COMMON LAW BUSINESS

Common Law Business

Common Law Business

Case 1

Question 1

The liability aspect involves whether you as the business owner are responsible for the debts and actions of your company. In companies structured as sole proprietorships or general partnerships, you are responsible for the business's debts. In the cases of LLCs and corporations, you as the owner have little or no liability for the debts of the business. Corporations are set up as separate entities and as such can own property, enter into contracts, and incur debt(Halpern et al. 1980 pp. 117). Because the corporation is a separate entity, you are not generally responsible for its debts or any lawsuits that might be filed against it.

One of the main problems of traditional or C corporations is that the IRS taxes them first on their corporate profits and then double taxes them by taxing the income of the shareholders. S corporations get around this problem by only taxing the income of the shareholders. Companies wanting S corporation status must conform to certain regulations, such as having at least one shareholder and not more than 100 shareholders. In addition, the corporation has to file Form 2553 with the IRS(Hannigan 2003 pp.112-119). Sole proprietorships, partnerships, and LLCs are taxed the same way as S corporations, meaning they are taxed once on the individual level. Sole proprietorships and partnerships are also liable for a self-employment tax, which, in the case of a partnership, has to be paid by each partner. Limited partners are only obligated to pay self-employment tax on payments for services rendered to the partnership. A shareholder-employee of a corporation is immune from self-employment tax, but instead is required to pay unemployment tax.

Question 2

For Brian a registered company would be more suitable. The principal benefit of trading via a limited company has always been the limited liability bestowed upon the company's officers and shareholders. As a sole trader or other non-limited business, personal assets can be at risk in the event of a failure of the business, but this is not the case for a limited company. As long as the business is operated legally and within the terms of the Companies Act, directors or shareholders personal assets are not at risk in the event of a winding up or receivership. Operating as a limited company often gives suppliers and customers a sense of confidence in a business. Larger organisations in particular will prefer not to deal with non-limited businesses(Hunt 2000 pp.89)

Many of the costs associated with managing and operating a limited company are not much more than with a non-limited business. Accountants and other professional advisers often have conflicting views on when they consider the benefits of being limited to outweigh the advantages of being self-employed.

There is no obligation for a limited company to commence trading within any set time period after its incorporation. This means that the formation of a limited company is one simple and low cost method to protect a business ...