Forms of Business Organization Essay

The study of communication channel institution is a study of complexity as each personal line of credit is different, each pains of railway line judicature is also unique. From a local hot-dog trafficker to a trucking company, from a restaurant to a multinational, each product line has different legitimate, moral and honourable concerns, and on that point is no one-size-fits-all approach to determine how a bank line should silk hat be turn outd. Take the beginning gear two coursees, the hot-dog vendor and the trucking company, as an example assume that each melodic phrase is ope vagabondd by a single individualistic.While one may argue that the proper form of agreement for each would be a fix proprietorship, that would not be the case the hot-dog vendor could clearly be operated as a sole proprietorship, but not the trucking company. Because of the nature of the trucking business, limiting the liability of the principals is vital thus, the best form of organizat ion for the trucking company would or so likely be an LLC ( check liability company). There ar six main forms of business organization, and each has very distinct advantages and disadvantages some work best for subaltern enterprises, some atomic number 18 better when outside vendors atomic number 18 involved, some atomic number 18 more suitable for larger companies indeed, in that respect are many variables to consider when determining the organization of a business.Sole ProprietorshipThe most common form of business organization is called a sole proprietorship. The most common way to organize a business, Entrepreneur.com describes it thusly The sole proprietorship is a popular business form due to its simplicity, excuse of setup, and nominal cost. It is the easiest form of business to setup again, according to Entrepreneur, a sole proprietor need single register his or her name and secure local licenses, and the sole proprietor is ready for business. As the business is n ot in in somaticd, all assets and liabilities relating to this form of business are infra the control of the individual who started the business thus, the business possessor assumes full liability in the event of a legal judgment. In addition, as there is no legal protection for the business (it being indistinct from the owner), it is entirely possible for a sole proprietor to see their business liquidated as the result of a lawsuit.The owner has complete control of this form of business no control has to be granted to anyone else. An advantage to this is that they retain all boodle aught has to be divided up with anyone else, and their return on enthronement is 100%. Income revenuees are easy to calculate a sole proprietor need only declare their business income on their individual tax form. Because of this, there is no real additional workload or burden to the owner unless they choose to do business under a name separate than their own, in which case they would be required to register their business name with the particular jurisdiction they reside in.The location of the business only matters if an individual wants to avoid a particular jurisdictions individual income taxes (corporate taxes are not filed for this form of business) for instance, some states do not charge income tax. No separate legal entities commit to be formed if the business changes location the business is connected to the individual and the business inhabits as long as the individual chooses to operate it. This form of business has a express longevity according to Entrepreneur, sole proprietorships rarely survive the death or senselessness of their owners and so do not retain value. They globally dissolve upon the death of the principal and so whoremasternot be passed on to heirs or others.General PartnershipAccording to the Small Business Administration, a general confederacy is a business owned by two or more mess, with the business partners equally communion the resp onsibilities of the business. same a sole proprietorship, the individual owners of the business assume unlimited liability it is possible for the business owners to be liquidated due to a legal judgment or the failure of the business. Additionally, because the actions of one of the partners are covert on all the others, the entire coalition can prosper or suffer due to the actions of a single member (The Free Dictionary). Also like a sole proprietorship, a general confederation is, as nimble MBA puts it, a ?tax reporting entity, not a tax paying entity.? In other words, the partnership is only a method of business organization it is not a legal entity for tax purposes, and the individual business owners assume tax liability separately.The longevity of a partnership is potentially greater than a sole proprietorship for example, since there are one or more other partners, the death of one member does not mean the end of the business since their share can be passed along to heirs. Control in a general partnership is shared equally since there is no one owner, all decisions (and their effects) are shared equally. Profits are divided among the partners while the liabilities are shared, the simoleons can sometimes be divided unequally upon agreement.This can affect return on investment since it is possible to invest in a partnership without being an active member, it is possible to hurt specie on an investment if the active principals make decisions that affect the business negatively. As with a sole proprietorship, location is not a real concern with a general partnership since the principals, not the business, are the ones prudent for the tax liability, the decision on where to locate has little to do with corporate tax liability. Like a sole proprietorship, the only real regulatory burden is if the general partnership chooses to do business under a name under their own the name would have to be registered.Limited PartnershipA limited partnership is simil ar to a general partnership. Quick MBA describes a limited partnership as a partnership with two or more partners, with one or more general and limited partners. The biggest difference is that a limited partner does not assume unlimited liability their liability is limited to the amount of their investment. Also, since general partners are held wholly liable, they are often LLCs (limited liability corporations) rather than individuals. Like a general partnership, income and income taxes are generally divided among the principals, but a limited partnership has to equalize certain criteria to enjoy this right otherwise it is taxed as a corporation.The rules of continuity in this sort of organization are different from those of a general partnership. The continuity of the organization is assured while a general partnership generally must dissolve if a partner leaves, shares of a limited partnership can be created and can be transferred, bought or sold, though principals in the organiz ation have the right to first bid (Quick MBA). Control of a limited partnership rests in the hands of the general partners because they have circumspection control, they do not have to grant control to anyone else in the organization in fact, limited partners lose their status if they take a managing role in the business.Like the general partnership, the profits are shared between the partners because limited partners are investors in the company, they often receive a greater share of the profits because of their financial contribution. Location concerns as the same as in a general partnership. Concerns of convenience or burden are also the same unless the partnership acts as a corporation, in which case corporate regulations must be followed.C-corporationAccording to Wikipedia, C-corporations are corporations that are taxed separately from their owners. In the United States, corporations are considered people for tax and liability purposes in this form of business organization, C- corps are individual persons considered separate from shareholders and directors (Expertlaw.com). Because of this, the liability of the shareholders (note that in a corporation, shareholders are the owners of the organization) is limited shareholders are protected from assuming the burdens of the corporation if it is unable to meet its obligations. Income taxes for the c-corp are calculated at the corporate tax rate sometimes this rate is lower than the income tax rate of the shareholders, but oftentimes it proves to be much higher.Dividends are subject to the capital gains tax of 15%, then subject to the income tax rate of the shareholder thus, the profits have been taxed twice. The longevity of this form of organization is perpetual because the company is owned by shareholders, even if the owner leaves the company can continue to exist (The Company Corporation). Control of a C-Corp rests in the hands of shareholders the owner has control only so uttermost as their share of the co mpany allows. Shareholders generally elect a board of directors to act on their behalf. As with control of the company, profits belong to the owner only in proportion to the amount of stock in the company they possess.Compared to the forms of organization discussed previously, location has a great deal to do with how and where a C-Corp does business. Phrases such as Nevada corporation or Delaware corporation have entered popular usage they refer to corporations incorporated in these states unaccompanied due to their business-friendly incorporation laws (i.e. easy incorporation, no need to elect a board or reward stock, etc). Because corporations are bewilderd by the states, often times businesses leave alone be incorporated in a state other than the one they do business in. This form of business organization comes with more of a burden on the business owner than the previous three the states and the federal government heavily regulate corporations, these forms of business are mo re expensive to establish, and the paperwork burden is much greater.S-CorporationS- and C-corps are very similar, but there are some differences. Like a C-corporation, shareholders are not individually liable for business debts and resopnsibilities (BizFilings). Also, the are similar when it comes to the longevity, profit retention, and location requirements of an S- or C-corporation. The two biggest differences involve the control of the company and the income tax burden. In a C-corp, an unlimited number of shareholders are allowed, and they can be domestic or foreign nationals however, a S-corp only allows 100 shareholders, and they must be US nationals. When it comes to income taxes, C-corps file as a corporation and corporate taxes are paid however, an S-corp is a pass-through, meaning that taxes on earnings are filed and paid by the individual shareholders.Limited Liability CompanyA limited liability company, according to Wikipedia, is a form of organization that combines the f eatures of a partnership with those of a corporation. Like a corporation, liability is limited the personal assets of business owners are generally shielded from those of the company. Income taxes are treated differently from the other forms of organization an LLC can elect how it wants to be treated for tax purposes. LLCs are, like partnerships and sole proprietorships, pass-through entities taxes are generally not calculated on the firm as a whole, but on the earnings reported on the individual tax returns of the principals. The continuity of the organization depends on how it is organized if it is organized as a partnership, the longevity is assured.The principals of the company have control of the company if one person alone is in charge, the LLC can operate as a sole proprietorship for control purposes. Profits are divided among the individual owners a single owner retains control of all profits, but partners divide the proceeds. The location of an LLC can be important for inst ance, in majuscule D.C., LLCs are not allowed to pass-through income for tax purposes, and some states assess levies for the privilege of operating as an LLC (Wikipedia).Compared to corporations, LLCs have only a minor paperwork burden though some states regulate them more than others, there is often little more to do aside from filing the standard sole proprietorship/partnership paperwork. Different companies call for different forms of organization what may work for the sole owner of a patronage may not be successful for a large organization. Oftentimes the greater paperwork or regulatory burden imposed on corporations is offset by the advantages of incorporation sometimes an LLC or partnership may work better. Before deciding on the form of business organization, a prospective business owner will do well to perform a thoughtful analysis to determine which approach will suit their business model.ReferencesInternal Revenue Service. Sole Proprietorships. -0-1. Accessed October 9, 2012. Enterpreneur. The Basics of Sole Proprietorships. -2. Accessed October 9, 2012. Small Business Administration. Partnerships. -3. Accessed October 6, 2012. Quick MBA. The General Partnership.