Legal Forms of Business paper
When starting a business, there are several types of business forms that you can choose from such as sole proprietorship, partnership, limited liability partnership, and limited liability company just to name a few. In this paper I will give scenarios for each of these business forms and why they are preferred for those businesses.
Sole Proprietorship Sole Proprietorship is someone who owns and runs his or her own company. It is considered the oldest and most common type of business (ehow.com). I own my own tire shop and as a sole proprietor, I can operate the business with ease and under my own name or a conjured up name. The fact name can be a name that I just created and it does not create a legal entity separate from the sole proprietor owner. The reason why I chose to do it is because it is cheaper and easy to set up. Once I secure my license I am ready for business.
A partnership is a relationship where two or more people are in a business together. Most of the time, each person contributes something; whether its money, labor, property, and or time. At the end of the day they will share the profits as well as the losses. The company that would make a good partnership would be a restaurant. In this partnership you have one person that provides the money and resources and the partner had more business experience and culinary skills that could be used to actually run the restaurant. This business form worked well in this situation because both partners have equals amounts invested and control of the business.
Limited Liability Partnership A Limited Liability Partnership is self explanatory; you are limited on what you can do. A good example where a limited liability partnership would work is in real estate. You are more of a silent partner. You benefit when the company does well and can use it as a write-off on your taxes but you are not involved in a day to day business.
Limited Liability Company A limited liability company (LLC) is a type of business entity formed that can be taxed like a partnership but protects its shareholders from liability beyond their investment. Like owners of partnerships or sole proprietorships, LLC owners report business profits or losses on their personal income tax returns; the LLC itself is not a separate taxable entity (Nolo.com). A shoe store would be a good example of an llc. Because there is a possibility that the company can be sued, and in order to keep them from suing you personally and only go after the business, you would want to make it an llc.
S Corporation S corporations are corporations that pass corporate income, losses, deductions, and credit to their shareholders for federal tax purposes. A scenario where this would work well would be if you owned more than two companies; one is a sole proprietorship and the other is set up as an S Corporation. The benefit for this would be that you