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Some considerations on companies' structures, taxation and legal obligations

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Forms of Organizations

Introduction

In today’s corporate world, most companies have established various ways of accomplishing organizational goals. Additionally, the emphasis on the structure of business entity as facilitated the progressive development in achieving these goals. Organizations can maximize the productivity of the business if they correctly match the needs of the company with the structure they use to operate. This chapter highlights various forms of organizations with regards to the incorporation, taxation, and legal liabilities.

Question 1: What form of an organization does this company use?

Business owner/Manager’s: Answer 1

A company can be organized in multiple ways. However, the consequences of legal liabilities and treatment of income tax depending on the form of the organization the management adopts. The structure of the organization is a limited liability company and hence a hybrid form of business.

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Business owner/Manager’s answer converted to textbook language

A limited liability company is a business structure in which the personal assets of the owners of the company are protected from debts obligations. Also, the business protects against personal liability. However, the owners of the business can be held accountable in the cases of intentional fraudulence activities within organization premises.

Recommendation/Conclusion

A limited liability company is established under the state law. Therefore, the rules and regulations governing a limited liability company vary depending on the geographical location of the business. The internal revenue services do not have any specific federal tax forms with regards to an LLC, its taxed as a corporation, individual or partnership.

Question 2: What analysis did the owner do to determine the organizational structure of the company?

Business owner/Manager’s Answer 2:

The owner performed various evaluation stages which include, obtaining and reviewing updated copies of the organizational business charts to analyze the business and consequently determine how departments delegates responsibilities. Finally, the manager conducted a survey establish the structure of the business with regards the functionality of the company.

Business owner/Manager’s answer converted to textbook language.

Analysis of organizational structures entails multiple stages which include obtaining updated copies of the company’s corporate chart. With the help of the chart, the structure of the organization is evaluated and reviewed to determine how various departments delegates responsibilities. Finally, the organizational survey is conducted to establish the effectiveness and functionality of the business.

Recommendation/Conclusion

The analysis of the organizational structure of the company is a significant business practice. This is because it helps in minimizing overhead costs and the subsequent reduction of the environmental waste. As a result, there is an overall improvement in productivity and effectiveness of the business.

Question 3: Describe the analysis done to evaluate the tax

Business owner/Manager’s Answer 3:

The analysis and evaluation of taxation of an LLC are reliant on the profits and losses of the business owners. An LLC is not a separate tax entity, and hence taxation of the business revenue is based on the gains and losses of the LLC owners.

Business owner/Manager’s answer converted to textbook language.

Unlike a corporation, an LLC is not a separate tax entity, and thus taxation of the business income is done based on the profits and losses of the LLC owners. The International Revenue Service treats an LLC as a sole proprietorship or a partnership, and hence the gains and losses of the business are reported on personal tax returns on the LLC owners. Additionally, an LLC does not pay federal income tax returns.

Recommendation/Conclusion:

According to the International Revenues Services, if an existing business entity is converted into an LLC, there may be possibilities of tax implications. The conversion results to taxable and employment tax wages benefits. However, the transformation to and from an LLC states may lead to a consequent impact on the operational activities of the business.

Question 4: Please outline the advantages and disadvantages of structure you chose

Business owner/Manager’s Answer 4

A limited liability company is a reliable business structure as it protects from liability of its members. Additionally, there is less paperwork in an LLC as compared to corporations. However, lack of clearly stipulated roles with regards to an LLC makes it difficult for the investors to the determine the person in charge of the company, one who can sign specific contracts.

Business owner/Manager’s answer converted to textbook language

The primary advantage of a limited liability company is the economic security associated with the business, the shareholders of the company are not personally liable for the business debt obligation. Unlike sole proprietors and partnerships, an LLC provides suitable tax options regarding the profitability of the business. However, the initial capital for the setting up an LLC is costly in contrast to a sole proprietor and partnership.

Recommendation/Conclusion

Contrary to corporations, a limited liability company is better and the most appropriate form of an organization. This is because it provides not only flexibility in federal taxable income of the business but also protection from personal liability. This safeguards the owners from debts obligation whereas delivering them with a wide range of suitable tax options.

Question 5: As an LLC or C-Corporation, in what state did you incorporate your business? What made you chose that state?

Business owner/Manager’s Answer 5:

The business was incorporated in Delaware. This is because of the benefits the business was to gain from the state of incorporation which includes flexibility of the business laws and regulations, the exemption of personal income tax for the non-residents and favorable taxation requirements to the business revenue.

Business owner/Manager’s answer converted to textbook language.

Delaware is a state in which some small business owners may choose to incorporate their business. When incorporating a business in Delaware, business benefits from the flexible business laws and regulation in the country, exemption of personal tax for the non-residents and exemption of Delaware taxes to stock share owned by persons outside Delaware.

Recommendation/Conclusion

When deciding whether to form an LLC or C-Corporation, it’s essential to put into considerations the state of incorporation. This is because states of incorporation vary in cost, taxations and corporate laws and regulation, and thus making some states more appropriate for individual small business owners.

Question 6: Describe the legal advice you received before choosing the structure chosen. Did this professional assist you in minimizing your tax liabilities?

Business owner/Manager’s Answer 6:

Before opting for an LLC business entity, the business owner established the legal liability of the business so as determine the extent of which he is to be protected from legal liability. Tax implications of the business are then established concerning personal situations and the goals of the corporate and the possibility of reduction of tax. After that, operational cost and flexibility of business structure are determined, concerning the needs of the business about personal needs of the owner.

Business owner/Manager’s answer converted to textbook language.

The legal advice is significant during the selection of a business structure because it’s helpful in minimizing tax liabilities. The legal information regarding the selection of a business structure includes the establishment of legal responsibility for the business owner, evaluation of tax implication of the company and determining the cost of operational cost of the business. Also, it’s vital to assess the flexibility of the business structure about personal needs as well as business needs.

Recommendation/Explanation

When establishing a business entity, it’s imperative to determine the appropriate type of legal structure you opt to select for your company. The decision with regards to the legal structure determines on how a business owner pays taxes. Additionally, the type of legal structure defines the personal liability of the business owner regarding the business.

Question 7: What are the different types of business

Business owner/Manager’s Answer 7:

A business entity is an organization that uses its inputs in the provision of goods and services to the customers in exchange for cash or other goods and services. Therefore, the different types of organizations include; service business, merchandising business and finally manufacturing business.

Business owner/Manager’s answer converted to textbook language.

A business entity determines how an organization adopts various economic resources in the provision of goods and services to consumers in exchanges for monetary benefits. The types of business entities include but not limited to manufacturing business, service business and merchandising business.

Recommendation/Explanation

A service business is a business entity that offers professional skills, advice, and expertise to their clients. However, merchandising business are those organizations that buy products at wholesale prices and sell the same product at a retail price. Manufacturing business, on the other hand, buys products to use them as raw materials in the making of new products.

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