Advantages and Disadvantages of a Business Structure

In business terms, a business is simply defined as any entity or organized set of people who are engaged in business activities aimed at satisfying a particular need. Businesses may be either for-profit or non-profitable organizations that conduct business to meet a social objective or further a personal social cause. However, there are different types of businesses including manufacturing, trading, retailing, financial service and information technology. In business activities, we often refer to as business enterprises, company, partnership, joint venture, proprietorship, partnership or corporation. The ultimate objective of business activity is to satisfy the needs of others by providing a product or service in a competitive market place at a fair price.

A business structure involves the method of organizing a partnership, limited liability company (LLC), limited liability corporation (LLC) or any other form of business structure. There are many ways to raise money for your business, but one of the most convenient and less formalized methods is to use personal assets. If you are planning to use your home, retirement account or assets in any way to raise money for your business, it is essential that you prepare the necessary paperwork and retain the services of a qualified attorney, accountant or financial consultant to handle the complex issues involved.

Limited Liability Company (LLC): An LLC is a legal entity separate from its owners that can hold real estate properties and grant limited liability. Unlike a corporation, an LLC does not have voting or dividend rights and is not required to register its shares. It can issue stock through a broker, through registered agents, or on the exchange. There are several types of limited liability company such as limited liability partnerships (LLPs), cooperative profit pools (CCP), and individual property investing trusts (IPOs). Limited liability companies can create various types of contracts, such as general partnership agreements, purchase and sell order agreements, equity contracts, debt contracts, and open endowments.

Business Debts: One of the disadvantages of being a sole proprietor or partnership is that the owner is personally responsible for all business debts, which can make it difficult to collect payroll, buy needed supplies or machinery, and cover operational costs such as overhead costs. A partnership allows owners to control business debts through a method called ‘pay-offs,’ wherein the partnership distributes payment between partners. However, limited liability partnerships (LLPs) allow one partner to control all of the money, whereas the other partner only owns a portion of the partnership’s funds. Limited liability partnerships also have several advantages such as flexibility, tax advantages, and avoidance of double taxation.

Capital Gains Taxes: Capital gains taxes are paid on profits over the amount of gain that was realized during the year. The capital gain rate depends on the type of gain or loss. One of the advantages is that there is no double taxation. Capital gains and losses are reported annually on your personal income tax return.

Limited Liability Company: Unlike partnerships, a limited liability company has the advantages of paying taxes at the corporate level. Because it has limited liability, there are fewer tax worries for owners. Although most corporations are domiciled in a state, the profits earned by the corporation are subject to U.S. tax law. Limited liability companies are usually set up as a partnership with one or more owners. The company is taxed twice – once as a corporation and once as a partnership, according to IRS regulations.

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