The legal form in which a company operates is an important decision that has implications for how a company structures its resources and assets. Several legal forms are available to entrepreneurs. Each includes a different approach to managing profit and loss (Figure 9.24 «Business Forms»). Company Benefits: • The shareholders of the company have limited liability, which means that the company is responsible for all liabilities incurred by the company. • Generally favorable training for investors. A sole proprietorshipThe most basic type of business organization in which there is only one owner. is a business owned and generally operated by a person. This is the oldest, simplest and cheapest form of business ownership, as there is no legal distinction between owner and business (see Table 12.1 «Sole proprietorship: a summary of characteristics»). Sole proprietorships are very popular, accounting for 72% of all businesses and nearly $1.3 trillion in total revenue. US Internal Revenue Service, «Selected Returns and Forms filed or to be filed by type during specified civil years 1980–2005,» SOI Bulletin, Historical Table, Fall 2004, cited in John M. Ivancevich and Thomas N. Duening, Business: Principles, Guidelines, and Practices (Mason, OH: Atomic Dog Publishing, 2007), p. 60.
Sole proprietorships are common in a variety of industries, but the typical sole proprietorship has a small service or retail business, such as dry cleaning, accounting services, insurance services, street production stand, bakery, repair shop, gift shop, painters, plumbers, electricians and landscaping services. John M. Ivancevich and Thomas N. Duening, Business: Principles, Guidelines, and Practices (Mason, OH: Atomic Dog Publishing, 2007), p. 60; according to David L. Kurtz, Contemporary Business, 13th Edition Update (Hoboken, NJ: John Wiley & Sons, 2011), page 163 Clearly, sole proprietorship is the choice of most small businesses. There are several types of businesses in Canada: a Canadian-controlled private corporation (CCPC); a body governed by public law; an undertaking controlled by a body governed by public law; and another company (you guessed it: the kind of business that doesn`t fit into any of the other categories). Legally, shareholders or owners of companies cannot be held legally responsible for the shares of companies, their financial risk is limited to the value of the shares they own. >> Remember, if you need help, call us at 816-235-6500 or tell us a little bit about what you need here. We can guide you through the next steps you need to take to start your business.
The limited liability companyA form of organization that can be limited to a single person or to several other owners or shareholders. is a relatively new form of business ownership that is now allowed in all fifty states, although the laws of each state may be different. The LLC is a mix of sole proprietorship and corporation: the owners of the LLC have limited liability and are taxed only once for the business. «How to Choose the Right Business Structure for Your Small Business,» National Federation of Independent Business, accessed February 3, 2012 www.nfib.com/tabid/56/?cmsid=49906. The LLC offers all the benefits of a partnership, but limits each investor`s liability to the amount of their investment (see Table 12.4 «Limited Liability Companies: A Summary of Characteristics»). «LLCs were created to provide business owners with the liability protection they enjoy without double taxation. Limited Liability Company,» Entrepreneur.com July 9, 2007, accessed February 3, 2012, www.entrepreneur.com/article/24484. – It is subject to double taxation. (Shareholders` capital and gains are taxed.) – It can be expensive to educate you. – There are more administrative tasks. This type of company is required by law to hold annual meetings, to inform shareholders of the meeting and to keep minutes of meetings.
– C-Corps pay corporate tax at a different time than other forms of business. The final choice of a legal form requires taking into account these factors and the trade-offs between the advantages and disadvantages of each form. No choice will be perfect. Even after the establishment of a corporate structure, the preference of this choice over another will still be subject to changes in laws. «Limited Liability Company,» Entrepreneur.com July 9, 2007, accessed February 3, 2012, www.entrepreneur.com/article/24484. Liability: LLC members are protected from personal liability for the company`s debts and claims, a feature known as «limited liability.» When a limited liability company owes money or faces a lawsuit, only the assets of the company itself are at risk. Creditors may not access the personal property of LLC members except in cases of fraud or illegality. LLC members should exercise caution so as not to «penetrate the corporate veil,» which would expose members to personal liability. For example, LLC owners should not use a personal checking account for business purposes and should always use the LLC company name (not the owner`s individual names) when working with customers. A link between two or more people in business who are looking for a profit.
Partnerships can be created with little formality, but since more than one person is involved, a partnership agreement should be created. A partnership agreement establishes the terms of the company by formalizing rules on profit and loss sharing, ownership percentages, dissolution terms, and management rights, among others. Liability: A corporation is an «immortal» legal entity, which means that it does not end with the death of the shareholder. The shareholders of the company have limited liability because they are not personally responsible for the debts and obligations of the company. Shareholders cannot lose more money than the amount they have invested in the business. Like the provisions of an LLC, shareholders must be careful not to «penetrate the corporate veil.» Personal checking accounts should not be used for commercial purposes and the company name should always be used when interacting with customers. A limited liability company or LLC is a hybrid corporate structure that provides the limited liability of a corporation and the operational flexibility of a partnership or sole proprietorship.