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BUSINESS FORMATIONS
As a full-service tax
specialist, Advanced Tax offers you assistance with the formation of new
businesses. This service includes advice relative to the choice and design
of the business entity that will provide you the most appropriate structure
for current as well as future operations. The service includes completion and
execution of all federal and state applications necessary to charter the new
company. Through this service, Advanced Tax insures that your business has laid
the organizational cornerstone necessary for future success.
Types of
Businesses
Sole
Proprietorships
A sole proprietorship is an
unincorporated business owned and managed entirely by one person (the
"proprietor"), except to the extent that the proprietor may delegate management
responsibilities to an employee. It is the simplest form of business. There are
no formal requirements for starting a sole proprietorship. As the sole owner of
the business, you alone are personally liable for the debts and obligations of
the business. The sole proprietorship form of business is most often a default
choice used for small, low-risk businesses that have only a few employees and no
need for more than one owner.
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"Types of Businesses"
Partnerships
In simplistic terms, a
partnership is a sole proprietorship, except that the partnership is owned and
managed by more than one owner. The increase to two owners can complicate
planning considerably. There are several kinds of partnerships:
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"Types of Businesses"
General
Partnership
A general partnership has two or
more owners, all of whom are "general" partners, and all of whom are personally
liable for the debts and expenses of the partnership, including the acts of
their partners. Usually, the partners share equally in the profits and losses of
the business, but they can agree to a different "split" by stating their sharing
arrangement in a written partnership agreement.
The general partnership form of business is used by a few
small businesses and service groups whose owners want to avoid the tax
consequences that result from corporate ownership, and are willing to accept
personal liability.
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"Types of Businesses"
Limited
Partnerships
A variation on the general
partnership theme is the limited partnership (LP)(which is not the same as a
limited liability company, or the limited liability partnership). An LP is a
form of business entity that is designed to cure one of the primary
disadvantages of the general partnership: the "unlimited liability" problem.
A limited partnership has one "general" and one or more
"limited" partners. The general partner is responsible for the management of the
partnership and receives a share of partnership profits and losses. The limited
partners share in the profits and losses, but are not permitted to have any
management responsibilities. In return, their liability is limited to their
respective capital contributions to the partnership. The general partner has
unlimited liability.
The limited partnership form of business is most often used
for specific projects, for which a developer (the general partner with technical
and management expertise) wishes to attract investors (limited partners) who do
not want the risk of personal liability and don't want to participate in
management.
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"Types of Businesses"
Corporations
A corporation is a separate
legal entity owned by one or more shareholders. The shareholders have "limited
liability". The shareholders elect directors who have overall responsibility for
the management of the corporation. The directors elect officers who carry out
the wishes of the directors. Thus, a corporation is more complex than either a
sole proprietorship or a partnership. However, some of this complexity can be
simplified in many small corporations by having the shareholders serve as both
directors and officers.
Unlike other forms of business
entities, a corporation pays taxes on the business income, rather than having
the owners do so. This result can be altered by filing an "S" election with the
Internal Revenue Service. By making an "S" election, the taxes of the
corporation are paid by the owners and not by the corporation.
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