Business Law
Business Law
The most important aspect when launching a new business is to determine the type of business structure to be able to make the business a successful venture in view of the legal and tax implications that are part of the selected business structure. The six types of business structure shared on U.S. Small Business Administration (2016) website are as follows:
The most basic form of business type and is owned by one person, form a legal standpoint the business has no separate legal identity and the owner can be sued in their own name and the owner is responsible for all the profits and losses.
No Formal action is required to register the business and the status comes automatically with business activities, case in point being a creative designer providing service online and freelance is a sole proprietor. The business is not taxed separately in view of the sole ownership ad is the sole responsibility of the owner to pay all taxes and other regulation on their own discretion legally. The main advantage is that no capital is required to establish the business, total control of the business and easy taxation; however the disadvantages are that all the liabilities are personal and the stress of managing and making the business work is solely the owner’s problem (Sole Proprietorship, 2016).
Limited Liability Corporation (LLC)
This form of business structure is a mixture that gives the owners referred to as members in this structure, limited liability features of a corporation and tax and operational suppleness of a partnership and the steps taken starts with name choosing, legal document for the details of business by filing article, opening agreement, obtaining licenses and permits, hiring employees and announcing the business.
All the LLC members are passed the federal income taxes and then paid through their personal income tax, and LLC can choose their business entity classification. The advantages of LLC are members are protected with limited liability, less record keeping and profit sharing as per the % decided amongst the members. The disadvantages of a LLC set up are limited life in the event of a partner leaving and self employment taxes (Limited Liability Company, 2016).
Cooperative
In this business structure the company is owned and operated by members and the profits generated are distributed amongst the members referred to as user-owners and by purchasing share one can become a member as commonly witnessed in healthcare, retail and restaurant sector (Cooperative, 2016).
Cooperative is formed by a group of members carving a need and an eventual strategy to meet the need and is done with a prelaunch plan to have maximum feasibility and the eventual set up is formed by filing article of incorporation that have the details of members and business, creating Bylaws, membership application, selecting directors, licenses and permits and hiring a team. No federal taxes are applied on a cooperative business, and members pay federal taxes when filing their personal income tax, the advantages are less taxation, government funding depending on project, reduce cost and improve products and services and a democratic setup.
The disadvantages are slow cash flow and dependence on investors and lack of participation of members (Cooperative, 2016).
Corporation
The set up also referred to as C corporation is owned by shareholders of this independent legal body and the corporation is liable for actions and debts resolution, and is most complex in view of the high fees of administrations and is formed under the laws of the state by sharing name of business and documentation in the state’s Secretary of State Office. The taxes are paid to state, federal and also local taxes when necessary and it has to be IRS registered and have a tax ID number or permit and pay taxes on their profits.
The advantages are limited liability, capital generation by selling stock, corporate tax treatment and disadvantages are paperwork, complex set up, taxation is doubled and corporate issues (Corporation, 2016).
Partnership
A singe business having two or more owners, who contributes to all aspects of the business, and is operated by having a general partnership, limited partnership and joint ventures, the business is formed by registering your business with the state and Secretary of State’s office, the name and licensing are the next step in forming the partnership. The taxation process involves filing an annual information return to the business operations in relation to income, deductions, gains and losses and an IRS registration.
The advantages are that the process in not complex and the financial commitment is shared, with talented partners using their individual skills and incentives for employees and the disadvantages are joint and individual liability shared profits and disagreements to in partnership (Partnership, 2016).
S Corporation
This is a special business structure that entails a special type of corporation through IRS tax election and the way it formed is to fist charter a business as a corporation in the headquarter state and in S Corporation the profits and losses can pass through to owners personal tax return. The S Corporation is formed by first determining whether the business qualify under the IRS stipulation, and after forming a corporation only then the entity can become an S Corporation after all shareholder sign the file form 2553.
The taxation is different in different states; however, most recognize them similarly to federal government and tax the shareholders accordingly. The advantages are tax saving, business expense tax credits and an independent life meaning if a shareholder leaves it doesn’t affect the business operations. The disadvantages are strict operational processes and shareholder compensation requirements (S Corporation, 2016).
In view of the all the business structure discussed above, Sole Proprietorship is most preferred structure, with regards to no formal action being required to start the business and with the advent of social media the success of business operating online has gained momentum.
The main advantage is that no capital is required to establish the business, total control of the business and easy taxation are the key and the skill set is personal with providing graphic design services and marketing strategy development to prospective consumers and the marketing of the sole proprietor business being done with the writer’s social media account and marketing on major social media channels.
References
Cooperative (2016). U.S. Small Business Administration (SBA).
Retrieved from https://www.sba.gov/starting-business/choose-your-business-structure/cooperative
Corporation (2016). U.S. Small Business Administration (SBA).
Retrieved from https://www.sba.gov/starting-business/choose-your-business-structure/corporation
Limited Liability Company LLC (2016). U.S. Small Business Administration (SBA).
Retrieved from https://www.sba.gov/starting-business/choose-your-business-structure/limited-liability-company
Partnetship (2016). U.S. Small Business Administration (SBA).
Retrieved from https://www.sba.gov/starting-business/choose-your-business-structure/partnership
Sole Proprietorship (2016). U.S. Small Business Administration (SBA).
Retrieved from https://www.sba.gov/starting-business/choose-your-business-structure/sole-proprietorship
S Corporation (2016). U.S. Small Business Administration (SBA).
Retrieved from https://www.sba.gov/starting-business/choose-your-business-structure/s-corporation
U.S. Small Business Administration SBA (2016). Choose your Business Structure.
Retrieved from https://www.sba.gov/starting-business/choose-your-business-structure
