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Business Structures Essay

1012 words - 5 pages

Business Structures
March 1, 2014
Law 531
Charles Houle

Business Structures
There are several different types of business structures available to a person who is interested in starting a business. The following scenarios will illustrate a preferred form of structure as well as what documents are required for the formation. The business structures to be examined are sole proprietorship, partnership, limited liability, S Corporation, franchise and the corporate form.
Sole Proprietorship
A person wants to start their own business where they do not answer to anybody but themselves regarding the company. The sole proprietorship maintains a business structure where that one person ...view middle of the document...

Further paperwork such as profit and loss or income statements, asset records, balance sheets will also need to be provided to a CPA or direct to the IRS, in order to legally comply with the rules of a partnership.
Limited Liability (Corporation)
Many lawyers who begin their own practice use the advantages of a limited liability corporation mainly as it rests in tax flexibility, ease of set-up, reduction of paper work and of course the limit of liability. Owners can choose to have this structure taxed like a corporation or as an LLC, which will not pay taxes by itself, but instead on the owners’ personal tax returns. The main advantage relies on the fact if the company enters bankruptcy or folds, courts and creditors cannot take personal assets from the owner.
Usually articles of organization are the formal paperwork to be filed and that ranges from $100 - $800 USD. An LLC operating agreement can be established setting forth the rights and responsibilities and licenses and permits may be required for the business. A LLC must also publish a notice of intent to form an LLC, which is only required in a few states.
Corporations Subchapter Type S
Typically smaller businesses utilize this structure as it provides tax advantages and limits some liability. Subchapter S allows a shareholder to consider revenue and profits as a declaration in their personal income tax statement. If the shareholder works for the company and is profitable, the shareholder must be paid a salary that meets the standards of fair compensation. The IRS could reclassify revenue and profit as wages earned which will result in payroll taxes. There are select qualifications an S corporation must carry such as domesticity, allowable shareholders, a limit of no more than 100 shareholders, one class of stock and cannot be eligible for incorporation. A Form 2553 Election by a Small Business Corporation must be signed by all the shareholders.
Franchises can only be expanded upon from an existing business entity. It must be tested and include developed business systems that have been tested with successful...

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