Question

What part or parts of the United States government structure do you see are most important for business owners and their accountants to understand?

Answer 1

There are a few different structures for your business:-

• Sole Proprietorship
• Partnership
• Corporation
• Limited Liability Company

Business owners and their accountants must understand these Legal Business Structures, because each business form comes with different tax consequences, you will want to make your selection wisely and choose the structure that most closely matches your business's needs. The advantages and disadvantages of each Business Form are explained herewith. Business owners and their accountants must consider these while selecting structure of your business.

The Sole Proprietorship
The sole proprietorship is a popular business form due to its simplicity, ease of setup, and nominal cost.

Advantages of the Sole Proprietorship

• Owners can establish a sole proprietorship instantly, easily, and inexpensively.
• Sole proprietorships carry little ongoing formalities.
• A sole proprietor need not pay unemployment tax on himself or herself (although he or she must pay unemployment tax on employees).
• Owners may freely mix business and personal assets.

Disadvantages of the Sole Proprietorship

• Owners are subject to unlimited personal liability for the debts, losses, and liabilities of the business.
• Owners cannot raise capital by selling an interest in the business.

The Partnership
A partnership is a business form created automatically when two or more persons engage in a business enterprise for profit.

Advantages of the Partnership

• Owners can start partnerships relatively easily and inexpensively.
• Partnerships do not require annual meetings and require few ongoing formalities.
• Partnerships offer favorable taxation to most smaller businesses.
• Partnerships often do not have to pay minimum taxes that are required of LLCs and corporations.

Disadvantages of the Partnership

• All owners are subject to unlimited personal liability for the debts, losses, and liabilities of the business (except in the cases of limited partnerships and limited liability partnerships).
• Individual partners bear responsibility for the actions of other partners.
• Poorly organized partnerships and oral partnerships can lead to disputes among owners.

The Corporation

A corporation is a body is a legal person in the eyes of the law. It can bring lawsuits, can buy and sell property, contract, be taxed, and even commit crimes on its name. A corporation has perpetual life. When shareholders pass on or leave a corporation, they can transfer their shares to others who can continue a corporation's business. A corporation is owned by its shareholders, managed by its board of directors, and in most cases operated by its officers.

Advantages of the Corporation

• Owners are protected from personal liability for company debts and obligations.
• Corporations are the best vehicle for eventual public companies.
• Corporations can more easily raise capital through the sale of securities.
• Corporations can easily transfer ownership through the transfer of securities.
• Corporations can have an unlimited life.
• Corporations can create tax benefits under certain circumstances.

Disadvantages of the Corporation

• Corporations require annual meetings and require owners and directors to observe certain formalities.
• Corporations are more expensive to set up than partnerships and sole proprietorships.
• Corporations require annual fees and periodic filings with the state.

The Limited Liability Company (LLC)

The LLC is often described as a hybrid business form. It combines the liability protection of a corporation with the tax treatment and ease of administration of a partnership. As the name suggests, it offers liability protection to its owners for company debts and liabilities.

Advantages of the LLC

• LLCs do not require annual meetings and require few ongoing formalities.
• Owners are protected from personal liability for company debts and obligations.
• LLCs enjoy partnership benefits also, which is favorable to many small businesses.

Disadvantages of the LLC

• An LLC is not an appropriate vehicle for businesses seeking to become public eventually, or to raise money in the capital markets.
• LLCs are more expensive to set up than partnerships.
• LLCs usually requires annual fees and periodic filings with the state.
• Some states do not allow the organization of LLCs for certain professional vocations.