•LIABILITY-You are liable for payment of any debts incurred that cannot be paid for by the profits from the company. Also if you have personal debts that have gone to collections a creditor can be awarded business profits and or business assets to offset these debts. You are also liable for any injuries that may occur due to your company. •INCOME TAXES-The business is not taxed separately. All business income must be reported on the owners personal income tax return. •LONGEVITY/CONTINUITY-Sole proprietorships are dissolved when the owner dies. •CONTROL-The owner of a sole proprietorship is in complete control over every aspect of the business
•PROFIT RETENTION-All income is the owner’s who may do with it as he pleases. •LOCATION-Sole proprietors are able to conduct business from home, office, or internet. There isn’t really any regulations that limit the location. •CONVENIENCE/BURDEN-Sole proprietorships are extremely simple and cheap to start. Depending on your city or county you may need to register for a business license or tax registration certificate. If have employees you may also need an employer identification number from the IRS, a zoning permit, or a seller’s license from your state. General Partnership-A company that is jointly formed by two or more individuals
•LIABILITY-Each partner is liable for all debts of the company to include any contracts entered into by other partners. •INCOME TAXES-General partnerships do not pay income taxes directly to the IRS. Partners include any revenue and expenses on their personal income tax returns. •LONGEVITY/CONTINUITY-Since all funding comes from the owner’s assets they have a limited longevity and a harder time expanding. •CONTROL-Normally each partner has an equal amount of control. •PROFIT RETENTION-Profits are split between partners.
•LOCATION-General Partnerships are able to conduct business from home, office, or internet. There isn’t really any regulations that limit the location. Some counties or states may require a Doing Business As certificate •CONVENIENCE/BURDEN-All partners are held liable for any actions of other partners and can be held accountable. Funding is easier to come by do to the fact that one person isn’t solely responsible. Limited Partnership-A company that is formed by two or more individuals where certain individuals play a more managerial role
•LIABILITY-There is no personal liability protection for the general partners but limited partners are protected. •INCOME TAXES-Profits are reported on the personal income taxes of the partners •LONGEVITY/CONTINUITY-Normlly funding comes from the limited partner and longevity depends on the terms of the limited partnership agreement. •CONTROL-Majority of the control is given to the general partners with the limited partners having little or no control. •PROFIT RETENTION-Nornally based on the amount of the money the limited partner invests and the level of control the general partners have, this would be detailed in the limited partnership agreement
•LOCATION-Limited Partnership’s are able to conduct business from home, office, or internet. There isn’t really any regulations that limit the location. Depending on the county or state ordinances certain documents may be required to be filed with the relevant registration office’s. •CONVENIENCE/BURDEN-This is a good model for the individual that is just wanting to invest but have the day to day activities handled by others. The major burden falls on the general partners, they are liable for anything that occurs. C-Corporation-Is an independent entity that is owned by share holders who elect a board of directors to oversee policies and make business decisions.
•LIABILITY-Share holders have a limited liability towards business debts. •INCOME TAXES-Profits are taxed separately under subchapter C of the IRS Code from the share holders. Then the share holders are also taxed on their profits. •LONGEVITY/CONTINUITY-They have a longer life span than other models do to the fact that funding is easily acquire through the sale of its shares and or outside investments. The corporation does not dissolve upon the loss of an owner. •CONTROL-Control is left to the board of directors who are elected by the share holders. •PROFIT RETENTION-All profits are retained by the company.
•LOCATION-A C-corporation must be registered with the secretary of state in the state it is operating out of. •CONVENIENCE/BURDEN-It is easy for a C-corporation to raise money with the issuance of stocks. Double taxation is a major burden and takes a significant amount of profit from the shareholders. The business and the owners are two separate entities. The shareholders have no personal obligations for any debt incurred by the company. Business losses are not deductible by the corporation. S-Corporation-Profits and losses are shared with the share holders and has the benefits of limited liability
•LIABILITY-They offer limited liability where income and expenses are given to the share holders tax returns. Only the actual investment by the shareholders is at risk. •INCOME TAXES-Shareholders report profits and losses on their personal tax returns and pay at their individual income tax rates. •LONGEVITY/CONTINUITY-Same as a C-corporation, the sale of shares gives the S-corporation a longer life span. •CONTROL-Control is left to a board of directors that is elected by the share holders.
•PROFIT RETENTION-All profits and losses are passed through to the shareholders who are then taxed at their individual tax rates. •LOCATION-An S-corporation must be registered with the secretary of state in the state it is operating out of. •CONVENIENCE/BURDEN-There are many regulations that an S-corporation needs to meet which is a disadvantage. Limited Liability(LLC)-This is similar to an S-corporation in that it offers limited liability but has the tax advantages of a partnership
•LIABILITY-The only thing at risk is the money the member invests, personal assets are protected. •INCOME TAXES-Income is passed on to the share holders who then have to pay taxes at their individual tax rate. •LONGEVITY/CONTINUITY-Shares can be transferred by members without any restrictions giving a LLC an indefinite life span.
•CONTROL-Also managed by a board of directors that is elected by the share holders. •PROFIT RETENTION- All profits and losses are passed through to its share holders who then must pay taxes at their individual tax rate. •LOCATION-A LLC must be registered with the secretary of state in the state it is operating out of. •CONVENIENCE/BURDEN-An LLC also has many regulations that it must meet, perhaps its greatest burden is meeting the varying requirements and restrictions from state to state.
To: Owner of the Wood Manufacturing Company
From: Ben Woltering
Re: Business Organization Recommendation
Date: January 4, 2013
There are many different options to look at when considering a change in organizational structure. Currently you are setup as a Sole Proprietorship which leaves you exposed to any and all debts or injuries, plus leaves you open for lawsuits.
If you brought in a partner and formed either a General or Limited partnership you would still be liable as stated above to any debts, injuries or lawsuits, but you would have the added capital of your partners for expansion and all profits belong to the owners.
A C-Corporation would give you personal limited liability and is generally easy to obtain business capital through the sale of stocks you do run into the issue of double taxation where the company pays taxes on profits as do the owners on their dividends. There is also an accumulated earnings tax on profits in excess of $250,000.
An S- Corporation offers the same limited liability as the C-Corporation but does not pay Federal taxes. All earnings and losses are passed through to the share holders. The company will not dissolve if you were to leave or die.
An LLC has both the tax advantages of a partnership and the limited liability of a corporation. There is no continuity of life as in a regular corporation, the LLC will dissolve if the owner leaves, but some formal agreement can overcome this. Legal assistance is recomended to make sure all of the correct paper work is completed for your state and any you are planning to expand to.
Due to it’s ease off setup, limited liability protection, no federal taxed and all earnings and losses are passed through to the share holders I recommend that you structure your company as an S-Corporation.
Before moving forward I recommend that you contact your attorney and accountant to find out what the local requirements are for starting an S-Corporation.
Thank you for your time and please let me know if you have any more questions.
Courtney from Study Moose
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