by Corporate Relations and Business Strategy Staff Show
There are a variety of choices for the legal organization of your practice — including sole proprietorship, general partnership, corporation and limited liability company (LLC). Each structure has its advantages and disadvantages. If you have a business plan, reviewing that document is a good place to start the process of choosing an organizational model. It is important to consider the following factors in deciding how to structure or restructure your practice:
Sole ProprietorshipThis is the simplest and least expensive way of structuring your practice. You are the sole owner and there is no legal distinction between you and your practice. You have complete authority to make all business decisions and all of the practice’s assets and profits generated belong to you. However, you are also personally responsible for all of the practice’s debts and liabilities, as well as the actions of your employees. Your liability is unlimited and both your business and personal assets are at risk. Advantages
Disadvantages
General PartnershipA partnership is similar to a sole proprietorship, but is owned by two or more people. Like a sole proprietorship, there is no legal distinction between the practice and its owners. You are responsible for your own actions, as well the actions of your partners. It is important to clearly define various aspects of the relationship between partners and have an attorney draw up a legal partnership agreement. Unless otherwise specified in the agreement, partners share responsibility for management and decision making and distribute profit and loss equally among themselves.
Disadvantages
CorporationThis is usually the most complicated and expensive business structure to set up. A corporation is chartered by the state and is considered to be a separate legal entity from the owners (shareholders). This means that in most cases, liability for the practice’s debts is limited to the corporation’s assets and a shareholder is liable only to the extent of his or her investment in the practice. Decision-making is based on stock ownership. Additional requirements exist with regard to the establishment and functioning of a board of directors, as well as record keeping. As a corporation, your practice pays its own taxes on income and files its own tax return.
Disadvantages
Limited Liability Company (LLC)A limited liability company is a hybrid of a corporation and a partnership that is available in most states. This structure offers limited personal liability for partners (members) but is usually treated as a partnership in terms of federal income tax. Although some states require there to be at least two members, other states are starting to allow single-member LLCs. As with a partnership, you should have an attorney draw up a formal operating agreement for members. The LLC model is relatively new, but is quickly becoming the legal structure of choice for small businesses due to the combined liability and tax advantages. In general, forming an LLC is more complicated than establishing a partnership, but avoids some of the complex and often burdensome corporate formalities. Advantages
Disadvantages
Your ultimate decision about an organizational model will have many legal and financial implications. Therefore, you should consult with your attorney and accountant in making the best choice for you. (See “Using business consultants to your best advantage” for additional information.) NOTE: The information presented in this article is for informational purposes only and does not constitute financial or legal advice. Date created: 2004 Contact APA ServicesWhat is the most complicated type of business?Business corporations
A business corporation is the most complex form of business organization. Its formation and its internal operations are governed by state law. A business corporation is an entity organized for profit under the laws of one state.
Which business structure is the most complex and expensive to establish?The corporate structure is more complex and expensive than most other business structures. A corporation is an independent legal entity, separate from its owners, and as such, it requires complying with more regulations and tax requirements.
What business structure is typically the most expensive to form?Organizing a corporation is the most expensive and time-consuming business structure to form. A high level of paperwork is needed as corporations must comply with regulations from federal, state, and local agencies. Filing of an annual report. May result in higher overall taxes.
Which of the following business structures is the most complicated and expensive quizlet?Profits and losses of sole proprietorships flow directly to the owners and are taxed at individual rates. Which of the following business structures is the most complicated and expensive? Corporations are more complicated and expensive to establish than other structures.
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