Business Structures
University of Phoenix
FIN 571
Aljenette Brown
Professor Elliott
November 9, 2014
Business Structure
A business is the fruit of a seed that a sole person or a group of people bears. The decision of what type of business to open will greatly affect the company in the long run. Many options exist for the person(s) such as opening a sole proprietorship, corporation, Limited Liability Corporations, partnerships, etc. Limited Liability Corporations and partnerships are very similar company types, but also are different. Limited Liability Corporations have their own benefits just as corporations, and each play important roles in business. Limited Liability Corporation – a business that “is a business structure allowed by state statute” (IRS, 2011). A Limited Liability Corporation is considered a mixture of a corporation and a partnership as each member (owner) has limited personal liability for debts etc., and each member has the benefit of pass-through taxation. Limited Liability Corporations have to follow certain rules depending on the state the business is filed in (special rules also exist for Limited Liability Corporations outside of the company).
There are many advantages and disadvantages to a LLC. Just as above, pass-through taxation applies. This means that there is no double taxing and each member is taxed at the member level. Since the company is called a Limited Liability Corporation, each member is protected from the obligations of the LLC. An advantage linked to the easiness of LLCs is that recording and paperwork is very little in LLCs compared to other businesses. Limited Liability Corporations are also disadvantageous because each person has a self-employment tax along with the tax involved with being a member. There are also several rules involved in Limited Liability Corporations which can cause immediate termination such as if 50% or more of the profit and capital interests are sold/exchanged within a business cycle, the Limited
FIN 571
Aljenette Brown
Professor Elliott
November 9, 2014
Business Structure
A business is the fruit of a seed that a sole person or a group of people bears. The decision of what type of business to open will greatly affect the company in the long run. Many options exist for the person(s) such as opening a sole proprietorship, corporation, Limited Liability Corporations, partnerships, etc. Limited Liability Corporations and partnerships are very similar company types, but also are different. Limited Liability Corporations have their own benefits just as corporations, and each play important roles in business. Limited Liability Corporation – a business that “is a business structure allowed by state statute” (IRS, 2011). A Limited Liability Corporation is considered a mixture of a corporation and a partnership as each member (owner) has limited personal liability for debts etc., and each member has the benefit of pass-through taxation. Limited Liability Corporations have to follow certain rules depending on the state the business is filed in (special rules also exist for Limited Liability Corporations outside of the company).
There are many advantages and disadvantages to a LLC. Just as above, pass-through taxation applies. This means that there is no double taxing and each member is taxed at the member level. Since the company is called a Limited Liability Corporation, each member is protected from the obligations of the LLC. An advantage linked to the easiness of LLCs is that recording and paperwork is very little in LLCs compared to other businesses. Limited Liability Corporations are also disadvantageous because each person has a self-employment tax along with the tax involved with being a member. There are also several rules involved in Limited Liability Corporations which can cause immediate termination such as if 50% or more of the profit and capital interests are sold/exchanged within a business cycle, the Limited
References: IRS. (2011, June 21). Limited liability company (llc). Retrieved from http://www.irs.gov/businesses/small/article/0,,id=98277,00.html. IRS. (2011, June 3). Corporations. Retrieved from http://www.irs.gov/businesses/small/article/0,,id=98240,00.html. IRS. (2010, September 30). Partnerships. Retrieved from http://www.irs.gov/businesses/small/article/0,,id=98214,00.html. David, K. S. (2011, July 27). Llc advantages. Retrieved from http://www.limitedliabilitycompanycenter.com/llc_advantages.html.