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Structure/design of organizations
Organization structure
Organizational structure and the impact it has on an organization
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Business Entity Regulations
Business activity may be conducted through a variety of organizational structures or entities. Whichever business structure is selected will determine the legal requirements or regulations with which the business owner is required to comply. In selecting an organizational structure, protecting the business owner from liability is a primary consideration. “Other considerations are the transferability of ownership rights, the ability to continue as a business in the event of the death or withdrawal of one or more of the owners, the capital needs of the business, and tax liabilities.” (Utah.gov) The most commonly registered business Entities in Utah are sole proprietorships, general partnerships, limited partnerships,
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Each partner shares the profits and losses while contributing their labor and skills to the business. “General partners have a fiduciary duty of loyalty and trust to the other partners and must subordinate their personal interests to those of the partnership.” (Utah.gov) In order to create a general partnership there must be an agreement, but there are no formalities necessary. If partners conduct business under an assumed name, they have to file the business name with the Utah Division of Corporations and Commercial Code. Although there are no formal requirements with regards to the agreement, the partners should take action in creating a formal written agreement to protect their interests in the event of a …show more content…
Corporations are entities created with the permission of the state and have certain rights, privileges, and liabilities beyond those of an individual. Shareholders are the actual owners of the corporation and elect the directors that establish policies. Doing business as a corporation can have tax or financial benefits, but there are other fees and considerations to consider.
Limited Liability Company (LLC)
“A limited liability company ("LLC) is a new form of business entity that combines the operational flexibility and tax status of a general partnership with the limited liability protection traditionally associated with limited partnerships and corporations.” (Utah.gov) The LLC offers the most operational flexibility. It may be an incorporator, general partner, limited partner, applicant of a DBA, or a manager of any corporation, partnership, limited partnership or limited liability company. Members are not personally liable for the obligations of the LLC. However, An LLC is subject to disclosure, record keeping and reporting requirements that do not apply to a general partnership. LLC's are organized by filing in accordance with the state Articles of
LLCs must typically pay more fees to file as LLCs compared to some other business entities or sole proprietorships. Additionally, many states require yearly renewal fees. However, these fees are usually less than what some other corporations have to pay. Because of the protections afforded to LLCs, some types of businesses are ineligible to file as LLCs. Banks, insurance companies, and medical service companies are examples of businesses that can not be a LLC. Another big disadvantage is taxes. Although LLC’s allow owners to avoid federal taxes, you may actually end up paying more than it would with a different corporation, depending upon the nature of the business. Working with an accountant and/or tax lawyer is a really good idea when planning your business and forming your LLC but can also be quite expensive. The LLC business form is a relatively new concept. As a result, not a lot of cases have been decided surrounding LLCs. Case law is important because of predictability. If you know a court has ruled a certain way, you can act in a specific way to protect yourself. But if not many laws have been established yet, there is a certain vulnerability with your corporations that could expose you to greater
The operating agreement is the members of LLC have a decision on how to operate the various aspects of the business (Miller, 2014, p.41). It is simply a contract. The LLC operating agreement must accommodate setting up sub-LLCs. Many states do not require the operating agreement because LLC exist. With other states, the operating agreement should be written so their interest can be protected. According to Miller, operating agreement typically contains provisions relating to the management and how future managers will be chosen or removed, how profit should be divided, how membership interests may be transferred, whether the dissociation of a member, such as by death, will trigger dissolution of the LLC, whether formal members’ meeting will
Based on the facts in case study three, a limited liability company, LLC is the recommended business entity for Arcadia Sports. The justification for this choice is that Jeb has the resources to start the business and Josh has the expertise to run the day to day operations. Jeb has no desire to be involved in the day to day operations of Arcadia Sports. Also, the two have decided to split the profits. Forming a LLC will protect Jeb from any liabilities that arise during the operating of Arcadia Sports and allow him to enjoy equal profits. Members of a LLC are not personally liable to third parties for debts, obligations and liabilities beyond their capital contribution (Cheeseman, 2015).
The types of organizational forms are proprietorship, partnerships and corporations. Each has their own advantages and disadvantages. A proprietorship has three main advantages: (1) low cost for start-up, (2) it is subject to few government regulations, and (3) its income is taxed as part of the proprietor’s personal income. Although a proprietorship is a low-cost start-up company, unless the owner already processes the funds, it may be difficult to acquire funds for growth. Additionally, the proprietorshi...
The core company types offered nowadays is a sole proprietorship, partnership, limited liability company (LLC), and corporations. A sole proprietorship is a company with a singular proprietor that makes all key decisions for the company. A characteristic of a sole proprietorship is that owner is responsible for each and every liability of the company, and the company ceases to exist upon the death of the companys owner. The proprietor assumes all the hazards of the company, and all private assets are used for collateral, even if they are not used in day to day business activities. A partnership is an arrangement involving two or more parties that merge into one entity to pursue a company endeavor for revenue. Each affiliate contributes cash, assets, workforce, labor aptitudes, and each affiliate splits the revenues and debts of the company. Similarly, each affiliate accepts unrestricted personal accountability for the debts of the business. Limited partnerships reduce the amount of personal accountability each individual assumes for the liabilities of the company founded on the percentage each
There are many different types of business structures, but if you own and operate a business that it is a sole
States do not require a separate business form or taxes to be filed by the sole proprietorship. Instead, the owner reports all of the company's profits and losses on their own tax return. While a sole proprietorship is easier to create and operate, it does leave the business owner liable for any lawsuits or costs incurred by the company. Benefits: Inexpensive: Organizational documents, filing fees and legal fees are not required. Avoid Double Taxation: Unlike a C corporation, the owner and the business pay taxes together.
A limited partnership is a form of business that ensures that an investor has limited personal liability, and further enhances the ability to raise capital for the growth of the business. As compared to sole proprietorship that has the business owner bearing the entire liability, a limited partnership provides that the partner only bears a portion of the liability. This form of business offers personal asset protection, basically implying that a partner cannot have his/her assets being used to settle the business liabilities and debts, further contrasting a general partnership in which the partners are not considered as separate entities from the business, and their personal assets can be used in the settlement of debts and liabilities.
1.LIABILITY: There are no limits on liability with a sole proprietorship, the owner is responsible for all the businesses debts and obligations. The earning power of a sole proprietor can be limited due to lack of capital. The sole proprietor is only able to obtain personal credit to expand the company, the bank will not treat the company as its own entity
Sole proprietorships are typically businesses that have one owner. There many advantages to operating a business as a sole owner. One of those advantages is that it is fairly easy to form. When operating a sole proprietorship, filing an independent tax report for your business is not mandatory. It is optional for the owner to hire employees to help run the business. The owner is in charge of making all business decisions and transactions. Sole owners have the ease of selling their business, closing it or giving it to his heirs. While opening businesses sometimes require you to obtain a business license, sole proprietorships are typically less expensive than others. Also, it is often less expensive to start a sole proprietorship.
Classifying Business Organizations Business organizations can be classified in a variety of ways depending on its size, sector, legal status etc. These classifications differ from one firm from another. Legal status has an important bearing on the environment in which the business operates. It is important to have a comprehensive knowledge of the advantages and disadvantages of the several legal forms so that managers and directors can decide which legal form their firm should adopt. The sole trader is the simplest business to develop and has very little legal formalities, obligations or constraints.
The definition of a sole proprietorship is essentially a business that is run by one person and owned by that person as well. Specifically, a sole proprietorship is separated from the other business entities because of the specific the legal dynamics between the business and the owner of the business. Moreover, because of this factor, sole proprietorships are usually easy to both form, maintain as well as dissolve if need be. In a New York Times article, the authors expressed that small businesses are typically sole proprietorships and as such, this is why it was selected as the business entity (1). Furthermore, the aforementioned reasons allowed for a rather rapid decision on the basis that with this entity, there is an ability of the owner to run it how they see fit.
Times, N. (2011). Legal form of business Organization. Retrieved December 19, 2011, from about.com: http://biztaxlaw.about.com/od/businessorganizationforms/a/legalbizforms.htm
Sole Trader - A sole trader is a one-person business, commonly found in trades where only small amounts of finance are required to set up and where there are very few advantages to the existence of larger organisations (e.g. hairdressing, newsagents, market traders). Sole traders often employ waged employees, but they alone have to provide all the finance (often savings and bank loans) and accept all the risks of the business venture. In return, they have full control of the business and enjoy all the profits. A sole trader faces unlimited liability for his/her debts and it is referred to as an unincorporated business – this means that there is no legal difference between the business and the owner.
Before a partnership formation is imminent, the business needs to decide on which type of partnership to form. There are three types of partnerships: (1) general partnerships, (2) limited partnerships, and (3) joint ventures. All three partnerships contain two or more owners, but all partners assume equal division of ownership, liabilities, and profits in a general partnership. Limited partnerships offer limited liability protection based on each partner’s contribution percentage. Joint ventures are classified as general partnerships with limited existence periods. Once a type of partnership has been determined, the business fulfills a series of requirements before the partnership can be successfully formed. The first step is to register