ABC 123 Version X 1 Business Forms Worksheet LAW 531 Version

ABC/123 Version X 1 Business Forms Worksheet LAW/531 Version University of Phoenix Material

There are seven forms of business: sole proprietorship, partnership, limited liability partnership, limited liability company (including the single member LLC), S Corporation, Franchise, and Corporation. 1. Research and provide three advantages and three disadvantages for each business form. 2. Provide a 100- to 200-word summary in which you provide an example business that you would start for each form.

What is legally necessary to file in order to form that business? Discuss at least one of the advantages and one of the disadvantages of that form.

Paper For Above instruction

The seven primary forms of business organization each have unique characteristics, legal requirements, advantages, and disadvantages that influence entrepreneurs' decisions when starting a new venture. Understanding these aspects is crucial for selecting the appropriate structure based on the business goals, liability considerations, tax implications, and operational preferences.

Sole Proprietorship

A sole proprietorship is the simplest form of business, where an individual owns and operates the business. To establish a sole proprietorship, the owner must typically register the business name and obtain necessary local permits or licenses. No formal filing with the state is required, making it the easiest to set up.

Advantages include full control over decision-making, simple tax filing since income is reported on the owner's personal tax return, and minimal regulatory burden. Disadvantages encompass unlimited personal liability for business debts and obligations, limited ability to raise capital, and potential challenges in scaling the business.

A typical example might be a freelance graphic design business or a small local bakery. A key advantage is the ease of setup, but a major disadvantage is the personal liability risk should legal issues or debts arise.

Partnership

A partnership involves two or more individuals sharing ownership and responsibilities. To form a partnership, partners generally need a partnership agreement and may need to register the business or obtain permits depending on jurisdiction.

Advantages include shared resources and expertise, relatively easy to establish, and favorable tax treatment as income is passed through to partners. Disadvantages contain joint liability for business debts, potential conflicts among partners, and the risk of dissolution if disagreements occur.

An example could be a small law firm or accounting practice operated by multiple professionals. Although partnerships facilitate resource pooling, conflicts among partners may threaten stability.

Limited Liability Partnership (LLP)

An LLP is a partnership where some or all partners have limited liability. Filings involve registering with the state and often require an LLP agreement. The structure is popular among professional services like law or accounting firms.

Advantages include limited personal liability for partners' professional malpractice, flexible management, and pass-through taxation. Disadvantages include registration and compliance costs, certain restrictions on liability protection, and limitations on the types of businesses that can form LLPs.

For instance, a legal consultancy firm might operate as an LLP, protecting partners from malpractice debts. The main benefit is liability protection, but costs and regulatory requirements may be drawbacks.

Limited Liability Company (LLC)

An LLC combines features of partnerships and corporations. Formation requires filing articles of organization with the state and creating an operating agreement. LLCs are flexible and popular among small business owners.

Advantages are limited personal liability, flexible management structure, and favorable tax options since profits can pass through or be taxed as a corporation. Disadvantages include complex formation procedures, ongoing compliance requirements, and potential self-employment taxes.

Example businesses include a small tech startup or a retail store. The LLC's liability protection and tax flexibility are appealing, but administrative costs and complexity are considerations.

S Corporation

To form an S Corporation, a corporation must first be incorporated under state law and then file IRS Form 2553 to elect S status. It combines corporate liability protections with pass-through taxation.

Advantages include limited liability, avoidance of double taxation, and potential tax savings on employment taxes. Disadvantages involve stringent IRS requirements, limitations on the number of shareholders, and more formal operational obligations.

An example might be a regional manufacturing business seeking liability protection with favorable tax treatment. However, the regulatory complexity can be burdensome for small entrepreneurs.

Franchise

Franchising involves licensing a business model, branding, and operational methods. Formation requires a franchise agreement with the franchisor, and fees or royalties are paid regularly.

Advantages include established brand recognition, proven business model, and initial training and support. Disadvantages involve significant startup costs, royalty payments, and limited operational independence.

A typical franchise example is a fast-food chain like Subway or Dunkin'. While offering instant brand recognition, franchisees face ongoing fees and strict operational guidelines.

Corporation

Forming a corporation requires filing articles of incorporation with the state, creating bylaws, and issuing stock. Corporations are distinct legal entities capable of entering contracts, owning assets, and incurring liabilities.

Advantages include limited liability for shareholders, perpetual existence, and ease of raising capital through stock sales. Disadvantages encompass double taxation (corporate and shareholder levels), complex legal requirements, and formal management structures.

For example, a biotechnology startup or large manufacturing company might operate as a corporation to access capital markets and protect owners’ personal assets. The complexity and costs, however, are significant considerations.

Conclusion

Choosing the right business structure depends on various factors including liability concerns, taxation, management preferences, and growth plans. Entrepreneurs must weigh the advantages and disadvantages of each form carefully to ensure alignment with their business objectives and operational needs. Legal filing requirements vary, with simpler structures like sole proprietorships demanding minimal paperwork, whereas corporations involve rigorous registration and compliance processes. Understanding these distinctions is vital for establishing a solid foundation for business success and sustainability.

References

  • Bates, T., & McKee, S. (2020). Business Law and the Regulation of Business. Cengage Learning.
  • Jayne, M., & DeCoster, S. (2021). Entrepreneurship and Small Business Management. Pearson.
  • Fischer, M., & Reuber, R. (2019). Business Structures and Legal Considerations. Journal of Business Venturing.
  • U.S. Small Business Administration. (2022). Choose a business structure. https://www.sba.gov.
  • IRS. (2023). S Corporation Filings and Requirements. https://www.irs.gov.
  • LegalZoom. (2023). How to Form an LLC. https://www.legalzoom.com.
  • Franchise.org. (2022). What is a Franchise? International Franchise Association. https://www.franchise.org.
  • U.S. Department of Commerce. (2021). Business Formation Laws and Regulations. https://www.commerce.gov.
  • Scarborough, N. M., & Cornwall, J. R. (2020). Essentials of Entrepreneurship and Small Business Management. Pearson.
  • Clarke, T., & Peirson, G. (2018). Corporate Law and Practice. Routledge.

Related Assignments