Business Law 2

Satisfactory Essays
June 16, 2014

Re: Ice Cream Parlor Formation

Dear Betty and Betsy,

I am aware that you are wanting to go into business because of your love of natural ice cream. I would like to discuss with you the various types of business entities that exist and the pros and cons of each. Specifically, I will discuss: Limited Liability Company and C Corporations. I have not included the general partnerships, limited partnerships, or S corporations as one of your choices for various reasons. With the general partnerships, all owners are jointly and personally liable for any debts. The limited partnerships is easier to attract investors as they are only liable for their total amount of their investment into the business but limited partnerships are mainly suited for investment groups. With the S corporation the shareholders must only be individuals and no shareholder can be a non-resident alien in the U.S. A Limited Liability Company (LLC) is composed of one or more individuals or entities through a special written agreement. The agreement includes provisions for management, ability to assign interests, and distribution of profits and losses. Limited liability companies can engage in any lawful for profit business or activity, but filing with the Office of the Secretary of State is required. An LLC is generally treated as a partnership for federal income tax purposes but owners can choose to be taxed as a corporation if that is what they desire. Accordingly, the LLC itself is not subject to federal income tax, and all of its income, gain, loss, deduction, and credit are passed through to its members. You must pay income taxes on all net profits of the business, regardless of how much they actually take out of the business each year. Even if all the profits are kept in the business checking account to meet upcoming business expenses, you must report your share of theses profits as income on your tax returns. An LLC can be advantageous for a small to midsize business.

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