Week 2 You Decide Assignment
Memo to Gloria Smithson
September 20, 2014
I would like to take this opportunity to share with you, three possibilities for your business formation. Making the proper decision on which formation to choose can be a daunting task and I am pleased that you have chosen ABC Accounting to assist you in this decision. One of the main criteria you provided was the protection of you and your family from personal liability. Each of the three options that will be discussed, provide the personal liability protection and will give you the ability to make the proper decision for you and your business.
The first business formation option that we will address is the Limited…show more content… The managing member’s share of the profits is considered earned income and is therefore subjected to the self-employment tax. Also a member of an LLC cannot pay themselves wages from the profits of the LLC. “The great flexibility that is afforded by an LLC makes it one of the most popular types of business formations used” (Waller).
The last business option that will be discussed is the Corporation. A Corporation is “a fictitious legal entity that is created according to statutory requirements” (Cheeseman 478). The biggest advantage of a corporation is the protection of personal assets. Shareholders, directors and officers are typically not liable for the company’s debts and obligations. This is limited to the amount of money they have invested into the corporation. Since the corporation is separate from the owners, transfer of ownership is an easy task. Also corporations are generally taxed at a lower rate than individuals in the United States. A corporation is not as simple to form or maintain as other business formations. Articles of incorporation must be filed with the secretary of state and an organizational meeting must be held to elect a board of directors. A corporation also requires, at the least, an annual report so that creditors that do business with the corporation can determine the creditworthiness of the corporation. Also the corporation is taxed on its profits