Understanding Business Structures: LLC, Sole Proprietorship & More

1 Business Organization Sophie Mukasa The University of Arizona Global Campus BUS 311: Business Law Instructor James Hughes November 06, 2023

2 Entity Structure I currently own an Event Planning business and it is registered as a Limited Liability Company (LLC). If I were to do it all over again or start another business, I would choose LLC again mainly because it has many advantages over other forms of business types. Rogers, S., & Seaquist, G. (2023) , but most importantly for me, given the type of businesses I am into, LLC makes it easier because I can have different entities under the same LLC Umbrella and can also allow tax breaks given the fact that the type of businesses, I have are prone to loss. This paper will explain the different types of business structures and discuss in detail the steps to form, personal liability for owners, taxation, advantages and disadvantages. Sole Proprietorship This is the most popular organization in the United States because it is relatively simple. It is limited to one owner, who both owns and operates the business. According to Forbes Advisor (2023) The steps to form a sole proprietor ship are simply; creating the name, registering company name with state and applying for EIN. One of the advantages about this type of organization is that the owner gets to be in control and make decisions without having to consult with anyone else first. On the other hand, it could also be a disadvantage because all responsibilities of running the company fall on one individual which can get overwhelming not to mention that all liabilities lay on one person’s shoulders i.e if there’s any injury resulting to a lawsuit, fines are taken out of proprietor’s personal assets Rogers, S., & Seaquist, G. (2023) ,. As far as taxes go, the sole proprietor reports earnings as a personal income which allows them to be taxed at a personal rate but the disadvantage of this, the business deductions offset most of the income.

3 Partnerships In a partnership, each partner is a principal of the business and has equal rights in the business. The steps to form a partnership are similar to sole proprietor formation. According to Rogers, S., & Seaquist, G. (2023) , first, both partners decide on the name, file a doing business certificate, and acquire an EIN by filing an application with the IRS. One of the advantages is that liability is shared between the partners as well as the tax obligation. It is worth noting that when entering into a business partnership, it is very important for all partners to sign a written agreement because it will make it easy to make decisions should there be a change in interests amongst the partnership. Without an agreement, things can get very ugly if there was to be any misunderstandings. Limited Liability Company (LLC) As stated earlier, LLC has the most advantages over other organization types because there’s minimal limitations. It can be formed with one person and can also be formed with more than one person or companies. A significant tax difference is that an LLC allows for the deduction of operating losses against income Rogers, S., & Seaquist, G. (2023) ,. Unlike other organization types, in an LLC liability and debt is a responsibility of the business and not of the owners. C Corporation C corporations are legally considered a person so when it comes to liability, the corporation may be liable Rogers, S., & Seaquist, G. (2023) ,. Formation of a C Corporation is more complicated than other organization types because it requires filing complicated documents with the state which is a disadvantage but a more significant disadvantage is the double taxation

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4 because the corporation is taxed on its earning and the shareholders are also taxed when they receive dividents or sell shares Rogers, S., & Seaquist, G. (2023) ,. Conclusion In conclusion, every business has its own requirements and no business is similar to another so choosing the type of organization should be based on what the business aspects are for the owners and the company itself.

5 References Rogers, S., & Seaquist, G. (2023). Essentials of business law (2nd ed.). The University of Arizona Global Campus. Natalie Cusson, et al (2023) Forbes Advisor. https://www.forbes.com/advisor/business/how-to- start-a-sole-proprietorship/

Business Organization

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