Running Head: Legal Forms of Business Paper
Legal Forms of Business Paper
LAW/531 Business Law
Instructor Robert Lewandowski
April 8, 2013
Legal Forms of Business Paper
Starting a business involves knowledge of the different options for forming an organization. A business owner should research the liability and risks that a business may encounter in the future. Depending on the type of business formation, a business owner needs to protect their personal assets in the event of a possible lawsuit. This paper will provide an explanation and scenarios for the different options of business formation: corporation, S corporation, franchise, limited liability company, ...view middle of the document...
The owner and shareholder personal assets are vulnerable in a lawsuit if the court pierces the corporate veil. The benefits of forming a corporation are raising capital through the selling of stocks, corporate deductions from employee benefits and health plans, and a corporation provides the owners with more credibility than other types of organizations.
A future business owner is interested in starting a bakery with a staff of about 12 employees. The future business owner is a United States citizen therefore is considered with double taxation. The owner wants the benefits of forming a corporation without the double taxation. The owner also wants the perks of writing off the start up costs of the business on their taxes. The best option would be to start an S corporation. The S corporation allows a business owner to start a corporation without the corporate tax structure and double taxation. The benefits of an S corporation are that business taxes pass though to the owner’s individual taxes avoiding double taxation, all start up costs can be deducted on income taxes, and the protection against liabilities. One disadvantage is that the owners could be held personally responsible for their actions.
A future business owner wants to start a business without spending the time, marketing, and effort in branding the company. The future business owner wants a company with the reputation and an established track record. The future business owner does not want to start this company from the ground up. The best option for this future business owner would be to form a franchise. Forming a franchise reduces the risks associated with starting a new business. The benefits of forming a franchise include training, network of resources and updates are all provided by the franchisor.
Limited Liability Company
The future business owner wants to begin an organization that has liability protection. An organization that has pass through taxation, the owner is taxed because of its separate tax entity and no double taxation. The best option for this future business owner is to form a limited liability company. A limited liability provides protection for personal assets without double taxation. Forming a limited liability company varies from state to state so the business owner must research its state’s laws. Some states may have restrictions depending on the profession and type of LLC.
Limited Liability Partnership
A future business owner wants to form a business and raise capital through partnerships. The future business owner wants to maintain control of the company but at the same time providing liability protection for its partners. The partners want to invest however they do not want to be held personally responsible in the event there is a lawsuit. The partners want to share in the company’s profits yet they do not want to loss more than what they invested in the start up of the...