Business Types Essay

Submitted By stringy69
Words: 970
Pages: 4

Jim Stevens
1804 North Broad Street
Philadelphia, PA 19022
Phone: (215) 123-4567
Email: jim.stevens@school.edu

December 1, 2010
Mr. Raymond Jones
703 South Main Street
Pittsburgh, PA 15023

Mr. Jones:

Thank you for hiring me to research business organizations for the restaurant business that you will be starting. After reading the four requirements that you gave me, which were: easiest formation, lowest amount of legal taxation paid, most personal control over the daily operations, and least liability for any mishaps that may occur during the ordinary course of business, I have researched both the benefits and the detractions of sole proprietorships, partnerships, corporations, and limited liability companies. I have described, with respect to your requirements, which business type you should form.

The first type of business, the sole proprietorship, is created very easily. There is no special authorization that needs to be granted by the state to create this type of business so your business as being a sole proprietorship would be easy and inexpensive to start. This type of organization will also net you the most possible profits because you essentially will be the business. All of the profits that are generated will be taxed only once, which will be on your personal income statement. This also satisfies your third requirement because you will have the flexibility to control the business’s daily operations. You will not be responsible to shareholders or partners, while making key decisions.

The problem with this type of organization is that you will have unlimited liability for mishaps. Because you are the business, any torts that you or your agents make will be legally treated as if you personally committed them. Not only will your business assets be seized, but your personal assets can be seized to satisfy these debts. The second type of business, the partnership, can be relatively easy to create. You must find at least one other partner and form some type of agreement with this partner, but you do not need to file anything with the state and this finding of a partner and creating of an agreement is generally very easy to complete. This type of business will also give you the same tax advantage as that of the sole proprietorship. The income will only be taxed on you and your partner(s) personal income statements.

The problems with this type of business are the lack of personal control and the unlimited liability. You will need to ask your partner’s permission before making decisions if you are both equal partners. The partnerships assets can be seized for your and your partners’ torts. The liability issue is the biggest drawback because your personal assets can be seized if your partner commits torts and if he does not have enough personal assets to cover the judgment.

The third type of business is the corporation. The benefit of this type of business is the limited liability that comes with it. As long as you keep the business profits and your personal profits separate, you will not be personally held liable for any torts that are committed during the company’s ordinary course of action. Only the business’s assets can be seized.

The problems with this business are its ease of formation, its amount of taxation, and its lack of personal control. You must file your corporation with a state, and you can be denied by the state, based on a violation of that particular state’s corporation law. The second problem with the corporation is its “double” taxation. The corporation’s profits will be taxed, because it is a legal person and legal people must pay income taxes on their profits. Your personal dividends from the business will also be taxed on…