Question

In: Accounting

If you were forming a new business what business entity would you pick? You must list...

If you were forming a new business what business entity would you pick? You must list the pros and cons of all the possible entities and then explain the reason you picked the entity you did.

Expert Solution

The limited liability company would be the pick for the formation of a new business.

Limited Liability Company:

The limited liability company is a type of business entity which has the combined characteristics of corporation and partnership. It is regarding as an ideal form of entity as it has the merits of both corporation and partnership. It does not have the complexities of corporation and free structure of partnership. The owners of LLC are called members.

Benefits of Limited Liability Company:

· The liability of the members is limited to their invested capital. It provides a legal protection.

· The LLC has a separate legal entity. It has a different entity than its owners.

· LLC helps in avoiding double taxation as the profit earned by the owners is taxable at their personal tax level.

· The member can be non U.S. citizen or permanent resident.

· There is no limit on the number of members of LLC.

Disadvantages of Limited Liability Company:

· An LLC can issue stock to increase its capital base.

· The laws of LLC are different in different states which results in the lack of uniformity.

· The earnings from the LLC can be subject to self-employment tax.

· The membership can only be transferred via the consent of the member which is a time taking process.

· The annual government charges levied on LLC are higher than other type of entities.

Reason for picking Limited Liability Company (LLC):

The LLC is picked because it provides the legal protection and less complexes structure of partnership and vast scope of corporation such as unlimited member size, option for a non-U.S. member, separate legal entity, and limited liability of the members. The formation process of LLC is much easier than the corporation and can be done by filing a simple form. It provides tax benefit by eliminating the double-taxation on the income earned by LLC members.

Thus, LLC is an ideal form of business entity for forming a new business.

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ekkarill92 answered 2 years ago

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