Lit1 Task 1 Essay

2877 words - 12 pages

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 ...view middle of the document...

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. ...

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