Law 531/ Business Law
Legal Forms of Business
As an entrepreneur one of the most important decision to make, when starting a business is the legal form of the business. In making this decision many factors are taken into consideration, such as financial resource for business, government rules and regulation, and personal liability. In this paper a discussion regarding the different forms of business including scenarios of these form and explanation on why this corresponding business form is preferred.
According to Cheeseman (2010), a sole proprieship is the simplest form of business organization and there is no separate legal entity. (p. 530). Under sole ...view middle of the document...
Scenario: Two friends plan on opening a restaurant. In this situation partnership is the best form of business causing them to have equal share in their business responsibilities and profits. It is beneficial to the company partnership if the partners have the necessary skill to manage their business. Each member of the partnership is liable for the debts and obligation of each other choices.
.Limited Liability Partnership
According to Cheeseman (2010) in limited liability partnership of LLP the owner of the business does not have liability to business debt and obligation beyond their capital contribution. This type of business form is used by professional, such as doctors, lawyers, and accountants. LLP receives limited liability against negligent actions, misconduct and wrongful acts committed by other partners. Scenario: Calhoun and Brown LLP is a law firm that went into business in 2012 This is a professional service firm where LLP is the most ideal form of business rather than nonprofessional services.
Limited Liability Company
A limited liability company or LLP is a fusion of partnership and corporation. It is structured in a way for small business to attain corporation benefits by retaining their small sized business ownership. For a person starting a new business this form of business would be idea. Scenario: Candle Company, LLC starts a candle business and borrows a loan for operating the business. Due to financial constraints if the business is not able repay the loan, the partners are liable for debt and obligation to the extent their contribution (Cheeseman, 2010) It protects individual owners as the creditors cannot sue the individual owner to recover claim against business.
An S corporation is taxed like partnership. They do not pay federal tax. It provides limited liability protection to the owners from the creditors; S corporation was created to avoid paying double taxes. S corporation cannot have more than 100 shareholder (Cornell University Law School, (2010). Scenario: Religious or educational entities are good example. Income and losses flow through the shareholder on the basis of their contribution (“Starting a Business: Answering Your...