Business Structures: Comparative Analysis and Recommendation Report

This business law assignment presents a comprehensive comparative analysis of four primary business structures: Partnerships, S Corporations, General Corporations, and Limited Liability Companies (LLCs). The report meticulously examines each structure's formation, liability, capital raising, taxation, regulations, and unique features, culminating in a detailed comparison table. The assignment then transitions into a memorandum addressed to Pat Braden and Gale Roth, offering a specific recommendation for their business structure. The memorandum advocates for the LLC, highlighting its advantages in minimizing tax liability, limiting personal liability, and providing management flexibility. The report also discusses the LLC's limitations, such as potential state filing fees and the need for an operating agreement. The assignment concludes by providing a list of relevant references, including resources from BizFilings, LegalZoom, and other legal and business publications, to support the analysis and recommendations.

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Business Law Assignment
Report and Memo
28-Feb-18
(Student Details: )

Business Law Assignment
Part A
Introduction
Doing business in any nation is not an easy task. Even more difficult task is to select the
business form, due to the inherent features of each business form, which include various
advantages and disadvantages. In order to best suit the needs of the individuals, wanting to start a
business, it is best to do a comparative analysis of the different business structures. This report
provides a comparative analysis between Partnerships, S Corporation, General Corporation and
Limited Liability Company.
Comparative Analysis
To compare the four available business structures for Pat and Gale, a comparative
analysis of these structures has been presented in the table below.
Partnership S Corporation General
Corporation
Limited
Liability
Company
Formation Ease of
formation, as two
or more people
can come
together and run
the business for
Based on the IRS
regulations, a
company may
chose to elect as
S corporation in
order to get tax
Formed under
the state laws
and procedure is
varied by state.
One of the easy,
fast and efficient
manners of
starting up a
company
(Shenkman,
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Business Law Assignment
common
purpose, and
share profits (or
losses). The
partnership deed
is also not
compulsory to be
drawn.
benefits. Weiner &
Taback, 2003).
Liability Unlimited
liability of
partners (save for
limited liability
partnership).
This means that
personal assets of
the partners can
be attached to
pay off the debts
of the partnership
(Int'l Business
Publications,
Limited liability Limited liability Limited liability
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Business Law Assignment
2008).
Raising capital Capital can only
be used through
capital invested
by partners or
standard bank
loans, which
require
mortgage.
Issuance of
shares and
standard
financing
options.
Issuance of
shares and
standard
financing
options.
Does not raise lot
of money from
the investors.
Taxation Tax advantage as
partnership can
annually allocate
income and cash
flow amongst the
partners as is
best suited to
them. There is
pooling of
resources,
simpler filing
requirements and
avoidance of
The income, loss
allocations or the
distributions
have to be
proportional to
the shareholders’
ownership
interest. High
chances of
double taxation
particularly on
corporate profits.
Even have to be
Taxed separately
from owners.
Flexible profit
share amongst
the owners.
Owners pay
personal income
tax on profits but
businesses do not
have to pay
income tax
(BizFilings,
Tax is not paid
on profits.
Instead, the
owners get
distribution of
profits and pay
the tax on these
profits at the
individual rate.
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Business Law Assignment
double taxation.
Partnerships can
also liquate tax
free (Shenkman,
Weiner &
Taback, 2003).
taxed when they
liquidate.
Owners pay
personal income
tax on profits.
And businesses
to have to pay
income tax. All
incomes or loss
from business is
passed through to
the owners on
yearly basis.
2018).
Regulations Partnerships in
USA are
governed by the
state law.
However, there
is still uniformity
in the manner in
which the
partnerships
State laws State laws State laws
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Business Law Assignment
work, due to the
adoption of
Revised Uniform
Partnership Act
(This Matter,
2009).
Separate legal
entity
No separate legal
entity resulting in
partners being
made liable in
cases where the
partnership is
unable to pay off
its debts.
Enjoys separate
legal entity
status, as a result
of which the
company is
treated separately
from its owners.
Enjoys separate
legal entity status
Enjoys separate
legal entity status
Unique features Ownership can
be transferred
easily, and lack
of stringent
reporting
requirements.
Limitations on
number of
shareholders and
no shareholder
can be a non-
resident alien.
Inc after the
company name
shows that the
business is
incorporated in
home state
(Thomas, 2018).
Combines
features of
company and
partnership.
Structured in a
manner of as to
benefit from pass
through tax
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Business Law Assignment
feature of the
partnerships, in
addition to
allowing
flexibility in
management and
operations; and
the same time,
enjoy limited
liability as is
done by the
partnerships
(Shenkman,
Weiner &
Taback, 2003).
Winding up Simple process Same process as
for traditional
companies
Dissolution
followed by
winding up
Dissolution
followed by
winding up
(Wolters Kluwer,
2016)
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Business Law Assignment
Conclusion
Thus, in the previous segment, a comparative analysis between the different features of
the four types of business structures was highlighted. This resulted in the different advantages,
disadvantages and features of these structures being elucidated.
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Business Law Assignment
Part B
Memorandum
TO: Pat Braden, Gale Roth
FROM: (your name)
RE: Recommendation on the choice of business structure
DATE: 28 February 2018
This is with reference to the advice sought out in context of the choice of business
structure. In order to come to the recommendation for the clients, a comparative analysis had
been undertaken, and based on this comparative analysis, the decision was made. This
comparative analysis has been enclosed with this memorandum. The recommendation drawn on
these bases is for Pat and Gale to choose Limited Liability Company as their business structure.
This is due to the fact that it not only would minimize the tax liability of the business and the
owners, but would also restrict their personal liability. Along with this, there are a number of
other advantages for choosing a Limited Liability Company.
The best feature of the Limited Liability Company form of business structure is that it
merges two of the business structures of partnership and company, and brings out the best out of
the two worlds. The owners have a limited liability under this business structure, and their
personal assets are shielded from the business liability (Legal Zoom, 2018). The profits and
losses are not taxed for the business, but for the owners. This avoids the chances of an income
being double taxed, which often happens with traditional companies, as the tax is to be paid on
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Business Law Assignment
the income of company, and again is to be tax when the owners take portion of those profits.
Another advantage of this form is that Limited Liability Company allows for management
flexibility in comparison to the corporations. There is also the benefit of minimizing the
formalities which are present with the corporations. This is particularly with reference to the
freedom of Limited Liability Company of not fulfilling the stringent ongoing meeting
requirements, along with the documentation requirements as well.
Though, this business form is suited for small businesses as not a lot of money is raised
from the investors. And even though the formation of a Limited Liability Company is easier in
comparison to the corporations, the state filing fees are more or less the same. There is also the
need of filing the articles with the state regarding the organization, along with the need of
publishing notice of the creation of the Limited Liability Company in a local newspaper. Even
though a Limited Liability Company operating agreement is not a compulsion, it is always
advised to draw the same. This should include the information of profit and losses, rights of
members and percentage of interests, in order to set out the regulations for the operations and for
providing structuring for the finances (Ilao, 2017).
Thus, due to the reasons summarized here, it is suggested that a Limited Liability
Company is chosen as the business structure. This is because it fulfills the requirements of the
clients. And even though this structure has certain limitations, the benefits outweigh them quite
effectively.
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