Various Forms of Organizations

Topics: Corporation, Limited liability company, Types of business entity Pages: 5 (1491 words) Published: March 27, 2013
Part I:  Discuss the various forms of organization that are available to Penelope, Mark and John The various forms of organization available to Penelope, Mark and John are: GENERAL PARTNERSHIPS:
A general partnership is a business organization formed when 2 or more individuals or entities form a business for profit. All partners share in the management and in the profits and decide on matters of ordinary business operations by majority of the partners or by percentage ownership of each partner. Each partner is liable for all business debts and bears responsibility for the actions of the other partners. Each partner reports partnership income on their individual tax return. A partnership dissolves on the death or withdrawal of a partner unless the partnership agreement provides otherwise. Partnerships are relatively easy and inexpensive to form and require few ongoing formalities. LIMITED LIABILITY COMPANY:

A limited liability company is a new and flexible business organization of one or more owners that offers the advantages of liability protection with the simplicity of a partnership, i.e. partners are not liable for business debts. Each partner reports business income on their individual tax return. LLCs may dissolve on the death or withdrawal of an owner depending on state law. An LLC is not appropriate for businesses seeking to become public or raise capital. LLCs require few ongoing formalities but usually require periodic filings with the state and also require annual fees. LLCs are more expensive to form than partnerships. CORPORATIONS:

A corporation is a legal entity that has most of the rights and duties of a natural person but with perpetual life and limited liability. Shareholders of a corporation appoint a board of directors and the board of directors appoints the officers for the corporation, who have the authority to manage the day-to-day operations of the corporation. Shareholders are generally liable for the amount of their investment in corporate stock. A corporation pays its own taxes and shareholders pay tax on their dividends. However, in a subchapter S corporation, shareholders report their share of corporate profit or loss in their individual tax return. The corporation is its own legal entity and can survive the death of owners, partners and shareholders. A corporation is the best entity for eventual public companies. Corporations can raise capital through the sale of securities and can transfer ownership through the transfer of securities. Corporations require annual meetings and require owners and directors to observe certain formalities. Corporations are more expensive to form than partnerships and sole proprietorships. Corporations require periodic filings with the state and also require annual fees. (COMMON FORMS OF BUSINESS ORGANIZATION -

Partnerships are unincorporated businesses. Like corporations, partnerships are separate entities from the shareholders. Unlike corporations, partnerships must have at least one General Partner who assumes unlimited liability for the business. Partnerships must have at least two shareholders. Partnerships distribute all profits and losses to their shareholders without regard for any profits retained by the business for cash flow purposes. (LLCs are taxed as partnerships, unless they choose to be taxed as corporations.) of  organization you believe will be best and be sure to explain the reasoning for your choice. In my opinion, a Limited Liability Company would be the best choice for them to form as it provides easy management and "pass-through" taxation (profits and losses are added to the owner(s) personal tax returns) like a Sole Proprietorship/Partnership, with the liability protection of a Corporation. Like a corporation, it is a separate legal entity; unlike a corporation, there is no stock and there are fewer formalities. The owners of an LLC are called...
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