Legal Forms of Business

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Legal forms of Business The process of starting a business can be a challenging one. From choosing a business name, identifying the product to sell and where all require thoughtful decisions. All these decisions also need legal and practical considerations. To understand more about the different forms of business, it is important to consider the right structure for the business (Legal Forms, 2006). Sole Proprietorship A sole proprietorship simply means a business with one owner. With many forms of organizations out there, this is the most common. In a sole proprietorship, a business organization is not separate from its owner, just under a business name in which the owner represents him or herself to the public (Lee, 2011). Scenario…show more content…
Owners of this business are known as members, not the stockholders or partners. It also limits a business owner’s liability (Nelson, 2008). Scenario – A landlord who has many real estate holdings has the potential of huge liability if something happens to a tenant in one of his properties. For this type of business scenario a limited liability company may be the preferred option. This allows the owner to build their business while keeping their personal liabilities to a minimum. S Corporation S corporation is same as a corporate business with difference as how an owner can take the tax advantage. S corporate form of business allows its owners to be taxed like a partnership rather than corporate, even though the business is separate entity. Initially majority of businesses start as an S corporation to offset their losses on their income if any and can always revert to C Corporation when business begins to make taxable income (Lee, 2011) Scenario – A person’s hobby can become a business option for many such as a freelance photographer. By incorporating his or her business into an S-Corporation, they are able to take advantage of the “pass-through” tax which allows all the profits of the business to pass through directly to the shareholders’ tax returns. Therefore their business does not need to pay taxes and the freelancer takes tax advantage by being the owner and employee of the company.

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