Business Forms Worksheet LAW/531 Version 7

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Business Forms Worksheet
There are seven forms of business: sole proprietorship, partnership, limited liability partnership, limited liability company (including the single member LLC), S Corporation, Franchise, and Corporation. 1. Research and provide three advantages and three disadvantages for each business form. 2. Provide a 100- to 200-word summary in which you provide an example business that you would start for each form. What is legally necessary to file in order to form that business? Discuss at least one of the advantages and one of the disadvantages of that form.

Sole Proprietorship
Advantages 1. Easier tax filing 2. Lower start-up costs 3. Fewer government rules Disadvantages 1. Unlimited liability responsible for all debts 2. Being completely in charge of finances could lead to complacency of record keeping 3. Difficult to get outside investors for expansion Summary In order to start a sole proprietorship, the only real requirement is to provide a good or service and not be employed by any other company during the execution of the good or service. An example of a sole proprietorship that I would start would be a consulting firm because it requires next to no money to get started, and it does not need an actual storefront to operate out of. The biggest difficulty in starting this business would be future expansion. It would be very difficult to secure funding to hire more consultants, which means income will be limited by how many hours I can work.

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Business Forms Worksheet LAW/531 Version 7

Partnership
Advantages 1. Easy formation 2. Access to diverse skill sets 3. Risk is shared by all partners Disadvantages 1. Unlimited liability 2. Responsible for the actions of all partners 3. Entering or leaving the partnership requires approval of all current partners Summary In order to form a partnership, the only stipulation is the voluntary association of two or more individuals as co-owners in a for profit business. The most prevalent form of a partnership is that of a law firm, and this is the type of partnership I would form as well. The reason for this is because, as lawyers, it would be fairly to navigate the paperwork for the partnership, and it would be easy to expand the scope of the business later. The one downside is that it would be very difficult to leave the firm and start a new one.

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Business Forms Worksheet LAW/531 Version 7

Limited Liability Partnership

Advantages 1. Not responsible for acts of partners or employees outside of your direct control 2. Not responsible for company debts, except for personal guarantees 3. Flexibility in contributions to the business Disadvantages 1. Partners are not obligated to consult with other partners for decisions 2. These cannot be a single person entity 3. They are not recognized in every state Summary In order to be recognized as a Limited Liability Partnership, the business must file articles of limited liability partnership with the Secretary of State for the business' home state. In addition, limited liability partnerships are usually limited to professional groups, such as lawyers and doctors. For that reason, I would start a limited liability partnership as a doctor's office comprised of different specialists so they can all contribute in their area of expertise. The one downside for these businesses that if one partner has an issue, it could potentially ruin the reputation of all the other partners in the office.

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Business Forms Worksheet LAW/531 Version 7

Limited Liability Company, (including the single member LLC)

Advantages 1. Limited personal liability 2. Can be a single person with all the benefits of a sole proprietorship 3. Easier to set-up and maintain that other corporate entities Disadvantages 1. Members are required to pay self-employment taxes 2. There is a lack of uniformity amounts states for LLC statutes 3. Some states tax LLC's but not partnerships Summary To start a limited liability company, the business only has to deliver articles of organization to the Secretary of State for the business' home state. Because of the protection of limited liability, the best type of store to open as a limited liability company is a retail store. If the business is not profitable or if someone were to be injured on the premises, it protects the investors' personal assets in the event of a suit being filed against the company. A downside to these businesses is that the members of the LLC are required to pay self-employment taxes, which means they must keep good records of their income so they can report it.

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Business Forms Worksheet LAW/531 Version 7

S Corporation
Advantages 1. Personal assets are protected 2. Taxes are not paid on a corporate level 3. Transferring of ownership is a relatively easy process Disadvantages 1. Formation process can be tedious 2. The IRS pays closer attention to S Corporations to ensure the remain compliant 3. There are very strict restrictions on stock ownership Summary Typically, the way S Corporations are formed is when an existing company, such as a limited liability company or a partnership, decides that they want to be taxed as a corporation. From there, there are forms that must be filled out and signed by all shareholders. Then, this form must be filed with the appropriate entities. Because there are such strict requirements on becoming an S Corporation, I would start one by taking an existing small business that has a few stock holders (less than 100 and only one class) and turn it into an S Corporation. This would allow the company to pass its earnings or losses onto its shareholders for tax purposes. The one disadvantage is that the stock ownership requirements are so strict, it would make it difficult to maintain the designation.

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Business Forms Worksheet LAW/531 Version 7

Franchise
Advantages 1. Higher rate of successful businesses 2. There is an established reputation and image for the business 3. Usually, no experience is required because the franchisor will provide all necessary training Disadvantages 1. There is an inherent lack of creativity since there is an established business plan 2. The franchisor will be subject to perpetual profit-sharing 3. The company can be influenced by poor performance of other franchises Summary The process of opening a franchised business is to apply to and be approved by the franchisor for the business you wish to open. The best franchise to open, in my opinion, would be a McDonald's because they are arguably the best franchise ever. They have a very recognizable brand name, and a highly established reputation. The one downside is that this would not be a business one would start if they wanted any control over the way their store is laid-out or how it is run.

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Business Forms Worksheet LAW/531 Version 7

Corporation
Advantages 1. Corporations are stand-alone entities, which protects personal assets of investors 2. Corporations pay a separate tax from individuals 3. Perpetual ownership makes for easier ownership transfers Disadvantages 1. Requires more time and money than most other businesses 2. It is possible that incorporating a business results in more taxes to be paid 3. Corporations are closely monitored and are subject to rules of federal, state, and local entities Summary The process to becoming a corporation requires for the business to first determine which state they want to be incorporated in and then deciding on the name of the corporation. When these are done, the business must file their complete articles of incorporation, which includes all pertinent information relating to the business. The type of corporation I would build would be one similar to Walmart, because they are a highly successful business. They can will the business to their heirs with very little difficulty and the corporation will survive long after all of them have passed. The biggest downside to this business is that it took a lot of time and a lot of money to make them as big and successful as they currently are.

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