Business Organization BUS 311 Business Law I   Business Organization There are several bus, Essays (university) of Financial Accounting

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Business Organization BUS 311 Business Law I

Business Organization There are several business entity structures to choose from, such as Sole proprietorship, Partnership, Limited liability company (LLC), and Corporations. I actually do have my own small business and it is a LLC. When I was deciding to start my business the wholesaler leaves it up to the retailer to choose what entity we decided we wanted to open our business under, however they do suggest the LLC. With the LLC it lets you have a partner or partners and the retailers are not personally liable. The wholesalers take care of tracking the taxes and at the end of the year they send us our statement of how much taxes we paid and total of what we made so we have all the paperwork to give to our accountants. (Rogers, 2012). Sole proprietorship is the easiest and least expensive business entity structure to start. This entity is the oldest and simplest form of ownership that can be started under the owner’s name and there cannot be a partner. To set up a sole proprietorship you need to create and business name, figure out the location of the business. Next you need to file for a business license with your county and if you want to operate your business out of your house you may need to get permission from your local government. Finally, you set up a business bank account so you keep your personal and business expense and income separate. You should get liability insurance to help protect you from liability lawsuits, since if your business gets in trouble financially they can come after your personal assets. When you file your taxes your business and personal income is filed together. You pay federal and state taxes on the net income of your business. There is a 21% flat corporate tax rate so depending on your personal tax rate it could be higher or lower. Some of the advantages of a sole proprietor are easy startup, control, tax preparation and filing, and use of losses. Then the disadvantages are your personal finances are combined with your

deduct 20% of the business income with 20% pass-through deduction that is under the Tax Cuts and Job Act. Some advantages are the ability to run your own business under a large corporation or wholesaler, limited personal liability, less administrative paperwork, and flexibility. Disadvantages are startup costs, annual fees, trying to raise outside capital, additional tax forms since you have to file business taxes and they are not just combined in your personal taxes. Corporation business structure can be a bit more complex since it is separate from the owner as its own legal entity that can be profitable, taxed, and held legally liable. To form a corporation there are 12 steps: choose a business name; check name availability; register the DBA name; appoint directors; file the articles of incorporation; write your corporate bylaws; create a shareholders’ agreement; hold an initial board of directors meeting; issue stock; obtain business permits and licenses; register with the IRS and the state and local agencies, and finally you need to open a corporate bank account. All liabilities are through the corporation and not to the individuals. A corporation conducts business, reports income or losses, then pays taxes and distributes profits to the shareholders. Profits of the corporation is taxed to the corporation when earned, but then is taxed to the shareholders when it gets distributed as dividends, so this is creating a double tax (IRS). Advantages of a corporation are security and continuity, personal liability protection, and access to capital. Disadvantages are the protocols to follow, very time- consuming, double taxation, all the formalities, having a lot of people to answer to if something goes wrong.

References: Rogers, S. (2012). Essentials of business law. Retrieved from https://content.ashford.edu/ Starting & managing.(n.d.). SBA. Retrieved from https://www.sba.gov/starting-business/choose- your-business-structure/ Business Taxes. (n.d.). IRS.gov. Retrieved from https://irs.gov/business taxes