March 4, 2013
Outside of a sole proprietorship, where a single owner owns and operates the business there are three basic types of business organizations: partnership, corporation and LLC, also known as limited liability company. (Rodgers, S. 2010. Chapter 13) The general requirements for each entity are the following; a partnership is defined as an association of two or more competent persons to carry on a business as co-owners for profit. (Rodgers, S. 2010. Section 13.1) According to the law, competent means that the partners must have contractual capacity as well as each partner is simultaneously both a principle and an agent. Partners are also automatically owners and managers and by law this presumes equal rights unless the partners have specified otherwise. (Rodgers, S. 2010. Section 13.1) There must also be the intent to make a profit, there is no such thing as a nonprofit partnership. The other business organization is the corporation.
The corporation is very much like limited partnerships and does not exist at common law; it is a form of business organization that owes its existence to statues in all states that provide guidelines for its creation and management. (Rodgers, S. 2010. Section 13.2) However, unlike a partnership, the corporation is a legal entity in the eyes of the law. As an entity, a corporation enjoys most of the privileges and shares in most of the responsibilities of natural persons; it can avail itself of most constitutional protections offered to natural persons and can own property in its own name, but must pay taxes and is subject to civil and some criminal penalties for acts it performs through its agents. (Rodgers, S. 2010. Section 13.2) The Corporation is governed primarily by the statutory guidelines of the state statute that provides for its creation. The last of the three business organizations is the LLC or limited liability companies. The LLC represents an attempt to combine the best features of a partnership with the best features of a corporation.
The Business plan on Small Business Setup Legal Structure
PLANNING FOR SUCCESS Planning is a key factor in the success of any business, and conversely, the failure to plan adequately is one of the fastest routes to business failure. There are many considerations that an entrepreneur must decide such as: type of business, legal structure, permits and licenses, market planning, business plan, location, organization management planning, business telephone ...
The statues of LLC typically feature easier formation and lower filing fees, flow-through taxation where members of an LLC are taxed on their earnings but the business itself is not taxed, the stability of a corporation (a member’s leaving will not dissolve the LLC), and limited liability, where the business is liable for its debts and the people who own it are not. Due to the fact that LLC is relatively new courts have often held that where an LLC law does not cover an issue, the default setting is to partnership law. In the past, the small businesses that would have been considered a partnership and now considered large-scale businesses such as Google. (Rodgers, S. 2010. Section 13.3) The advantages and disadvantages of a business owner to select to either be a partnership, corporation or LLC is that a corporation or LLC has potentially limited liability, as long as the owners are careful to observe statutory formalities and do not hide behind the business. When raising capital, the corporation and limited partnership are generally best; for taxation purposes, an LLC is preferable. Creating and maintaining an LLC may be more complex and costly than forming a sole proprietorship or partnership, but it may be worth it for your small business depending upon the type of work you plan on doing. Perhaps the main reason you would want to organize your business as an LLC is to shield yourself from any personal liability that may arise from your small business’ dealings.
Organizing your business as a corporation or an LLC makes sense in two situations. First, if the business is engaged in a dangerous activity that makes it more likely to be sued, or if the business has the potential of racking up large amounts of debt, then a corporation or an LLC may be a good idea to shield the owners from personal liability. For example, if your business engages in a risky activity, like transporting toxic chemicals through urban areas, then you would probably want to shield any personal assets you may have from potential judgments against the company for a spill. Second, when the owners of a business have large amounts of personal assets that they want to shield from any potential liability associated with the business, forming a limited liability corporation makes a lot of sense. This can be true even if your business is engaged in a generally safe activity, like selling teddy bears. There is always the potential of there being a large judgment against your company. If such an instance arises, forming a limited liability corporation
The Business plan on Management Ability Business Company Corporations
With the growing number of corporations taking over small businesses, and the belief that becoming a proprietor is associated with being wealthy, one must decide which type of business to become involved with. There are several differences between these two types of business. A corporation is a business organization having a continuous existence independent of its members (owners) and power and ...
can protect your valuable assets.
Reference
DeAngelis, M. (2012, February 15).
Business Entities. Hartford, Connecticut, USA. Accessed via: http://legalstudiesclassroom.blogspot.com/2012/02/business-entities.html Rogers, S. (2012).
Essentials of Business Law. San Diego, CA: Bridgepoint Education, Inc.
