Business Structure

Business Structure

From the knowledge acquired in Chapter 13, I would choose the limited liability company as my business structure if I were to start my own business. The limited liability company business structure provides a flow-through form of taxation, meaning it is not taxed. In other words, profits and losses go through to the owners, who fill them on their tax returns. This allows the business owners to avoid double taxation, which occurs with a corporation’s business structure. For a small startup, pass-through taxation can significantly reduce taxes while increasing cash flow into the business enterprise. A limited liability company business structure offers liability protection for its owners. If the LLC is sued, the owner’s assets are typically shielded from lawsuits and any debts that might arise from the business (Khurana et al., 2020). This protects owners’ assets like homes, retirement funds, and bank accounts. This liability protection is crucial for new business-facing various risks (Robison, 2020).

Another important reason is that an LLC business structure provides ownership and management structure flexibility. Members or managers can manage a business entity with an LLC structure. This flexibility allows the business to develop a management structure that best fits its and its owner’s needs. Lastly, the process of forming an LLC is relatively simple and inexpensive. The LLC filing fees and annual reporting costs are typically much lower than for any other business structure. The lower cost of forming and maintaining an LLC makes it attractive for a new business. For these reasons, I would likely choose to form an LLC if starting my own business. The combination of benefits an LLC offers seems to make it the best organizational form for my business entity.

As seen earlier, business structures determine how business income and losses are reported for tax purposes, the business’s legal and financial system, and the business owner’s liability. From the analysis of this chapter, the main types of business structures are sole proprietorship, partnership, limited liability company (LLC), and corporation. A sole proprietorship can be described as the simplest form of business structure. The owner forms the business by default, requiring no legal or tax filings. The owner has an unlimited personal liability, which means that their assets can be seized to pay business debts arising from the business. Sole proprietors report business income and losses on their tax returns. The main disadvantage of a sole proprietorship is that they offer no liability protection for the owner (Robison, 2020).

A partnership is a business structure where two or more individuals form an enterprise. Partnerships require a partnership agreement that outlines how profits, losses, and responsibilities are divided between the partners. Like sole proprietors, partners have unlimited personal liability for business debts. Partnerships file an informational tax return, but income and losses flow through to partners’ tax returns. Partnerships offer flexibility but lack liability protection (Khurana et al., 2020). An LLC is a legal business structure that provides owners liability protection like a corporation but tax benefits like a partnership. LLCs business structure requires filing formation documents with the state. The Owners, also known as members, have limited personal liability for the business debts. The LLCs file informational tax returns, but income and losses flow through members’ tax returns. This business structure offers the business owner liability protection, tax benefits, and management flexibility (Robison, 2020).

Lastly, a corporation is a legal entity separate from its owners. Corporations require extensive legal formation documents. The Owners of this business entity, also called shareholders, have limited personal liability for the business debts. A business that falls under this structure files its tax returns and pays corporate income taxes on profits before distributing any remaining income to shareholders. Corporations offer the most significant liability protection but have more complex legal and tax requirements (Khurana et al., 2020).

References

Khurana, I., Strand, M., Dempster, G. M., & Stimpson, S. (2020). Institutions, entrepreneurial adaptation, and the legal form of the organization. Journal of Entrepreneurship and Public Policy, 10(2), 261–283. https://doi.org/10.1108/jepp-10-2019-0087

Robison, L. (2020, January 10). Alternative Forms of Business Organizations. Pressbooks. https://openbooks.lib.msu.edu/financialmanagement1ed/chapter/alternative-forms-of-business-organizations/

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Business Structure

Paper details
Prior to beginning work on this assignment, read Chapter 13 of the textbook.
In your analysis,
 Explain, if you were to start your own business, which business entity structure
you would choose.
 Justify why your chosen structure is the best organizational form.
 Explain the following business structures: sole proprietorship, partnership, LLC,
and a corporation.
 Analyze the following for each business structure:
o steps to form
o personal liability for owners
o taxation
o advantages and disadvantages

The Business Organization paper
 must be 2-3 double-spaced pages in length (not including title and references
pages) and formatted according to APA