Legal Structure of Business - 550 Words

Legal Structure of Business (Article Critique Sample) Content: Legal Structure of Business Student’s Name Institution Legal Structure of Business Decision making concerning legal structure of a business is essential as it affects legal, tax, and accounting issues. Business structures, which vary widely depending on the businesses that use such structures, include sole proprietor, partnership, and corporation (Anderson et al., 2012). Setting up a business the right structure has to be as it is very critical in the success and the general life of the company. When making a choice of the legal structure of a business, there is a need to know what form of business to come up with as it is what will determine the extent of regulatory paperwork to be , personal liability pertaining to investment in the business, and what should be as tax (Cheesman, 2010). This paper presents common legal structures that are crucial for any business operations. Sole Proprietorship According to Cheesman (2010), Sole proprietor ship is the simplest legal structure of the three major legal structures. Establishment of sole proprietorship is one very simple process has it has relatively modest amount of money and that its control and management is majorly on the sole owner. Usually sole proprietorship is exempted from tax by the government when either withdrawing or contributing money or even property to the firm (Anderson et al., 2012). This legal structure does not have separate legal entity for tax and other legal implications. Sole owner of the business is charged with the responsibility to sign for all debts and obligations making this legal structure more vulnerable to financial risk. Since this is a very small business structure, Sarbanes-Oxley Act (SOX) does not apply to it. Partnership When two or more persons, are having reached a mutual agreement, own a business, the business structure is referred to as partnership. Usually a partnership is formed by those who do not have sufficient economic reso urces or specific skills. It involves sharing of losses, profits, debts, and even liabilities among the members, which is contrary to the sole proprietorship. Just like sole proprietorship, partnership is also very easy to establish and offer shared control. Partnership has a tax advantage in the sense that the tax is levied at a partner level, not that individually taxed to each partner (Anderson et al., 2012). If not, the partner would be required to pay the full-employment taxes simply because the partner is not looked at as an employee. Since partnership does not provide stock to shareholders, dividends are not usually indicated in the balance sheet. Corporation The final legal structure of a business is a corporation; corporation does not have personal liability, have the ease to raise funds, and transfer ownership (Cheesman, 2010). There are two major types of corporation namely C corporation and S Corporation, both of which are differently. S corporation is taxed o...