Task 1: Legal Issues For Business Organizations
Legal Issues for Business Organizations – LIT1
Task 1
Legal Issues for Business Organizations – LIT1
Task 1 – Part A
The way a business is organized is an important part of the business’s structure. “Different organizations provide different advantages and disadvantages in creation cost and simplicity, ongoing maintenance requirements, dissolution and continuity, fundraising, managerial control, public ownership, tax planning, and limited liability.” The nature of the business being conducted has little to do with the way the business is organized. (Johnson, 2013)
Sole Proprietorship: The basic concept of sole proprietorship is that there is no distinction between the individual business owner and the business. To start this …show more content…
type of business, in most cases, one only needs to begin charging money for goods or services. Because of its simplicity, sole proprietorship is the most common business structure in the United States. According to the U.S. Small Business Administration, “over 70 percent of businesses are owned and operated by sole proprietors.” (Beesley, 2013) Following are some of the characteristics that lend both advantages and disadvantages to this type of business organization.
Liability. As sole owner of a business, there is no severability of liability between the business and the individual. Therefore, all gains and losses of the business are also the gains and losses of the individual. The aspect of unlimited liability is one of the biggest disadvantages of this type of organization. Because there is no legal distinction between the business and the individual, if the business does not have the ability to fulfill its contractual financial obligations, the owner can be sued for their personal assets. The owner may also be held liable for the actions of any employee’s.
Income Taxes. All income derived from the business is personal income for the individual business owner. This can make it challenging to plan for tax savings, as generally personal income tax is taxed at a higher rate. (Johnson, 2013) However, since the business is not taxed separately, it makes tax preparation easier.
Longevity or Continuity of the Organization. Since the very nature of the sole proprietorship is in-severable, the business is only in existence as long as the owner is alive and/or wants it to be. In addition, ownership of the business cannot be passed from one individual to another and other individuals cannot join the business as owners. This is a disadvantage in that it influences the longevity of the business.
Control. The business owner has complete autonomy to make all decisions regarding the business and can retain or relinquish as much control as desired. Complete control can be both an advantage and disadvantage. At times, it is an advantage to be able to make all of the decisions regarding the business. At other times, it is a disadvantage to not be able to share that burden.
Profit Retention. All profits go directly to the owner of the business. However, in a sole proprietorship, profits are generally reinvested in the business.
Location or Expansion. The business can easily be moved or expanded with sole proprietorship. One consideration on location would be state and local taxes. Since all income is personal, examining tax rates of the owner’s state of residence may be a factor in determining location.
Convenience or Burden. In general, a sole proprietorship is the easiest and least expensive kind of business to start. However, certain licenses and permits may be required.
General Partnership: The basic concept of a general partnership is when two or more individuals each contribute money and skills to a single company. The partner’s divide the profits of the business equally. Each partner has full authority to act on behalf of the business and shares equal liability. Following are some of the characteristics that lend both advantages and disadvantages to this type of business organization.
Liability.
As a general partner in a business, each partner shares joint and individual liability. “Partners are not only liable for their own actions, but also for the business debts and decisions made by other partners. In addition, the personal assets of all partners can be used to satisfy the partnership’s debt.” (Choose Your Business Structure, n.d.)
Income Taxes. Most general partnerships must register their business with the IRS as well as state and local agencies and obtain a tax ID number. Partnership taxes normally include annual return of income, employment taxes, and excise taxes. The individual partners are responsible for additional taxes such as income tax, self-employment tax, and estimated tax. (Choose Your Business Structure, n.d.)
Longevity or Continuity of the Organization. General partnerships may change ownership over time. However, any change in ownership should be outlined in a partnership agreement. The agreement typically outlines how new partners will be brought into the business, how current partners can be bought out of the business, and how the partnership can be dissolved.
Control. The general partners have complete autonomy to make all decisions regarding the business. This can be an advantage in the day-to-day operations of the business as how decisions are made are typically outlined in the partnership …show more content…
agreement.
Profit Retention. All profits go directly to the partners of the business and how they are divided is outlined in the partnership agreement.
Location or Expansion. The business can easily be moved or expanded with a general partnership if agreed upon by the partners. One consideration on location would be state and local taxes. Since the partners are equally invested, this makes pooling of resources and obtaining credit easier.
Convenience or Burden. General partnerships are relatively easy and inexpensive to form. However, since general partnerships include more than one person, it is important for the partners to determine a variety of issues from the outset. Although a partnership agreement is not legally required, it is a good best practice and is ill advised to operate without one. Forming a general partnership includes registering the business with the state, generally through the Secretary of State’s office. (Choose Your Business Structure, n.d.)
Limited Partnership: The basic concept of a limited partnership is when two or more individuals each contribute money and skills to a single company, but has limited liability. Limited partners have limited liability and the partners have limited input on business decisions. The limits are related to how much each partner has invested in the firm. Following are some of the characteristics that lend both advantages and disadvantages to this type of business organization.
Liability. As a limited partner in a business, each partner shares joint and individual liability based on the percentage of his or her investment. “Partners are not only liable for their own actions, but also for the business debts and decisions made by other partners. In addition, the personal assets of all partners can be used to satisfy the partnership’s debt.” (Choose Your Business Structure, n.d.)
Income Taxes. Most limited partnerships must register their business with the IRS as well as state and local agencies and obtain a tax ID number. Partnership taxes normally include annual return of income, employment taxes, and excise taxes. The individual partners are responsible for additional taxes such as income tax, self-employment tax, and estimated tax. (Choose Your Business Structure, n.d.)
Longevity or Continuity of the Organization. Limited partnerships may change ownership over time. However, any change in ownership should be outlined in a partnership agreement. The agreement typically outlines how new partners will be brought into the business, how current partners can be bought out of the business, and how the partnership can be dissolved. Limited partnerships are sometimes used by investors for short-term projects.
Control. The partners have complete autonomy to make all decisions regarding the business based on their investment percentages. These are typically outlined in the partnership agreement.
Profit Retention. All profits go directly to the partners of the business and how they are divided is outlined in the partnership agreement.
Location or Expansion. The business can easily be moved or expanded with a general partnership if agreed upon by the partners. One consideration on location would be state and local taxes.
Convenience or Burden. Limited partnerships are relatively easy and inexpensive to form. However, since general partnerships include more than one person, it is important for the partners to determine a variety of issues from the outset. Although a partnership agreement is not legally required, it is a good best practice and is ill advised to operate without one. Forming a general partnership includes registering the business with the state, generally through the Secretary of State’s office. (Choose Your Business Structure, n.d.)
C-Corporation: The basic concept of a C-Corporation is that it is a legal entity owned by shareholders. The corporation, not the owners, are legally liable for any debts of the business. Corporations are more complex than other types of businesses in that there are costly fees, taxes, and regulatory requirements. Following are some of the characteristics that lend both advantages and disadvantages to this type of business organization.
Liability. In a C-Corporation, the business assumes the liability for all debts and the individual shareholder’s assets are protected. “Shareholders can generally only be held accountable for their investment in stock of the company.” (Choose Your Business Structure, n.d.) This is a decided advantage to this type of business.
Income Taxes. C-Corporations must register their business with the IRS as well as state and local agencies and obtain a tax ID number. Since the corporation is a separate legal entity, the corporation must file and pay taxes. “Profits are awarded a corporate tax rate, which is usually lower than a personal income tax rate.” (Choose Your Business Structure, n.d.)
Longevity or Continuity of the Organization. C-Corporations continue regardless of how ownership and shareholder changes over time.
Control. In C-Corporations, the shareholders maintain control. Shareholders normally hold roles as officer, director, and employee.
Profit Retention. Corporations distribute earnings as dividends to shareholders and shareholders report them as taxable income on their personal income taxes.
Location or Expansion. Interest in a C-Corporation can be transferred or sold and capital can be raised by issuing new shares for expansion purposes.
Convenience or Burden. Because of the administrative and legal requirements, C-Corporations are more complex and burdensome to create and maintain. “Because corporations are highly regulated by federal, state, and in some cases local agencies, there are increased paperwork and recordkeeping burdens associated with this entity.” (Choose Your Business Structure, n.d.)
S-Corporation: The basic concept of an S-Corporation is that it is a legal entity owned by shareholders. In some ways, it acts as a sole proprietorship in that there are no federal taxes. The income is passed through to each individual owner. An S-Corporation can have up to 75 U.S. shareholders and offer only one class of stock. No one shareholder can own more than 50% of the shares. Following are some of the characteristics that lend both advantages and disadvantages to this type of business organization.
Liability. In an S-Corporation, the business assumes the liability for all debts and the individual shareholder’s assets are protected. However, liability protection can be limited. An S-Corporation does not cover shareholders from certain lawsuits like employee claims resulting from a workplace incident. (Choose Your Business Structure, n.d.)
Income Taxes. Profits and losses in S-Corporations are passed through to the personal tax returns of the shareholders. The corporation does not pay any taxes. “There is an important caveat, however: any shareholder who works for the company must pay him or herself “reasonable compensation.”” If not, the IRS could reclassify the corporate earnings. An advantage of this tax structure is that it only wages of the shareholders are subject to employment tax. The remaining amount is paid to the shareholder as a distribution. (Choose Your Business Structure, n.d.)
Longevity or Continuity of the Organization. S-Corporations continue regardless of how ownership and shareholder changes over time. This is rather easy to maintain as the business changes over time.
Control. In S-Corporations, control is maintained by the shareholders as a percentage of ownership.
Profit Retention. Shareholders in S-Corporations are paid market-value wages and the remaining profits are passed on as distributions. This is an advantage to the shareholders and reduces tax liability.
Location or Expansion. Interest in an S-Corporation can be transferred or sold and capital can be raised by issuing new shares for expansion purposes.
Convenience or Burden. Because of the administrative and legal requirements, S-Corporations are more complex and burdensome to create and maintain.
Limited Liability Company: The basic concept of a limited liability company is that it has two or more individuals who contribute money and skills to the company. However, the members enjoy the limited liability of a corporation. Following are some of the characteristics that lend both advantages and disadvantages to this type of business organization.
Liability. Members in a limited liability company have protection against liability similar to that in a corporation. However, there is still some liability. In general, members personal assets are protect except in the situation of wrongful acts.
Income Taxes. Profits and losses in limited liability companies are passed through to the personal tax returns of the members. The corporation does not pay any taxes. “Members of an LLC are considered self-employed and must pay the self-employment tax contributions towards Medicare and Social Security. The entire net income of the LLC is subject to this tax” (Choose Your Business Structure, n.d.)
Longevity or Continuity of the Organization. When a member leaves a limited liability company, the business is dissolved and the remaining members must satisfy any outstanding debt in order to close the business. (Johnson, 2013)
Control. The members have complete autonomy to make all decisions regarding the business and can retain or relinquish as much control as desired. This can be an advantage in the day-to-day operations of the business as how decisions are made.
Profit Retention. It is up to the members to decide how the profits are distributed.
Location or Expansion. The business can easily be moved or expanded if agreed upon by the members. One consideration on location would be state and local taxes.
Convenience or Burden. Once formed, limited liability companies are relatively easy to maintain.
REFERENCES
Beesley, C. (2013, February 27). Blogs - Starting a Business. Retrieved from The U.S. Small Business Administration: http://www.sba.gov/blogs/sole-proprietorship-popular-business-structure-right-you
Choose Your Business Structure. (n.d.). Retrieved from The U.S. Small Business Association: http://www.sba.gov/category/navigation-structure/starting-managing-business/starting-business/choose-your-business-stru
Johnson, T. L. (2013). The Legal and Ethical Environment of Business, v. 1.0. Flat World Knowledge.
LIT1 – Task 1 – Part B
DATE:
October 28, 2014
TO:
CEO
FROM:
STUDENT ID:
RE:
Business Organization Analysis and Recommendation
Based on your current business situation and future goals, I recommend that you change your organizational structure to a C-Corporation. Below is an outline of my reasoning based on your current and future needs.
Liability.
In a C-Corporation, the business is its own legal entity and assumes the liability for all debts and the individual shareholder’s assets are protected. This type of organization would protect you from your employee accident concerns as well as protect your personal assets from loss or debt incurred by the business.
Income Taxes. C-Corporations must register their business with the IRS as well as state and local agencies and obtain a tax ID number. Since the corporation is a separate legal entity, the corporation must file and pay taxes. Obtaining the advice of a tax professional can help you in setting up this part of your new corporation.
Longevity or Continuity of the Organization. C-Corporations continue regardless of how ownership and shareholder changes over time. This will alleviate your concern about the future of the company as the founding owners pass over time.
Control. In C-Corporations, the shareholders maintain control. Shareholders normally hold roles as officer, director, and employee. If your goal is to remain in control, then placing your family members into officer roles is
advisable.
Profit Retention. Corporations distribute earnings as dividends to shareholders and shareholders report them as taxable income on their personal income taxes. If your family members are the shareholders, then you will remain in control of profit distribution.
Location or Expansion. Interest in a C-Corporation can be transferred or sold and capital can be raised by issuing new shares for expansion purposes. Becoming a corporation will make it easier for you to raise capital for growth and market expansion.
Convenience or Burden. Because of the administrative and legal requirements, C-Corporations are more complex and burdensome to create and maintain.
While C-Corporations can be more complex and cumbersome, I believe it is in your best interest to move to this type of organization. The three main advantages is liability coverage, it is easier to raise capital needed for growth, and it allows the company to continue over time.
Task 1
Legal Issues for Business Organizations – LIT1
Task 1 – Part A
The way a business is organized is an important part of the business’s structure. “Different organizations provide different advantages and disadvantages in creation cost and simplicity, ongoing maintenance requirements, dissolution and continuity, fundraising, managerial control, public ownership, tax planning, and limited liability.” The nature of the business being conducted has little to do with the way the business is organized. (Johnson, 2013)
Sole Proprietorship: The basic concept of sole proprietorship is that there is no distinction between the individual business owner and the business. To start this …show more content…
type of business, in most cases, one only needs to begin charging money for goods or services. Because of its simplicity, sole proprietorship is the most common business structure in the United States. According to the U.S. Small Business Administration, “over 70 percent of businesses are owned and operated by sole proprietors.” (Beesley, 2013) Following are some of the characteristics that lend both advantages and disadvantages to this type of business organization.
Liability. As sole owner of a business, there is no severability of liability between the business and the individual. Therefore, all gains and losses of the business are also the gains and losses of the individual. The aspect of unlimited liability is one of the biggest disadvantages of this type of organization. Because there is no legal distinction between the business and the individual, if the business does not have the ability to fulfill its contractual financial obligations, the owner can be sued for their personal assets. The owner may also be held liable for the actions of any employee’s.
Income Taxes. All income derived from the business is personal income for the individual business owner. This can make it challenging to plan for tax savings, as generally personal income tax is taxed at a higher rate. (Johnson, 2013) However, since the business is not taxed separately, it makes tax preparation easier.
Longevity or Continuity of the Organization. Since the very nature of the sole proprietorship is in-severable, the business is only in existence as long as the owner is alive and/or wants it to be. In addition, ownership of the business cannot be passed from one individual to another and other individuals cannot join the business as owners. This is a disadvantage in that it influences the longevity of the business.
Control. The business owner has complete autonomy to make all decisions regarding the business and can retain or relinquish as much control as desired. Complete control can be both an advantage and disadvantage. At times, it is an advantage to be able to make all of the decisions regarding the business. At other times, it is a disadvantage to not be able to share that burden.
Profit Retention. All profits go directly to the owner of the business. However, in a sole proprietorship, profits are generally reinvested in the business.
Location or Expansion. The business can easily be moved or expanded with sole proprietorship. One consideration on location would be state and local taxes. Since all income is personal, examining tax rates of the owner’s state of residence may be a factor in determining location.
Convenience or Burden. In general, a sole proprietorship is the easiest and least expensive kind of business to start. However, certain licenses and permits may be required.
General Partnership: The basic concept of a general partnership is when two or more individuals each contribute money and skills to a single company. The partner’s divide the profits of the business equally. Each partner has full authority to act on behalf of the business and shares equal liability. Following are some of the characteristics that lend both advantages and disadvantages to this type of business organization.
Liability.
As a general partner in a business, each partner shares joint and individual liability. “Partners are not only liable for their own actions, but also for the business debts and decisions made by other partners. In addition, the personal assets of all partners can be used to satisfy the partnership’s debt.” (Choose Your Business Structure, n.d.)
Income Taxes. Most general partnerships must register their business with the IRS as well as state and local agencies and obtain a tax ID number. Partnership taxes normally include annual return of income, employment taxes, and excise taxes. The individual partners are responsible for additional taxes such as income tax, self-employment tax, and estimated tax. (Choose Your Business Structure, n.d.)
Longevity or Continuity of the Organization. General partnerships may change ownership over time. However, any change in ownership should be outlined in a partnership agreement. The agreement typically outlines how new partners will be brought into the business, how current partners can be bought out of the business, and how the partnership can be dissolved.
Control. The general partners have complete autonomy to make all decisions regarding the business. This can be an advantage in the day-to-day operations of the business as how decisions are made are typically outlined in the partnership …show more content…
agreement.
Profit Retention. All profits go directly to the partners of the business and how they are divided is outlined in the partnership agreement.
Location or Expansion. The business can easily be moved or expanded with a general partnership if agreed upon by the partners. One consideration on location would be state and local taxes. Since the partners are equally invested, this makes pooling of resources and obtaining credit easier.
Convenience or Burden. General partnerships are relatively easy and inexpensive to form. However, since general partnerships include more than one person, it is important for the partners to determine a variety of issues from the outset. Although a partnership agreement is not legally required, it is a good best practice and is ill advised to operate without one. Forming a general partnership includes registering the business with the state, generally through the Secretary of State’s office. (Choose Your Business Structure, n.d.)
Limited Partnership: The basic concept of a limited partnership is when two or more individuals each contribute money and skills to a single company, but has limited liability. Limited partners have limited liability and the partners have limited input on business decisions. The limits are related to how much each partner has invested in the firm. Following are some of the characteristics that lend both advantages and disadvantages to this type of business organization.
Liability. As a limited partner in a business, each partner shares joint and individual liability based on the percentage of his or her investment. “Partners are not only liable for their own actions, but also for the business debts and decisions made by other partners. In addition, the personal assets of all partners can be used to satisfy the partnership’s debt.” (Choose Your Business Structure, n.d.)
Income Taxes. Most limited partnerships must register their business with the IRS as well as state and local agencies and obtain a tax ID number. Partnership taxes normally include annual return of income, employment taxes, and excise taxes. The individual partners are responsible for additional taxes such as income tax, self-employment tax, and estimated tax. (Choose Your Business Structure, n.d.)
Longevity or Continuity of the Organization. Limited partnerships may change ownership over time. However, any change in ownership should be outlined in a partnership agreement. The agreement typically outlines how new partners will be brought into the business, how current partners can be bought out of the business, and how the partnership can be dissolved. Limited partnerships are sometimes used by investors for short-term projects.
Control. The partners have complete autonomy to make all decisions regarding the business based on their investment percentages. These are typically outlined in the partnership agreement.
Profit Retention. All profits go directly to the partners of the business and how they are divided is outlined in the partnership agreement.
Location or Expansion. The business can easily be moved or expanded with a general partnership if agreed upon by the partners. One consideration on location would be state and local taxes.
Convenience or Burden. Limited partnerships are relatively easy and inexpensive to form. However, since general partnerships include more than one person, it is important for the partners to determine a variety of issues from the outset. Although a partnership agreement is not legally required, it is a good best practice and is ill advised to operate without one. Forming a general partnership includes registering the business with the state, generally through the Secretary of State’s office. (Choose Your Business Structure, n.d.)
C-Corporation: The basic concept of a C-Corporation is that it is a legal entity owned by shareholders. The corporation, not the owners, are legally liable for any debts of the business. Corporations are more complex than other types of businesses in that there are costly fees, taxes, and regulatory requirements. Following are some of the characteristics that lend both advantages and disadvantages to this type of business organization.
Liability. In a C-Corporation, the business assumes the liability for all debts and the individual shareholder’s assets are protected. “Shareholders can generally only be held accountable for their investment in stock of the company.” (Choose Your Business Structure, n.d.) This is a decided advantage to this type of business.
Income Taxes. C-Corporations must register their business with the IRS as well as state and local agencies and obtain a tax ID number. Since the corporation is a separate legal entity, the corporation must file and pay taxes. “Profits are awarded a corporate tax rate, which is usually lower than a personal income tax rate.” (Choose Your Business Structure, n.d.)
Longevity or Continuity of the Organization. C-Corporations continue regardless of how ownership and shareholder changes over time.
Control. In C-Corporations, the shareholders maintain control. Shareholders normally hold roles as officer, director, and employee.
Profit Retention. Corporations distribute earnings as dividends to shareholders and shareholders report them as taxable income on their personal income taxes.
Location or Expansion. Interest in a C-Corporation can be transferred or sold and capital can be raised by issuing new shares for expansion purposes.
Convenience or Burden. Because of the administrative and legal requirements, C-Corporations are more complex and burdensome to create and maintain. “Because corporations are highly regulated by federal, state, and in some cases local agencies, there are increased paperwork and recordkeeping burdens associated with this entity.” (Choose Your Business Structure, n.d.)
S-Corporation: The basic concept of an S-Corporation is that it is a legal entity owned by shareholders. In some ways, it acts as a sole proprietorship in that there are no federal taxes. The income is passed through to each individual owner. An S-Corporation can have up to 75 U.S. shareholders and offer only one class of stock. No one shareholder can own more than 50% of the shares. Following are some of the characteristics that lend both advantages and disadvantages to this type of business organization.
Liability. In an S-Corporation, the business assumes the liability for all debts and the individual shareholder’s assets are protected. However, liability protection can be limited. An S-Corporation does not cover shareholders from certain lawsuits like employee claims resulting from a workplace incident. (Choose Your Business Structure, n.d.)
Income Taxes. Profits and losses in S-Corporations are passed through to the personal tax returns of the shareholders. The corporation does not pay any taxes. “There is an important caveat, however: any shareholder who works for the company must pay him or herself “reasonable compensation.”” If not, the IRS could reclassify the corporate earnings. An advantage of this tax structure is that it only wages of the shareholders are subject to employment tax. The remaining amount is paid to the shareholder as a distribution. (Choose Your Business Structure, n.d.)
Longevity or Continuity of the Organization. S-Corporations continue regardless of how ownership and shareholder changes over time. This is rather easy to maintain as the business changes over time.
Control. In S-Corporations, control is maintained by the shareholders as a percentage of ownership.
Profit Retention. Shareholders in S-Corporations are paid market-value wages and the remaining profits are passed on as distributions. This is an advantage to the shareholders and reduces tax liability.
Location or Expansion. Interest in an S-Corporation can be transferred or sold and capital can be raised by issuing new shares for expansion purposes.
Convenience or Burden. Because of the administrative and legal requirements, S-Corporations are more complex and burdensome to create and maintain.
Limited Liability Company: The basic concept of a limited liability company is that it has two or more individuals who contribute money and skills to the company. However, the members enjoy the limited liability of a corporation. Following are some of the characteristics that lend both advantages and disadvantages to this type of business organization.
Liability. Members in a limited liability company have protection against liability similar to that in a corporation. However, there is still some liability. In general, members personal assets are protect except in the situation of wrongful acts.
Income Taxes. Profits and losses in limited liability companies are passed through to the personal tax returns of the members. The corporation does not pay any taxes. “Members of an LLC are considered self-employed and must pay the self-employment tax contributions towards Medicare and Social Security. The entire net income of the LLC is subject to this tax” (Choose Your Business Structure, n.d.)
Longevity or Continuity of the Organization. When a member leaves a limited liability company, the business is dissolved and the remaining members must satisfy any outstanding debt in order to close the business. (Johnson, 2013)
Control. The members have complete autonomy to make all decisions regarding the business and can retain or relinquish as much control as desired. This can be an advantage in the day-to-day operations of the business as how decisions are made.
Profit Retention. It is up to the members to decide how the profits are distributed.
Location or Expansion. The business can easily be moved or expanded if agreed upon by the members. One consideration on location would be state and local taxes.
Convenience or Burden. Once formed, limited liability companies are relatively easy to maintain.
REFERENCES
Beesley, C. (2013, February 27). Blogs - Starting a Business. Retrieved from The U.S. Small Business Administration: http://www.sba.gov/blogs/sole-proprietorship-popular-business-structure-right-you
Choose Your Business Structure. (n.d.). Retrieved from The U.S. Small Business Association: http://www.sba.gov/category/navigation-structure/starting-managing-business/starting-business/choose-your-business-stru
Johnson, T. L. (2013). The Legal and Ethical Environment of Business, v. 1.0. Flat World Knowledge.
LIT1 – Task 1 – Part B
DATE:
October 28, 2014
TO:
CEO
FROM:
STUDENT ID:
RE:
Business Organization Analysis and Recommendation
Based on your current business situation and future goals, I recommend that you change your organizational structure to a C-Corporation. Below is an outline of my reasoning based on your current and future needs.
Liability.
In a C-Corporation, the business is its own legal entity and assumes the liability for all debts and the individual shareholder’s assets are protected. This type of organization would protect you from your employee accident concerns as well as protect your personal assets from loss or debt incurred by the business.
Income Taxes. C-Corporations must register their business with the IRS as well as state and local agencies and obtain a tax ID number. Since the corporation is a separate legal entity, the corporation must file and pay taxes. Obtaining the advice of a tax professional can help you in setting up this part of your new corporation.
Longevity or Continuity of the Organization. C-Corporations continue regardless of how ownership and shareholder changes over time. This will alleviate your concern about the future of the company as the founding owners pass over time.
Control. In C-Corporations, the shareholders maintain control. Shareholders normally hold roles as officer, director, and employee. If your goal is to remain in control, then placing your family members into officer roles is
advisable.
Profit Retention. Corporations distribute earnings as dividends to shareholders and shareholders report them as taxable income on their personal income taxes. If your family members are the shareholders, then you will remain in control of profit distribution.
Location or Expansion. Interest in a C-Corporation can be transferred or sold and capital can be raised by issuing new shares for expansion purposes. Becoming a corporation will make it easier for you to raise capital for growth and market expansion.
Convenience or Burden. Because of the administrative and legal requirements, C-Corporations are more complex and burdensome to create and maintain.
While C-Corporations can be more complex and cumbersome, I believe it is in your best interest to move to this type of organization. The three main advantages is liability coverage, it is easier to raise capital needed for growth, and it allows the company to continue over time.