Essay on "Business Entities for the Bar"

Essay 4 pages (1326 words) Sources: 3

[EXCERPT] . . . .

Business Entities

For the bar, there are a number of different business entities that have merit. Lou, Jose and Miriam can either enter into a partnership or they can form a corporation. The partnership option carries to sub-options, the general partnership and the limited partnership. In a general partnership, the different partners split responsibility and liability equally. This business form is not recommended for these partners because Miriam would immediately lose some of her financial interest and she would bear risk for actions that the other two undertake, even though she is inactive in the business. A limited partnership allows the different partners to define their interest in the company at levels commensurate with their inputs (All Business, 2010). The limited partnership should have a general partner, but this form would allow the partners to define the limited of their relationship and the splitting of risk and reward within the venture. From a tax perspective, the limited partnership is a flow-through entity in that the profits each partner takes from the entity are taxed as income, rather than investment income.

The other option for Lou, Jose and Miriam is to form a corporation. Income from the corporation is taxed as investment income, which is at a lower rate than regular income. For Miriam, who stands to gain from her investment but is not working in the business, this type of taxation is more congruent with her role in the business. A benefit of the corporate structure is that liability is reduced, which is important for all of the three because the risk of some form of liability is high with a bar. The amount of liability to which the different investors would be subject is dependent on the type of corporation that is set up. A limited liability corporation (LLC) has low levels of liability, a C corporation has no liability, as does an S corporation. The S corporation differs from the C. In terms of the tax treatment of income earned. In the S corporation, income is taxed on the personal level, which has already been determined to be unlikely to be beneficial to Miriam.

The recommendation therefore, is to form a corporation, either an LLC or a C corporation. The size of the business would seem to dictate an LLC as the most appropriate form, as it is cheaper and easier to implement than a C corporation.

The wealthy investor seeking to set up a national chain of exterminating business may begin as an LLC but will mostly likely gravitate to the C Corporation structure. While the chain is solely owned by the founder, it could even exist as an S corporation, so that any income could flow through to the investor's personal income. However, this structure will not allow the company's founder to bring in large numbers of outside investors, as S corporations typically are limited to 100 investors (Ibid). Thus, the C corporation structure is most appropriate. The initial tax disadvantages are not a major consideration, because the company is likely going to plow back all profits into expansion. Moreover, the C. structure is ideal for bringing in large groups of investors or for taking the company public, which seems a reasonable future objective if the investor intends to realize any capital gains from his investment.

The construction company will need to understand the relevant sections of employment law before making the hiring decision for the jackhammer operator. With respect to Nick, his epilepsy is an issue. The American Disability Act prohibits discrimination on the basis of disability in employment, although there are allowances for two situations. The first is that companies under 15 employees are exempt, which may be the case for Surebuild at this time. The other is when the employee cannot perform the essential tasks of the job (ADA.gov, 2005). For Nick, that may be the case, but the company would have to ensure that. Nick may be taking drugs that prevent seizures, in which case… READ MORE

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