Business Forms: The Case Of Bill And Darlene

933 words - 4 pages

Business Forms: The Case of Bill and Darlene
Bill and Darlene plan to go into business together. They anticipate losses in the first two or three years, which they would like to use to offset income from other sources. They also are concerned about exposing their personal assets to business liabilities. Write a short paper advising Bill and Darlene what business form you would recommend for them as they start up their business. State any assumptions you make.

Bill and Darlene’s concerns; as they consider the type of business form to assume are very legitimate and are very important things to consider. Entrepreneurs have certain goals when choosing a structure for their business these ...view middle of the document...

In this case it can be used to offset any income that an individual and his or her spouse have from other sources. It allows for limited liability protection, its owners are usually not personally responsible for business debts and liabilities. If the need arises where the owners of an S corporation would like to sell the taxable gain from the sale of the business could be less, if it was operated as a regular corporation. The shareholders of an S corporation are not subject to self employment taxes while active LLC owners are. Self employment taxes add up to more than 15% of income, are used to pay Social Security and Medicare taxes so this is definitely a benefit for choosing this business form. S corporation stock is freely transferable, provided all IRS ownership restrictions are met. LLC membership interest is usually not freely transferable it requires approval from other members (nolo.com).
Although S Corporations has its benefits there are certain restrictions that they must adhered to, which includes; S corporation shareholder must be a U.S. citizen or resident; S corporations may not have more than 100 shareholders; S corporation profits and losses may be allocated only in proportion to each shareholder's interest in the business; an S corporation shareholder may not deduct corporate losses that exceed his or her corporate stock, which equals the amount of the shareholder's investment in the company plus or minus a some adjustments; S corporations may not deduct the cost of fringe benefits provided to employee shareholders who own more than 2% of the corporation (nolo.com).
The anticipation of losses in the first three years would make an S corporation a great choice for Bill and Darlene because this decision does not have to be...

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