Business Structure Advice
Business Structure Advice
Adriana Tovar
FIN/571
December 15, 2014
Professor David Gobeli
Dear John Owner,
In response to your request for business structure advice, I believe you will find the following information extremely helpful to lead you to your decision.
First, you must know which your business structure options are, these include: sole proprietorship, partnership and corporation. A partnership could be general or limited and a corporation could be a general or a subchapter S-corporation. Each of these options has their advantages, disadvantages and differences regarding tax consequences. I strongly suggest you choose the one that best fits your products’ or services’ needs.
A sole proprietorship is the best business structure for those starting out with limited funds and wanting complete authority over all business decisions. If you decide to become a sole proprietor, you would have complete authority over all decisions regarding your business. Unfortunately, you would also be personally and completely liable for any expenses and debts your business incurs. Because of this, you, the owner, must keep sufficient records to fulfill with federal tax requirements regarding the business. Your net business income is joined with your other income and taxed at individual rates on your personal tax return. Sole proprietors must also pay self-employment tax.
Another option is to form a partnership, you must indeed have a partner or partners as the owners of the business. Advantages to forming a partnership is that all partners can contribute ideas, skills, and financially provide and invest more into the business. Similar to a sole proprietorship, all owners are responsible for the debts the business sustains. Each partner must report their share of the business’ net profit or loss on his personal tax return, even if a distribution is not made. A general partnership implies that debts and expenses are equally divided between the owners and
Adriana Tovar
FIN/571
December 15, 2014
Professor David Gobeli
Dear John Owner,
In response to your request for business structure advice, I believe you will find the following information extremely helpful to lead you to your decision.
First, you must know which your business structure options are, these include: sole proprietorship, partnership and corporation. A partnership could be general or limited and a corporation could be a general or a subchapter S-corporation. Each of these options has their advantages, disadvantages and differences regarding tax consequences. I strongly suggest you choose the one that best fits your products’ or services’ needs.
A sole proprietorship is the best business structure for those starting out with limited funds and wanting complete authority over all business decisions. If you decide to become a sole proprietor, you would have complete authority over all decisions regarding your business. Unfortunately, you would also be personally and completely liable for any expenses and debts your business incurs. Because of this, you, the owner, must keep sufficient records to fulfill with federal tax requirements regarding the business. Your net business income is joined with your other income and taxed at individual rates on your personal tax return. Sole proprietors must also pay self-employment tax.
Another option is to form a partnership, you must indeed have a partner or partners as the owners of the business. Advantages to forming a partnership is that all partners can contribute ideas, skills, and financially provide and invest more into the business. Similar to a sole proprietorship, all owners are responsible for the debts the business sustains. Each partner must report their share of the business’ net profit or loss on his personal tax return, even if a distribution is not made. A general partnership implies that debts and expenses are equally divided between the owners and
References: Internal Revenue Services. (2012, August 17). Choosing a Business Structure. Retrieved December 15, 2014, from http://www.irs.gov/uac/Choosing-a-Business-Structure (Video) (2011). Corporate Business Structures. Planning Your Business: Research, Goals, and Business Plans. [Films on Demand]. Retrieved on December 8, 2014 from http://digital. films .com/PortalViewVideo.aspx?xtid=42248&loid=116024# (Video) (2011). Your Business Structure. Planning Your Business: Research, Goals, and Business Plans. [Films on Demand]. Retrieved on December 8, 2014 from http://digital. films .com/PortalViewVideo.aspx?xtid=42248&loid=116024#