Forms of Business Entities

Business Structure
Student’s Name
Institutional Affiliation
Business Structure
Various choices are made when an individual or group of individuals are planning to start a business, among the most important choice that needs to made is choosing the legal structure the business is set to take. This choice does not only impact how the tax issues will be addressed, but also the amount of paperwork that needs to be done, individual liabilities as well as the amount of capital required. Alex, Bill, Carl and Devon have inherited a business from their deceased Dad, which was ran as a sole proprietorship entity. None of the sons were involved in the operations of the business, but instead their cousin Xavier was involved. Because they do not know how to run the farm, Xavier suggests to continue running the business and all sons agree to that. For easy running of the farm, they want to form a business entity under which it will be run. The conversion of the farm into a business entity depends on individual circumstances of the business owners. This is not an easy decision to made lightly or be made without critical analysis and counsel from experts. However, in order to make the right choice, all business entities should be analyzed and one should be chosen based on its merits and consideration of the individual circumstances of the business owners.
Forms of Business Entities
There are various business entities that business owners can choose from but the decision made depends on three important attributes: Taxation, record keeping and liability (Cassim et al,, 2012). However, in Alex, Bill, Carl, Devon and Xavier’s case, we will consider the most common types of business.
* Sole proprietorship. This is the most common type of business entity. Its formation is easy and provides the owners with a full managerial control opportunity over the business. As the name suggests, it is a business organization that is owned by a single individual. Besides giving the owner complete control of the business, it is simple to form (Mallor, Barnes, Bowers & Langvardt, 2012). Its setup simplicity and tax filling is the reason why it is the most common and preferred business structure. After being established, tax filling is done through the owner’s personal taxes. However, it has serious tax limitations and the tax rates are higher than for corporate entities. In addition, some of the employee benefits are not deductible. The bottom line, the owner of the business assumes complete liability of the organization.
* Partnership. This form consists of several individuals who have agreed to share returns from the business (Mallor, Barnes, Bowers & Langvardt, 2012). Its primary advantage over other forms of business entities is that it is not taxable. The tax liability is passed to the partners’ individual income tax returns. However, each partner is liable to all debts of the organization.
* Corporations. This is a legal entity that is separate from the founders and those who controls it (Cooper et al., 2016). It is taxable like persons and is legally liable for its actions. Additionally, it can make profits like people. Its advantage over other forms is the avoidance of personal liability. However, it requires huge capital to form and has an extensive paperwork. Another disadvantage is that sometimes the owners are double taxed.
* Limited Liability Company (LLC). This form of business is gaining popularity because of its advantages over the other types (Mallor, Barnes, Bowers & Langvardt, 2012). Its advantages involve those of the partnership and corporations business entities.
Selection of the Business Entity
To decide what business entity that will satisfy Alex, Bill, Carl, Devon and Xavier’s various criteria need to be evaluated. The following will be the focus for them in deciding the format their farm will take:
* Legal liability. This depends on the extent that they want to be insulated from the legal liability of the business (Mallor, Barnes, Bowers & Langvardt, 2012). From the case Alex, Bill, Carl and Devon want to avoid any personal liability from the operations of the farm.
* Tax implications. Alex, Bill, Carl and Devon want to have a form of business that will provide them with an opportunity to minimize tax their taxes on the entity. Corporations have several tax options than partnerships or proprietorships. However, the double taxation associated with corporation can be minimized by adopting S corporation status. However, the S corporation is only available for organizations that have less than 70 stakeholders.
* Start up and administration costs. The tax advantages provided by the other forms of business entities does not offset the costs of forming a corporation entity. However, the extensive record-keeping associated with corporations is the reason why most people choose other options such as partnerships. Ongoing administrative requirements demands too much time of the owners leading to an increase in overall costs.
* Flexibility. The objective of business owners is to utilize any flexibility provided by the adopted structure based on various wants of the farm and those of its owners. Therefore, individual needs are critical when choosing a business structure.
* Future needs. Mostly, majority of business owners are consumed with wanting to get the business off and do not allow what will happen in the future stop them from getting it operational. They do not think what will happen after they die or they decide to sell part of their interests to other parties.
The issue of ownership is the key for any investors, therefore whatever the structure that Alex, Bill, Carl and Devon adopt will depend on how they want the farm to be owned. Also, the issue of not allowing any strangers controlling the farm will play a critical role in deciding what form...