, electricity...
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