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Business Law for the Accountant
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Business Law for the Accountant BUS Week 6 Assignment Final Paper Business Entity’s When starting a business, one of the most critical decisions the business owner must make is determining which business organization would better suit their business's needs. Business owners must understand that the purpose of creating a business is to make a profit. Choosing the right organization is extremely important to their future success. According to Miller (2014), "In selecting an organizational form, the entrepreneur will consider a number of factors, including (1) ease of creation, (2) the liability of the owners, (3) tax considerations, and (4) the ability to raise capital". However, there are times when the business may be better suited under a different organization. In this paper, I will discuss the advantages of switching to a different organization, the responsibilities of the owners, their liabilities. One of the simplest and common forms of business organizations is a sole proprietorship entity. A sole proprietorship is "an unincorporated business with a single owner" where everything, including the assets, liabilities, and income, all belong to the owner of the business (Lowrey, 2005). If the owner doesn't create a separate business organization, a sole proprietorship would be the only option because the owner represents and acts as the business. Sole proprietorships are usually small businesses such as freelance writers, housekeepers, and mechanical shops where their revenue is less than $1 million a year. The owner would only pay
personal taxes on the business's income because they are the same. This means the company would not be taxed separately from the owner. However, when switching to a different entity, there are things the business owner must take into consideration. They must understand the difference between the many other organization possibilities, Partnerships, Corporations, Limited Liability Corporations, and limited partnerships. Each entity comes with their own rules and regulations that must be considered before choosing a new organization. A partnership is a business entity with two or more people agreeing, whether written, oral, or implied by profit. All parties of the partnership are co-owners of the business; they share responsibilities, controls of the business operations, all profits, and equal managerial rights. According to Miller (2014), "A partnership agreement, also known as articles of partnership, can include almost any terms that the parties wish, unless they are illegal or contrary to public policy or statute." A limited partnership is where there is at least one general partner and one limited partner in the partnership. The general partner handles all managerial duties and is liable for all debt. The limited partner "contributes cash or other property and owns an interest in the firm but is not involved in management responsibilities and is not personally liable for partnership debts beyond the amount of his or her investment" but can forfeit their limited liability by engaging in managerial duties (Miller, 2014). A corporation is a legal business entity that can have one or more owners also known as shareholders. This entity operates under a name distinct from the names of its owners. Lastly, A limited liability is composed of at least one owner. The company possesses both the limited personal liability found in the corporate form and the favorable federal tax treatment of the partnership form which is governed by statues depending on each state. As a Certified Public Accountant (CPA) one of the most important determinations they must make is helping a business owner make the best choice for their business. Accountants will most likely request the business owner research the different business entities to see which one
however, costs in taxes increases (Wiersema,1999). The members of the limited liability corporation are not liable for the actions of the business. This means that Limited liability corporations are free from personal liability and are protected from creditors who are trying to collect debt that is owed by the business. Under an LLC, they can decide to be taxed as a partnership or corporation. The limited liability corporation is not taxed if the partners decide to distribute their profits but may choose to be taxed as a partnership to avoid double taxation. Double taxation is when the same financial income is being taxed one a personal level and corporation level. However, they can take advantage of the pass-through entity for tax purposes. Profits of a limited liability corporation is the organizations profits are given directly to their members without being taxed by the government. The profits are passed through to the LLC, and the members pay personal taxes on the businesses' profit instead. When a business is a member of a limited liability corporation, their profits are basically the same. The profits are passed through to the primary's profits of the home business. This also means that if the LLC loses profit, the tax burden is lowered. There is also no restriction on how a limited liability corporation pays its members. It is possible for the members to be paid more or less than their initial shares. They can also “receive fewer tax write-offs for expenses and reimbursements they pay personally, or they can receive more of them”, says Gaille (2018). However, corporate income tax rates may be lower than the individual income tax rate, which could be a disadvantage to the LLC. The client must also be aware that members who work for the LLC are considered self-employed and would be responsible for paying “self-employment tax” which includes Medicare and Social Security tax.
In an LLC, the LLC determines if it wants to be managed by its members. There are two ways an LLC can be managed; member-managed and manager-managed, and unless specified in the articles of organization, it is assumed that all LLCs are member-managed. The difference between each member is the responsibilities that they over the business. Member-managed means they all share the same responsibility in decision making and managerial duties. In a manager-managed LLC, the members appoint a group of people to manage the business. A manager-managed LLC also owes the company and members the duty of loyalty and duty of care. It is also essential that when creating an LLC, an operating agreement is established. This helps determine how management and future managers are removed and chosen from the LLC, how profits are distributed amongst members, how the interest of members is transferred, dissociation and dissolution, where formal meetings will occur, and how votes are apportioned. If by any chance, the agreement doesn't state these necessary points, the states Limited Liability Corporation statues will govern. Just as with a partnership, an LLC can dissociate from the LLC, but it must be legally right to do so. " Voluntary withdrawal, expulsion by other members or by court order, incompetence, and death," are all reasons an LLC can dissociate; however, the member can agree to continue the business (Miller, 2014). A dissolution would occur in specific circumstances, such as illegal conduct, and must be court ordered.
performance of the seller and the buyer, also who would perform first. This helps to identify which party, either the seller or the buyer would be responsible for breach of contract if an issue arises with the performance. “If the contract does not specifically define who is required to perform, industry customs and fair trade may determine what is acceptable for the transaction”, says Hunnington (2020). When a client has an issue with their distributor, there are a few things we must investigate within the contract. According to the distributor, they have received complaints that the product that is being delivered is defective causing injury to customers. If the goods are deemed to fail in respect to the contract agreement, the buyer has several options including rejection of the goods. “If a buyer wants to reject goods because they do not conform to the contract, the rejection must occur before the buyer accepts the goods, says Steingold (2020). The buyer must also inform the seller that they are rejecting the goods and provide a reason on why they are rejecting them. According to Miller (2014), " If the defect is not disclosed, the buyer or lessee cannot later assert the defect as a defense if the defect is one that the seller or lessor could have cured". Sellers and distributors have a responsibility to for ensuring their products are safe and free of causing injuries. The sellers who created the spray bottles should be held responsible for any damages or injuries caused by the defect. Products fail because they are not properly made. When the distributor becomes aware that they are making and selling a defective product, they owe a duty to their customers of the issues. They could be held liable if they continued to sell a product that they knew was defective. They could also be held liable if they didn’t notify customers of the defective goods.
If the goods that the buyer purchased were up to standards as expected, the title would have been passed to the buyer when the goods were delivered. However, due to the goods being rejected, the title remains with the seller. In this case, the buyer informed the seller of the defective goods and advised that they refused the delivery. If the seller had breached the contract "by tendering nonconforming goods that the buyer or lessee has a right to reject, the risk of loss does not pass to the buyer or lessee until the defects are cured or the buyer accepts the goods (Miller, 2014)”. In this situation, the buyer did not accept the goods, so the risk of loss is with the seller. Because the buyer informed the seller; the buyer did not breach their contract. If the buyer had breached the contract, the risk of loss would have shifted to the buyer unless the seller identified the contract goods, the buyer bears the risk for only a commercially reasonable time after the seller learns of the breach of contract, or the buyer is liable for only the extent of the deficiency in the sellers insurance policy. There are remedies to help when there is a breach of contract to help rectify the issue. There are various remedies that are available when a party breaches a contract. Theses remedies include liens, garnishments, and creditor’s composition agreements. There are also times when courts award money damages in an amount designed to compensate a disappointed plaintiff promisee for the loss of the defendant promisor's performance (Alarie & Dinning, 2007)”. The plaintiff can recover damages in an amount equal to what would have been received if the contract was not breached. If there was a partial breach, then the plaintiff would be able to receive damages for the amount it would cost to have someone else complete the performance. Another remedy is having a lien placed on their property. A "lien is an encumbrance on (claim against) property to satisfy a debt or protect a claim for the payment of a debt. Liens may arise
sales and service contracts and forms (2000). Hoboken: John Wiley & Sons, Inc. Retrieved from https://search-proquest-com.proxy-library.ashford.edu/docview/189442951?accountid= Steingold, D. (2020). Buyer’s Performance Under the UCC. Retrieved https://www.nolo.com/legal-encyclopedia/buyers-performance-under-the- ucc.html#:~:text=According%20to%20the%20UCC%2C%20if%20the%20goods%20as,must% 0occur%20before%20the%20buyer%20accepts%20the%20goods. Gaille, B. (2018, Oct. 15). 22 Limited Liability Company Advantages and Disadvantages. Retrieved from https://brandongaille.com/22-limited-liability-company-advantages-and- disadvantages/#:~:text=List%20of%20the%20Advantages%20of%20Limited%20Liability%20C ompanies,limited%20liability%20for%20members.%20...%20More%20items...% Wiersema, W. H. (1999). What business form is best for your company? Electrical Apparatus, 52 (3), 54-56. Retrieved from https://search-proquest-com.proxy- library.ashford.edu/docview/200450385?accountid= Huntington, M. (2020). What Are the UCC Principles of Good Faith & Reasonableness for Sales Contracts? Retrieved from https://smallbusiness.chron.com/ucc-principles-good-faith- reasonableness-sales-contracts- 80664.html#:~:text=What%20Are%20the%20UCC%20Principles%20of%20Good%20Faith,buy er.%20...%203%20Performance.%20...%204%20Disputes.%
Alarie, B., & Dinning, J. (2007). Remedies and alternative contracts. American Business Law Journal, 44 (4), 639-671. Retrieved from https://search-proquest-com.proxy- library.ashford.edu/docview/203418760?accountid=
