Business Organization Form Choice Memorandum
December 9, 2013
From: Erin P.
Date: October 23, 2013
Re: Business entity form and federal tax regime choice of Erin P Photography
As per our conversation on November 29, 2013, in regards to the firm’s new client, Erin P Photography, I have compiled the following information of your review. In this memorandum you will find that I have thoroughly examined the most viable options of business entity formation for Erin P Photography to show that forming a limited liability company would be the most appropriate choice for our client. I then examined the available options of federal tax regime
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P, expressed herself, is the level of personal liability that the business owner must bear. “A sole proprietor bears the risk of loss of the business; that is, the owner will lose his or her entire capital contribution if the business fails.” Id. at 60. In addition to the risk of loss of the business, the sole proprietor also bears the burden of unlimited personal liability. Id. at 60. If the business fails, as the sole proprietor, Ms. P would be personally liable to her creditors for any outstanding debts of the business. The creditors would have the legal right to come after Ms. P's personal assets, such as her home or bank accounts, to collect on any outstanding balances owed to them. Id. at 60. Further, since a sole proprietorship is not a separate legal entity Mr. P could find herself held personally liable for any tort action if a client, vendor, or venue choose to sue her. Id. at 55. One further disadvantage of a sole proprietorship is the heavy tax burden Ms. P would find herself saddled with. “An individual who operates a trade or business as a sole proprietor, and even some partnership arrangements, must pay self-employment tax on net earnings from self-employment.” Timothy M. Todd, Multiple-Entity Planning to Reduce Self-Employment Taxes: Recent Cases Demonstrate the Pitfalls and How to Avoid Them, 13 Journal of Tax and Practice Procedures 31 (April/May 2011). Currently, the combined