Running head: Business Law Rachel Lavender Western Governors University 2/21/11 PART A Sole Proprietorship A sole proprietorship is how most business entities begin. This type of business is owned and operated by one person. The main advantage of this type of business is that the owner does not need to get the approval of a partner or board in order to make decisions. A significant disadvantage is that, in a sole proprietorship, there is no separation from the business and personal assets, therefore, there is unlimited personal liability to the owner’s personal assets. · Liability-There is no difference between personal and business assets.
As a C-corporation the business, not the owner, would be held liable for any financial damages. Any accidents involving employees or customers would be the responsibility of the corporation to settle. Financially speaking incorporating is the best option because as a sole proprietorship the owner is currently paying a much higher tax rate versus the corporate tax rate. With the tax code being different for corporations there is better profit retention and security. The client also mentioned the issue of partnership and the selling of stock in order to expand the company.
An individual is able to use his/her legal name for the business or come up with a different name as long as he/she files a d.b.a. for the name. (Lau, T, & Johnson, L., 2011) The below points of interests are of value in helping with a decision: • Liability – as a sole proprietor that individual is libel for all business expenses as well as coming up with the capital to start the business. This can be difficult if the business starts to fail since the creditors will be able to come after the individuals personal expenses to cover the debts (Smith, 2011). • Income Taxes – being a sole proprietor gives the individual the option to file taxes under a separate employer identification number.
No special tax rates for capital gains apply to corporations, the entire gain is included in income subject to normal corporate rates. None of these amounts would be reported on her individual return. 36. A. An S-Corp: S-corporations allocate entity income to shareholders, where it is then reported on their individual returns.
The activity is a personal service activity and the taxpayer materially participated in that activity in any 3 prior years. 7. Based on all of the facts and circumstances, the taxpayer participates in the activity on a regular, continuous, and substantial basis during such year. However, this test only applies if the taxpayer works at least 100 hours in the activity, no one else works more hours than the taxpayer in the activity, and no one else receives compensation for managing the activity. [3] http://www.irs.gov/businesses/small/article/0,,id=146335,00.html It is important to determine if the taxpayer martially participates because this classifies the income as active or passive.
Each business organization has different tax, legal, and accounting implications, along with different financial responsibilities to the owners. A sole proprietorship is the simplest form of a business. One person owns and manages this type of business. This individual is responsible for all aspects of the business. With a sole proprietorship, the owner pays taxes on the income from the business as part of his or her personal income tax.
The contracting of the entire department or even a single task to an outside vendor translates to the turning over the management and control of the function to another company. Another reason to not outsource, is to avoid the additional possible security issues that comes with turning your information over to an outside vendor (Bucki, 2012). Risks Associated With Outsourcing When outsourcing to another company there are various risks that come with this process. One risk can come in the form of quality issues. The vendor will be function in effort to make a profit as is with all businesses.
If the IRR is less than the WACC, the project should be rejected, as it impoverishes the firm’s owners. If the IRR equals the WACC, it earns only normal profits (i.e., the owners’ opportunity costs) and accepting it is a matter of indifference. In this care the project’s IRR is 18.031 > 11.88%, therefore the IRR rule tells us the same as the NPV rule: this project will enrich the firm’s owners. We note in passing that in more advanced courses in finance you would learn about projects for which this rule cannot be used. Broadly speaking, they are projects whose cash flows changes sign more than once—e.g., from negative to positive to negative again.
| Tinker & Tailor’s Home Security Service (LP) | In a limited partnership only the general partner is fully liable. While the limited partner | Tinker & Tailor’s Home Security Service, Inc. (corporation) | In corporations the owners or shareholders are liable,
Taxpayers have the incentive to try to pay as little tax as possible in order to maximize their wealth. The IRS may choose to negate certain matters under the Sham Transaction Doctrine. Corporate taxation law is constantly growing and adapting which make the validity of these transactions even less clear.