Why Entrepreneurs Form Business Entities Essay

A corporation is a separate legal entity that possesses distinctive liabilities and privileges than that of their members or shareholders. As an investor, a corporation’s advantage is liability for their own investments especially in risky investments (Kubasek, et al., 2012, p. 760). Among the various types of corporations for Betty to select from, an S corporation is an enticing venture for new entrepreneurs given that it grants limited personal liability for debts, sharing of corporate profits, and taxation relief. Double taxation is a main disadvantage of C corporations but not for S corporations. The General Corporation Law (Corp C §§100-2319) treats S corporations similarly to partnerships for taxation purposes.

In contrast, private entities such as partnerships and companies with less than $10 million in assets and under 500

671 [2d Dept. 2010], internal citations omitted). "Additionally, the corporate veil will be pierced to achieve equity, even absent fraud, [w]hen a corporation has been so dominated by an individual or another corporation and its separate entity so ignored that it primarily transacts the dominator 's business instead of its own and can be called the other 's alter ego '" (Id. at 671-672, internal citations omitted). "[A] party seeking to pierce the corporate veil must establish that (1) the owners exercised complete domination of the corporation in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the plaintiff which resulted in the plaintiff 's injury" (Superior Transcribing Serv., LLC v Paul, 72 AD3d 675, 676 [2d Dept. 2010], internal citations omitted).

Forming a business entity requires a great deal of knowledge before any decision is made. There are advantages and disadvantages to each entity and without proper understanding of what they are, individuals could make costly errors and forfeit crucial perks that would be in the businesses best interest. In the situation in New State, Alex, Bill, Carl, and Devon have inherited their father’s operating organic farm and seek advice, in regards to which form of business organization would best fit their particular criteria. They have emphasized their immediate concerns, wants and needs from a business standpoint, but also stress their strong faith to uphold and operate in accordance with the Christian worldview. Their criteria is as follows, (1) create an entity which averts formalities or complexities, (2) develop a structure allowing cousin Xavier to handle the day-to-day, (3) minimize taxes on the entity, (4) avoid any personal liability, (4) keep business in the family only, (5) remain in accordance with the Christian worldview, (which will be the final topic in this discussion). After reviewing all criteria, it will be advised that forming a limited liability company (LLC) and electing for an S corporation status would be of best interest for the family. Discussed below, is the strengths and weaknesses of each form of business organization as it applies to their unique situation, to help better understand why an LLC/S corporation, is the best form of

Although courts are reluctant to hold an active shareholder liable for actions that are legally the responsibility of the corporation, even if the corporation has a single shareholder, they will often do so if the corporation was markedly noncompliant, or if holding only the corporation liable would be singularly unfair to the plaintiff. The ruling is based on common law precedents. In the US, different theories, most important "alter ego" or "instrumentality rule", attempted to create a piercing standard. Generally, the plaintiff has to prove that the incorporation was merely a formality and that the corporation neglected corporate formalities and protocols, such as voting to approve major corporate actions in the context of a duly authorized corporate meeting. This is quite often the case when a corporation facing legal liability transfers its assets and business to another corporation with the same management and shareholders. It also happens with single person corporations that are managed in a haphazard manner. As such, the veil can be pierced in both civil cases and where regulatory proceedings are taken against a shell corporation.

responsible for business debt, and has one or more limited partnership who are only liable to

2. Is it possible to lift or pierce the corporate veil of corporate groups on the basis that:

* Limited Liability - Unlike partnerships and sole proprietorships, corporate shareholders are not liable for any of the corporation's debts.

After the creation of a business plan, the next step to operating a business is the selection of an appropriate business structure. Different legal forms of business ownerships affect different managerial and financial factors from the business names to the tax obligations (Gregory, n.d.). The most common forms are sole proprietorship, partnership, cooperatives, and corporations. There are different types of corporations in the business world, but the two most general corporation types are S Corporation and Limited Liability Company (LLC) (Ferrell et al., 2013). The sole proprietorship is the easiest and most basic form of business ownership. It is owned and run by one individual, which is the proprietor. The individual is entitled to all profits and is responsible for all the business’s

“In Uniform Commercial Code (UCC) minor changes do not have any impact and the original contract does not get canceled. The quantity is the main focus of the term in UCC. Offers made by a firm are irrevocable if the deal is made in writing in UCC” (UCC vs Common Law, 2014). “Uniform Commercial Code is a statutory law for certain types of commercial transactions, including sales of goods, which has been adopted by all 50 states. Many of its rules are similar to Common Law, but it

When a company is incorporated it is treated as a separate legal entity distinct from its promoters, directors, members, and employees, which confers the benefit of not being responsible for the companies debt on the members on the company. However even though a company is a separate legal entity and it attains the advantage of not laying the responsibility of company’s debt on the

There are many advantages and disadvantages when owning your own business. When you own you own business, it’s known as a sole proprietorship. But with any type of business, there will always be advantages and disadvantages.

At the beginning of the course I had only had basic entrepreneur knowledge, I understood the traits, and the amount of thought put into a business. I understood a entrepreneur needed to be able to set goals and had to establish connections and business partners. I was actually lucky enough to have taken a entrepreneur class in highschool. Which taught me lots on how an entrepreneur business is started. It also taught me the required determination and hard work it takes to be a entrepreneur.

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,

Michael Lewis (2000: pages 256-257) scoffed at the whole attempt to formalize the definition of business models when he wrote that “ “Business Model” is one of those terms of art that were central to the Internet boom: it glorifies all manner of half baked plans. All it really meant was how you planned to make money.”