In a joint stock company, each member has shares in the business depending on the amount of capital contributed. For example a company with $100, 000 can be formed by 5 members who has contributed equally to the capital. Every member will get 20% of the shares. The company has a separate identity and files its own tax return and each shareholder files their individual personal tax return If the company has a tax liability of say $10000 then the individual shareholders cannot be made liable for it. . If the company makes a profit of $ 15000, then it is reported in tax returns of the company.
A limited liability company, commonly called an "LLC," is a business structure that unites the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation. If an LLC has a tax liability of say $10000 or faces a lawsuit for some reason, only the assets of the business are at risk. Creditors cannot reach the personal assets of the LLC owners, such as a house or car. Like owners of partnerships or sole proprietorships, LLC owners report business profits or losses say a profit of $15000 on their personal income tax returns.
In the same scenario, if the 5 members form a partnership, then if a tax liability of $10000 is formed by the partnership, then each member is jointly and severally liable for the tax or any other debts the company may face. All profits are shared according to the terms of the partnership. Agreement and the partners file their individual tax returns.
A sole proprietorship legally does not have a separate entity from its owner. All debts and taxes of the business entity are debts of the owner. If the business makes a profit of $15000, then it is shown as income of the owner and tax is filed by the individual owner and not the business entity.
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