Question

Business Law 18

1. Provide an example of when it would be best to form a partnership and cite the advantages and disadvantages of doing so.

2. Provide an example of when it would be best to form a corporation and cite the advantages and disadvantages of doing so.

Answer 1

1. One or more of the limited partnerships are general partners and one or two are limited partners. General partners are individually responsible for the company's debts and judgments against the business; they may also engage directly in the management. Limited partners are simply investors (so to speak, silent partners) who do not take part in the management of the company and who are therefore not responsible beyond their investment in the firm. State regulations specify whether limited partners can be involved in the firm's day-to-day operations without endangering its limited liability. This type of business is especially appealing to property investors who profit from tax incentives.

Cooperation. Compared to a sole proprietorship, which is basically the same type of business but with only one owner, a partnership provides the benefit of allowing the owners to rely on the co-partners' resources and expertise. While simpler running a company on your own can also be a constant struggle. But with couples sharing obligations and lightening the burden, members of a relationship also find there is more time in their lives for the other activities.

Benefits from taxes. A partnership's income flow to its owners, who record their earnings on their individual tax returns. Consequently, earnings are taxed only once (at the personal level of their owners) instead of twice, as is the case for companies taxed at the corporate level and once again at the personal level when dividends are paid to the shareholder

Dispute with partner. Although partnering with partners can be a huge benefit for a small business owner, trying to run a business with one or more partners on a day-to-day basis can be a cightmare. Second, you have to give up full power over the company and learn to compromise. And when major decisions about whether and how to grow the company need to be made, partners often disagree about the best direction and are left with a potentially volatile situation. The best way to deal with these predicaments is to anticipate them by drawing up a partnership agreement which details how to deal with these disagreements.

2. Corporations give company owners, or shareholders, the best defense from corporate liability. This ensures that there are guarantees in the law such that your personal properties, directly from investors, are not in jeopardy to meet corporate obligations. Corporations are legally distinct organizations from the ones that own them. Corporations should be able to pay their own taxes, own properties, enter into contracts, sue and be sued independently of those who own them and are liable for their own debts and actions. Shareholders are not individually responsible for corporate responsibilities as long as the company is run as a true independent entity.

If your business interests require finding support from external sources, the most versatility of ownership is provided by a company. To fund the company, there are many types of stock that can be released and sold. This element of the business structure makes businesses appealing to companies with significant ambitions to expand through capital raising. You may sell non-voting stock options, which means a shareholder has the right to income distributions based on their share of ownership, but has no influence over the company. This produces silent partners, or more precisely business capital partners.

Double Taxation. It can pay taxes on its income depending on the form of company, after which shareholders pay taxes on any dividends earned, thus enabling income to be taxed twice.

Too many tax returns. Depending on the form of company, a large amount of documentation may be needed for the different forms of income and other taxes that may be charged. The exception to this situation, as noted earlier, is the company S.