Sole proprietorship is a simple type of ownership with several advantages, including the following: Currently available and counting in 18 states, serial LLCs are an emerging type of business ownership structure. Basically, they allow a parent LLC to form several internal LLCs in a subsidiary manner. These nested LLCs can be used to isolate the liability of different business entities. Every small business must choose a legal form of ownership. The most common forms are sole proprietorship, partnership and partnership. A limited liability company (LLC) is a relatively new corporate structure that is now approved by all fifty states. Before choosing a legal form, however, several factors must be taken into account, including legal and tax options. When you start a business, you need to decide what form of business unit you want to create. Your business form determines the tax return form you must submit.
The most common forms of business are sole proprietorships, partnerships, corporations and S companies. A limited liability company (LLC) is a business structure authorized by state laws. Legal and tax considerations are taken into account when choosing a business structure. Meanwhile, Jerry Greenfield (Ben & Jerry`s “Jerry”) followed a similar path. He studied pre-medicine at Oberlin College in hopes of becoming a doctor one day. But he had to abandon that goal when he wasn`t accepted into medical school. On a positive note, however, his college education steered him into a more lucrative field: the world of ice cream making. He got his first glimpse into the ice cream industry when he worked as a shovel in Oberlin`s canteen. Fourteen years after their first meeting on the college track and field team, Ben and Jerry met again and decided to go ice cream. They moved to Burlington, Vermont — a college town that needed an ice cream shop — and took a $5 correspondence course from Penn State on how to make ice cream. After getting an A in the course — unsurprisingly, since the tests were open book — they took the plunge: with their $8,000 savings and $4,000 borrowed funds, they opened an ice cream shop at a converted gas station on a busy Burlington street corner.  The next big decision was which form of business ownership was best for them.
This chapter introduces you to their options. When starting your business, choosing a legal structure is one of the first and most important decisions you need to make.3 min spent reading While they don`t require incorporation documents, there may be restrictions on the naming of a partnership in your state, which may require filing a “Doing Business As” (DBA) name. Partnerships are generally based on formal partnership agreements that define each partner`s share of ownership, rights and obligations. An LLC is a legal entity formed by the creation of an LLC operating agreement and the filing of memorandum of association with the Secretary of State. LLCs allow business owners to retain some of the benefits of sole proprietorship while limiting legal and financial liability, making them a popular ownership structure for small businesses. Incorporation also allows companies to raise funds through the sale of shares. This is a great advantage because a company is growing and needs more funds to work and compete. Depending on its size and financial strength, the company also has an advantage over other forms of business when it comes to taking out bank loans. An established business can borrow its own funds, but when a small business needs a loan, the bank usually requires it to be guaranteed by its owners. An LLP is a legal entity available in some states to provide the simplicity and pass-through taxation of a partnership while limiting the liability of partners.
In addition to a formal operating agreement between the partners, LLPs generally require registration with the Secretary of State. In a partnership, two or more partners share ownership of a business. A partnership is similar to a sole proprietorship in that the partners are the sole beneficiaries of the profits of the business, but are also responsible for losses and debts. Partnerships can be particularly attractive when each other`s expertise complements each other. For example, an accountant who specializes in preparing personal income tax returns and another who is proficient in corporate income tax could team up to provide clients with a more comprehensive range of tax services than either could offer alone. The legal form of the business is one of the first decisions a small business owner has to make. Since this decision will have long-term implications, it is important to consult a lawyer and an accountant to make the right choice. Here are some factors that small business owners should consider before making their choice:Karen Collins, Exploring Business (Irvington, NY: Flat World Knowledge, 2009), 90; “Small Business Planner: Choose a Structure,” US Small Business Association, accessed February 3, 2012 archive.sba.gov/smallbusinessplanner/start/chooseastructure/index.html.
Nevertheless, there are some negatives. First of all, as mentioned earlier, partners are subject to unlimited liability. Second, being a partner means you have to share decision-making, and many people are not comfortable with this situation. It`s no surprise that partners often have disagreements about how a business should be run, and disagreements can escalate to the point of threatening the company`s continued existence. Third, partners share not only ideas, but also benefits. This agreement can work as long as all partners feel rewarded for their efforts and achievements, but this is not always the case. While partnership ownership is viewed negatively by some, it has been particularly attractive to Ben Cohen and Jerry Greenfield. Starting their ice cream business in partnership was profitable and allowed them to combine their limited financial resources and leverage their diverse skills and talents. As friends, they trusted each other and welcomed shared decision-making and profit sharing. Nor did they hesitate to be held personally responsible for each other`s actions. A limited liability company (LLC) is a hybrid structure that allows owners, partners or shareholders to limit their personal liabilities while enjoying the tax and flexibility benefits of a partnership. Under an LLC, members are protected from personal liability for the company`s debts unless it can be proven that they acted illegally, unethically, or irresponsibly in carrying out the corporation`s business.
Partnership has several advantages over sole proprietorship. First, it brings together a diverse group of talented people who share responsibility for running the business. Second, it facilitates financing: the company can draw on the financial resources of a certain number of people. Partners not only bring funds to the company, but can also use personal resources to obtain bank loans. Finally, continuity should not be an issue, as partners can legally agree that the partnership will survive if one or more partners die. The most common forms of corporate ownership are: There are several types of businesses in Canada: a Canadian-controlled private corporation (CCPC); a body governed by public law; a body controlled by a body governed by public law; and another company (you guessed it: the kind of company that doesn`t fit into any of the other categories). From a legal point of view, shareholders or owners of companies cannot be held legally responsible for the actions of companies, their financial risk is limited to the value of the shares they own. The final choice of a legal form requires consideration of these factors and trade-offs between the advantages and disadvantages of each form. No choice will be perfect. Even after the establishment of a corporate structure, favouring this choice over another is always subject to legislative change. “Limited Liability Company,” Entrepreneur.com, July 9, 2007, accessed February 3, 2012, www.entrepreneur.com/article/24484. Here are some important factors to consider when choosing your company`s legal structure.
You should also plan to consult your CPA. How do you want a legal form that offers the attractive characteristics of the three common forms of organization (company, sole proprietorship and partnership) and avoids the unattractive characteristics of these three forms of organization? The Limited Liability Company (LLC) does just that. This form offers entrepreneurs limited liability (a major advantage of companies) and no “double taxation” (a significant advantage of sole proprietorships and partnerships). Let`s take a closer look at CLL. The transfer of ownership of a company is simple: shareholders simply sell their shares to others. However, some founders want to limit the transferability of their shares and therefore choose to operate as a private company.