Incorporation Case Study

As a hybrid of partnerships and corporations, LLC’s provide limited liability for debts and flexibility to be taxed as a partnership or corporation (Staring and Naming a Business Presentation, 2012, Slide 5). Some specific advantages include being empowered authorities in the management of the business, diversity of members, limited liability, pass-through taxation, and less paperwork (appreciated by many). A drawback of this business structure is the need for a tailored operating agreement that specifies the specific needs of the

There are three types of business entities: sole proprietorship, partnerships, and corporations. Sole proprietorships are businesses owned by an individual person. They are easy to form, but are not taxed. Instead the individual business owner is taxed on any monies acquired on behalf of the business (Kubasek, 2012. Partnerships are businesses that are owned by more than one individual owners. The big thing about partnerships is that each partner is personally responsible for the acts of the other partners in the business . (Kubasek, 2012 Corporations are businesses owned by multiple people to include shareholders (Kubasek, 2012). They can sue and be sued and are subject to a host of rules and regulations set forth by the government.

The continuity of his company would be greater than his current sole proprietorship, by would be governed by his state laws. Without knowing the state he would be creating the LLC in, we can only state that he would be able to include options in the governing documents giving his family a change to buy his share if he does die, which would greatly disrupt the company’s operations. He

This allows each owner to protect personal assets from claims and lawsuits against the company. This limits the liability of each owner the amount that he or she has invested in the business. The LLC also has the option to choose your own tax situation. In addition, the ruling does not affect the personal finances of the owner as a sole proprietorship.

• Income Taxes: S- Corporations are tax paying entity, the business files tax returns but not taxed on earnings. The stockholders claim losses or profits on their personal tax returns.

2. [LO 1] Compare and contrast the aggregate and entity approaches for a sale of a partnership interest.

INCOME TAXES- S-corp differs from C-corp taxation; taxes are passed through to the shareholders only. The company itself does not pay taxes.

A limited liability company consists of a single owner, or sometimes more than one owner, and are not taxed as separate business entities. All profits and losses pass through the business to those who own the company. Owners must report profits and losses on their personal tax return filing as a corporation, partnership, or sole proprietorship. If the LLC is ran by a single owner, they file a 1040 Schedule C form as a sole proprietor. Partners file a 1065 form consisting of a partnership, and a form 1120 is filed if the LLC is filing as a corporation. The LLC must be registered such as the State Corporation Commission, Department of Commerce and Consumer Affairs, Department of Consumer and Regulatory Affairs, or the Division of Corporations and Commercial Code. The great thing about an LLC is that the owner has freedom in management. The owner is able to run the organization as they see fit not answering to anyone,

| If all members of a new foreign entity have limited liability, the entity is classified as an association taxed as a corporation.

Limited Liability Company (LLC) combines the tax advantages of a partnership with the limited liability aspects of a corporation. LLC’s are governed by the Uniform Limited Liability Company Act (ULLCA). All members of the LLC enjoy limited liability unless there is serious misconduct is committed by said member(s), or a member fails to follow through on an obligation. All this should be outlined in your preformation contract. You will have more flexibility with taxation and options on how to manage the company. It would be advisable to also have an Operating Agreement. This will dictate how management will be hired and fired, division of profits, how to transfer interest in the event a member chooses to opt out or dies. What steps to take in the event of dissociation of a partner, and if it causes the dissolution of the LLC. Most importantly how the members vote in the LLC. The weight of the members vote is in accordance with the member’s capital

For the states that don't allow separate reporting, the LLC is said to be transparent meaning it does not report separately from the individual. The $300,000 is also will be considered part of lawyer’s income as all income includes all monies derived from all sources and it will be taxable income.

According to IRC § 1372 any person owning more than 2% of the S Corporation, or holding more than 2% of the voting power, is considered a partner of the business. What! The S Corporation shareholders are now a partners? Once it is understood that an S-Corporation is a hybrid between: a sole proprietorship, a partnership and a corporation, it all starts to make more sense.

As a derivative of the C-corporation an S-corporation is subject to all of the same corporate formalities as the C-corporation and actually is not differentiated from the C-corporation under Texas law. This means that in Texas a corporation is founded without the designation of C or S because they are treated exactly the same inside the state. However, the difference between an S-corporation and a C-corporation under federal tax law is significant. The S-corporation is formed by making an election on IRS Form 2553 preventing taxation of profits at the corporate level (IRS, 2012b). The election to not be taxed at the corporate level by a corporation does not in any way effect the limited liability protections that the corporation has under Texas law. This exemption from corporate taxation does not mean that income is not taxed but rather that profits, credits, and deductions are automatically passed to stockholders of the corporation in the current year thereby eliminating any benefit accumulation of profits in the corporation. These pass through items are distributed to the shareholders based on the percent stock ownership of the business (Nitti, 2011).

Depend of the size of my business, I would definitely think to incorporate my business. Some of the advantages would be growing my corporations can be attractive for some investors. That will give more resources, capital to expand my business. Incorporating my business can help me to earn more clients and partners. Another advantage is secure my assets from my personal belongings. As a corporation’s owner, I will have limited liability protection which allow me to acquire personal assets without a risk. And lastly, as a corporations, I would have the door

The advantages to a LLC are: 1) Reduction of personal liability. A sole proprietor has unlimited liability, which can include the potential loss of all personal assets. 2) Taxes. Forming an LLC may mean that more expenses can be considered business expenses and be deducted from the company’s income. 3) Improved credibility. The business may have increased credibility in the business world compared to a sole proprietorship. 4) Ability to attract investment. Corporations, even LLCs, can raise capital through the sale of equity. 5) Continuous life. Sole proprietorships have a limited life,