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Fin 571 Business Structure Advice

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Business Structure Advice
FIN/571
December 8, 2014
Prof. Hillman Lo

Business Structure Advice
Date: December 8, 2014
To: John Owner, President
RE: Business Structure Advice

Dear Mr. Owner:

In response to your request, there are four business structure options to choose from when starting a business. These structures consist of sole proprietorship, partnership, corporation, and limited liability company (LLC). To assist you in selecting the best structure for your business, I would like to discuss the benefits and drawbacks, as well as legal and tax implications of each structure.

Sole Proprietorship

A sole proprietorship is owned and operated by a single owner. It is the easiest, most inexpensive, and least regulated structure to organize. The owner receives all the profits and has full business authority (Parrino, Kidwell, & Bates, 2012). On the downside, the sole proprietor has unlimited personal liability, and the source of capital is restricted to the owner’s personal funds including the loan the owner can acquire. For tax implications, the sole proprietor benefits from flow-through taxation wherein the earnings and losses of the company are filed through the proprietor’s individual tax returns (Cheeseman, 2013).

Partnership

A partnership is a structure formed by two or more co-owners. General partnership enjoys the same benefits and drawbacks as a sole proprietorship. The principal advantage of a partnership is that it has more access to capital due to more than one partner funding the operations. The disadvantages are unlimited personal liability and legal responsibility for the action of partners (Cheeseman, 2013). An option to circumvent unlimited liability challenges would be to establish a limited partnership. Limited partners possess limited liability protection, but they cannot be involved in the day-to-day business

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