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Business Law

By

Date

Institution

Professor
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Choosing a business structure for Aaron

The first thing that should be noted is that the type of business structure adapted influences every

operation within an organization from daily operations, taxes, to the risk of once personal assets.

You should therefore select a business structure that ensures you have the right balance of legal

benefits and protections.

The business structure that one adopts influences the amount of tax one will pay, the ability to

raise cash, the type of documentation you will need to fill, and lastly once personal liability.

Another factor is that you are required to choose a business structure before one registers a

business within any jurisdiction. When trying to make a business legal, one is also required to

have a tax ID number and apply for necessary permits and licenses.

When selecting once has to be careful. One might be required to change to a different business

structure in time to come and might be faced with some restrictions based on your location. This

might result to some complications such as unintended dissolutions, tax consequences among

many others

Types of legal business structures for a small business.

1. Sole proprietorship

This is type of business entity that is the simplest and is owned by one person. The owners

and the business cannot be legally separated and they are represented as the same entity. This

is the most common form of legal business structure for small businesses.
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If one wants to be their own boss and run their business with full control of their assets and

operations. This types of entity do not provide the separation or protection of professional or

personal assets an issue that can result to complications in the future when a business has

grown and one becomes liable to many aspects of the business. When it comes to taxation, it

has a pss-through taxation. The business does not file tax returns. The revenues generated in

the business is reported on once personal tax return via a Schedule C (form 1040)

(McMorrow, 2015 p.668).

Advantages of a sole proprietorship

A. It is cheap and easy to start.

B. Owners have full control of the entity.

Disadvantages of sole proprietorship

A. Aaron will have unlimited exposure to risk since he will be responsible for all the

liabilities experienced in by the entity.

B. There is limited chances for investors to invest in such an organization.

2. General partnership

Another option is the formation of an association with two or more people. This can be

created with little formalities, but since more than one person is involved, there will be need

for an agreement. In the agreement, the terms of the partnership should be stipulated to
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formalize rules for loss and profit sharing, terms of dissolution, percentage of ownership,

rights of management among many other aspects.

A partnership is described as tax-reporting business, and not a tax paying unit. It is required

to file an annual information return (form 1065) combined with the IRS where it files loss

and income from the business activities. It, however, does not file for federal income tax.

Losses and profits are shared among the different involved parties according to their share

percentage in the Partnership Agreement. Taxation is shared according to the shares or

profit/losses. When it comes to liability, the different involved parties have unlimited

personal liability. Each party is jointly liable for the obligations of the partnership. The

creation of a sole proprietorship is easy but requires an attorney when signing the agreement

(Ragulina, Stroiteleva, and Miller, 2015 p.227).

Advantages of general partnership

A. It is easy to form and maintain

B. Losses and profits are passed individual parties’ personal tax return

Pros of general partnership

A. Owners are responsible for entity liabilities and debt.

B. Management and oversight problems can be experienced in absence of an agreement.

3. Limited liability company

This is a more improved structure that gives owner, shareholders, or partners the ability to

limit their liabilities while at the same time being able to experience the flexibility and tax
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benefits of a partnership. In an LLC, parties involved are protected from personal liability for

the debts of the entity if there is no enough evidence that they did not act according to the

law while conducting their business.

All LCC incomes must pass via the entity to LLC members who are obligated to address

their share of losses or profits on their personal income tax return. Single members LLCs

have the freedom of reporting their business expenses on form 1040 Schedule C, E or F. with

more than one member, an LLC is required to file partnership return Form 1065.when it

comes to liability, LLC members are shielded from personal liability for business claims and

debts (Vermeulen, 2003 p.72). If an entity faces a law suit or owes money, the only unit at

risk are the assets of the business. Members re cautioned to remain vigilant and avoid

piercing the corporate veil or else they might become exposed to personal liability. To form

an LLC, one need to pay a fee of between $100-$800 and are required to have articles of

organization when the business is formed.

Advantages of LLC structure

A. The losses and profits of a company are transferred to the involved parties and can only

be taxed at the personal level.

B. Involved parties have limited liability.

C. It creates space for unlimited number of parties.

Disadvantages of LLC structure

A. There are additional taxes at the federal level.

B. Each party share of profit indicates taxable income, even in cases where the profits were

not shared.
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4. Corporations (C-Corp and S-Corp)

This is the most complex business structure and would not advice Aaron on picking it. It is a

legal entity that is independent and separate from the parties that own or run it, that is, the

shareholders. It has the ability of entering into a contract separately but also has some

responsibilities such as the payment of taxes. They are more suitable for companies that have

already established themselves with many employees.

Pros

A. Well suited for investors

B. Its shareholder’s haves limited liabilities

Cons

A. The process of formations is costly and rigorous.

B. Revenues are subjected to double taxation

C. High level of state and board of director’s supervision

Recommendations

I would highly recommend Aaron to first option for sole proprietorship to make sure that he

learns of his business operations. Later he can option of a general partnership and expand his

business.
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Bibliography

McMorrow, J.A., 2015. UK alternative business structures for legal practice: emerging

models and lessons for the US. Geo. J. Int'l L., 47, p.665.

Ragulina, Y.V., Stroiteleva, E.V. and Miller, A.I., 2015. Modeling of integration

processes in the business structures. Modern Applied Science, 9(3), p.145.

Vermeulen, E.M., 2003. The evolution of legal business forms in Europe and the United

States: venture capital, joint venture and partnership structures. Kluwer Law

International BV.