Write the Three Legal Forms of Business Ownership

No form of ownership will give you everything you desire. You have to compromise. Since each option has both advantages and disadvantages, it is up to you to decide which one offers the most important features for you. In the following sections, we compare three ownership options (sole proprietorship, partnership, corporation) in these eight dimensions. Taxation: An LLC is considered an “intermediate unit” for tax purposes. This means that business income through the corporation goes to LLC members who report their share of profits or losses on their individual tax returns. The LLC entity is only required to file an informative tax return that resembles the character of the partnership. Single-member LLCs are authorized to report business expenses on Form 1040 Schedule C, E or F. LLCs with more than one member typically file a 1065 Declaration of Partnership form. The structure of your business affects how much you pay in taxes, your ability to raise funds, the documents you have to submit, and your personal responsibility. You must choose a business structure before registering your business with the state.

Most businesses must also obtain a tax number and submit the appropriate licenses and permits. Another advantage of integration is continuity. Since the company has a separate legal life from the lives of its owners, it can (at least theoretically) exist forever. A major problem with partnerships as well as sole proprietorships is unlimited liability: in this case, each partner is not only personally responsible for his own actions, but also for the actions of all partners. If your partner in an architectural firm makes a mistake that causes a structure to collapse, the loss to your company will affect you as much as he does. And here`s the very bad news: if the company doesn`t have the cash or other assets to cover the losses, you can be sued personally for the amount owed. In other words, the party who suffered a loss due to the error can sue you for your personal property. Many people are understandably reluctant to enter into partnerships because they have unlimited liability. Some forms of business allow owners to limit their liability. These include limited partnerships and partnerships.

Accordingly, this publication defines an SME (small and medium-sized enterprise) as an operation with 1 to 499 paid employees, more precisely: A cooperative (also called a cooperative) is a business owned and controlled by those who use its services. Individuals and businesses that are members of the co-op join forces to market products, purchase supplies and provide services to their members. When well managed, co-operatives increase the profits of their producer members and reduce costs for their consumer members. Co-operatives are quite common in the farming community. For example, approximately 750 cranberry and grapefruit member growers market their cranberry sauce, fruit juices and dried cranberries through the Ocean Spray Co-op. [6] More than three hundred thousand farmers source the products they need for production – animal feed, seeds, fertilizers, agricultural supplies, fuel – through the Southern States Cooperative. [7] Cooperatives also exist outside agriculture. For example, MEC (Mountain Equipment Co-op), which sells high-quality outdoor equipment, has more than 5 million members across the country who have each paid $5 for their lifetime membership. The company shares its financial success with its members and also donates 1% of its turnover to maintain its stake in nature. A final form of business is a limited liability company (LLC). The Canada Revenue Agency (CRA) continues to treat the LLC as a corporation rather than a partnership, resulting in traditional double taxation of Canadian investors.

Canadians should be aware that U.S. limited liability companies can be dangerous to their (tax) health. In 1977, Wyoming became the first state to allow companies to operate as limited liability companies. Twenty years later, in 1997, Hawaii was the last state to accept the new form of organization. Since then, the limited liability company has grown in popularity. The rapid growth was fueled in part by changes to state bylaws that allow a limited liability company to have only one member. The trend towards LLCs can be seen by reading the names of companies on the side of trucks or on storefronts in your city. It`s common to see names like Jim Evans Tree Care, LLC and For-Cats-Only Veterinary Clinic, LLC. However, LLCs are not limited to small businesses. Companies like Crayola, Domino`s Pizza, Ritz-Carlton Hotel Company, and iSold It (which helps people sell their unwanted items on eBay) operate under the form of organizational responsibility. In a limited liability company, the owners (called members rather than shareholders) are not personally liable for the company`s debts and their income is taxed only once at a personal level (eliminating double taxation).