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Legal Forms Of Business Essay

949 words - 4 pages

Legal Forms of Business


When starting a business, the legal structure for the business must be chosen. It is necessary to understand how each legal structure works in order to make an informed decision. Many types of business structures are available, such as Sole Proprietorship, General Partnership, Limited Partnership, Limited Liability Company (LLC), to name a few. Although this may not be the first thing on the list when starting up, it is a decision that should be made, with the consideration of the taxes, management and legal liability. This paper will address the various forms available for one to choose from.
Sole Proprietorship is the simplest and ...view middle of the document...

A Limited Partnership is generally formed by owners of a business to raise capital. Limited partnerships consists of general partners who have complete liability for the business and whose liability for the organization is limited to the amount of their individual investment. Limited partners contribute capital only and do not participate in business operations. The partnership is governed by the Uniform Limited Partnership Act and must be must be registered with the secretary of state and other state/federal agencies.
C-Corporations consist of individuals who have ownership of shares of stock. The corporation provides limited liability for the owners. In a C-Corporation, the owners cannot be sued for the debts of the corporation unless the actual debt is personally guaranteed by the individuals themselves. The possible loss for each individual is limited to the capital invested. A board of directors made up by the shareholders controls and operates the corporation. Articles of Incorporation have to be filed with the state. C-Corporations must file taxes with the Internal Revenue Service.
S-Corporations differ in that their taxes are reported for informational purposes only. Profits and/or losses are passed through to the owners. S-Corporations do not pay taxes on profits and shareholders are responsible to report profits as supplemental income. S-Corporations have to be domestic, have stock which is voting or non-voting only and have stock owned by individuals. S-Corporations cannot have any nonresident stock holders, own any subsidiaries which are a part of any affiliated group of companies or have more than 35 stock holders. Once the shareholders elect to have a S-Corporation, form 2553 must be filed with the Internal Revenue Service and must file tax returns with Form 1120-S.

A Limited Liability Company (LLC) has been used since 1994. LLC’s provide...

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