Selecting a form of business ownership

The four major forms of owning a business legally in the United States are sole proprietorship, limited liability company, partnership and corporation. Legal Liability The reason why most owners incorporate their businesses is to guard their individual assets. That way, if your company files bankruptcy proceedings in a court of law, no one can take away your personal property.

Identifying the attractive and unattractive features of these three types of business ownership will help us appreciate why S-corporations and limited-liability companies were created.

Attractive and Unattractive Features of Corporations What feature of corporations do business owners find most attractive? The most attractive feature of a corporation is limited liability, which means that the shareholders owners cannot be held personally liable for the debts and obligations of the corporation.

For example, if a corporation cannot pay its debts and goes bankrupt, the shareholders will not be required to pay the creditors with their own money.

Shareholders cannot lose any more than the amount they have invested in the company. What feature of corporations do business owners find least attractive? What feature of these forms of business organization do owners find most attractive?

Proprietorships and partnerships do not pay taxes on profits at the business level. Here are two examples one for a sole proprietorship and one for a partnership.

It pays no taxes at the partnership level.

Selecting a Form of Business Ownership

So the total tax burden is less with sole proprietorships and partnerships than it is with corporations. What feature of sole proprietorships and partnerships do business owners find least attractive? And the answer is…unlimited liability. This feature holds a business owner personally liable for all debts of his or her company.

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Unlimited liability is even riskier in the case of a partnership. Each partner is personally liable not only for his or her own actions but also for the actions of all the partners.

If, through mismanagement by one of your partners, the partnership is forced into bankruptcy, the creditors can go after you for all outstanding debts of the partnership.

The Hybrids How would you like a legal form of organization that provides the attractive features of the three common forms of organization corporation, sole proprietorship and partnership and avoids the unattractive features of these three organization forms?

It sounds very appealing. This is what was accomplished with the creation of two hybrid forms of organization: S-corporation Corporation that gives small business owners limited liability protection, but taxes company profits only once, when they are paid out as dividends.

It has fewer rules and restrictions than does an S-corporation. They avoid double taxation the unattractive feature of corporations and unlimited liability the unattractive feature of sole proprietorships and partnerships.

Over time, the business expanded to include a speedway track and a go-kart track and was renamed New Hampshire Motorsports Complex.

An S-corporation form of business achieved these goals.

The Ice Cream Men

They found they were able to meet the following S-corporation eligibility criteria: The company has no more than shareholders All shareholders are individuals, estates, or certain non-profits or trusts All shareholders are U.

They had no flexibility in the way profits were divided among the owners. In an S-corporation, profits must be allocated based on percentage ownership.

Additionally, the owners had to follow a number of formal procedures, such as electing a board of directors and holding annual meetings. Finally, they were subjected to heavy recordkeeping requirements.

Limited-Liability Company InWyoming was the first state to allow businesses to operate as limited-liability companies. Twenty years later, inHawaii was the last state to give its approval to the new organization form.

Since then, the limited-liability company has increased in popularity. Its rapid growth was fueled in part by changes in state statutes that permit a limited-liability company to have just one member. The trend to LLCs can be witnessed by reading company names on the side of trucks or on storefronts in your city.To form an LLC or corporation, you must file a document with the state and pay a fee, which ranges from about $40 to $, depending on the state where you form your business.

In addition, owners of corporations and LLCs must elect officers (usually, a president, vice president, and secretary) to run the company.

If you're starting a business, one of the first questions you need to answer is what kind of legal form your business will take. The form you . May 04,  · Your form of business determines which income tax return form you have to file. The most common forms of business are the sole proprietorship, partnership, corporation, and S corporation. A Limited Liability Company (LLC) is a business structure allowed by state statute. The first step business owners must take when selecting business ownership options is to determine the nature of the business. Two local business owners want to reduce competition, so they decide to form one organization from the two companies.

Selecting a Business Entity. When making a decision about the type of business to form, there are several criteria you need to evaluate. Selecting a Form of Business Ownership: Factors to Consider.

Selecting a Form of Business Ownership - Essay

If you’re starting a new business, you have to decide which legal form of ownership is . The first step business owners must take when selecting business ownership options is to determine the nature of the business. Two local business owners want to reduce competition, so they decide to form one organization from the two companies.

Selecting a Form of Business Ownership Essay Selecting A Form of Business Ownership Outline Introduction A. The Learning Goals of this chapter are to: 1. Describe the advantages and disadvantages of a sole proprietorship.

2.

Describe the advantages and disadvantages of a partnership. This is “Selecting a Form of Business Ownership”, chapter 4 from the book An Introduction to Business (v.

). For details on it (including licensing), click here. This book is licensed under a Creative Commons by-nc-sa license.