Question

In: Economics

1. How are LLC's different from Sole Proprietorships and Partnerships? 2.  Why have LLC's become such a...

1. How are LLC's different from Sole Proprietorships and Partnerships?

2.  Why have LLC's become such a popular form for small business's?

3.  Why have LLC's become so popular for politicians?

4. The book discusses several other business types. Select one and give a real world example of its use.

Solutions

Expert Solution

1. It takes a lot of decisions to start your own business, including what type of business organization you want to set up. An LLC, or limited liability company, allows the company to have the same limited liability rights as a partnership, as well as the organizational flexibility a partner has. On the other hand, the simplest and most cost-effective type of business to develop and manage is sole proprietorships.Maybe the biggest difference between a sole proprietorship and an LLC is the issue of protection of limited liability. The owners have unlimited liability for corporate liabilities, litigation and other legal obligations. It ensures that corporate holders are held personally liable for all debts incurred while the company is running. If the assets of a sole proprietorship are not enough to meet the company's debts, creditors may go after a sole proprietor's personal assets to satisfy the obligation.

Sole owners have complete control over the company, including how the business spends its profits. There are no other businesses or entities to share business ideas with in a sole proprietorship. Only the sole proprietor will have to make every decision about how to run the company and use the assets of the business.

Many leaders and managers have LLCs with more than one owner to provide guidance on how to run the company. Therefore, owners of an LLC may choose to employ outside individuals to manage the business, as opposed to managing the day-to-day business of the company.

2. One explanation is that for tax purposes, a single member controlled LLC is very straightforward. It is taxed as an unregarded company unless you choose otherwise, and taxes are paid just as you were a sole proprietor. Business gain is treated as your own personal income, and as such, you are actually filing a personal tax return.

The major advantage of an LLC is that it protects its members from direct corporate debt liability. This ensures that if you have not directly secured a loan, such as a rent for an office, only the LLC's assets will be responsible for paying the company debts, not the individual members. Also, the LLC form is beneficial in that it will generally protect the LLC assets against their members ' personal debts. If somebody made a personal judgment against one of the LLC members, the judgment creditor could not only take interest in the LLC members and take control of the business.

3. Furthermore, the LLC form is useful in that it will usually protect the LLC property against their members ' personal debts. If somebody made a personal judgment against one of the LLC members, the judgment creditor could not only take interest in the LLC members and take control of the business. Judgment lenders are only entitled to take an assignment interest in the LLC, which means they can hold their hands to get some if any money is paid out, but they have no right of management or control and can not demand a payout. It's just an economic interest that they can keep.

4. A structure of a corporation is more complicated than other systems in industry. This needs more laws and tax standards to be complied with. Corporations are organized in accordance with the laws of each state and are subject to federal and state corporate income tax. Therefore, all income paid in the form of dividends to investors are charged on their direct annual tax returns at the individual tax levels. The agency becomes an organization that manages the company's obligations. The company can be treated like an individual and can be held legally liable for their actions.

Example of a corporation is Amazon, Founded in 1994, Amazon is a global e-commerce pioneer. Through having the facilities to order goods at home, it took massive business away from the brock and mortar stores. Amazon.com sells millions of items on its website that can be purchased and shipped at its doorstep to customers. The firm has become the biggest retailer and one of the exchange's favorite stocks.


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