Selecting a Business Structure: LLCs and Other Legal Entities

This essay provides a comparative analysis of various business structures, including sole proprietorships, general partnerships, limited partnerships, C corporations, S corporations, and limited liability companies (LLCs). It outlines the advantages and disadvantages of each structure, focusing on aspects such as liability, taxation, management, and ease of formation. The essay emphasizes that the LLC structure is particularly suitable for real estate ventures due to its pass-through taxation, unlimited partnership, and management flexibility. The analysis helps in understanding which business structure best fits specific business needs, especially in the context of real estate investments, ensuring optimal financial and operational benefits.

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Business entrepreneur
A sole proprietorship is managed and run by a single person. It is formed when a person
starts operating the business individually. The structure has advantages such as trouble-free to
form and the owner has total control of the proprietorship (Starr, 2016). Further they have a tax
advantage since they do not have separate tax fillings. On the other hand, there are disadvantages
since the owner bears the loss alone in case they occur, in case the business goes into debt, the
personal property can be used to settle (Starr, 2016).
A general partnership is usually owned by two or more individuals who enter into an
agreement to share the profits, assets and liabilities of a business (Currie, Chopra, Chen, Sun,
Doshi, & Tran, 2019). This kind of business structure has unlimited liability which means
personal properties can be used to settle debts. The reason that people choose to enter into a
general partnership is that they share profits and losses (Currie et al., 2019). Further, all members
are engaged in making decisions which can result in a better decision making process. It also
helps to pool resources easily to start a business compared to a sole proprietorship. On the other
hand, owners may conflict during decision making which can be time consuming to resolve.
Also, it is disadvantageous if the partners get into debt and the business asset cannot be able to
clear. As a result, the personal property is used to settle such debts (Currie et al., 2019).
A limited partnership is more of a general partnership but the management rests on a
general partner. The general partner has unlimited liability but the limited partners have their
liability limited to the total investment of the company (Everhart, 2018). The advantage is that it
helps to raise capital. The general partner has complete control and oversight of the business. On
the flipside, it may be disadvantageous since it has unlimited liability.

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C Corporation is a business structure where a corporation is taxed separately from the
owners. The business has limited liability, it can easily be sued and it has perpetual existence.
The disadvantage is that there is double taxation where both shareholders and corporations are
taxed altogether (Everhart, 2018). The formation is more complicated compared to others. S
corporation’s advantage is that shareholders do not have to pay self-employment tax business
profit. The tax is deducted from the salary they pay themselves. Shareholders enjoy limited
liability and good privacy protection. The disadvantage is that a person having 2% or more do
not enjoy tax benefits. Shares can be seized through court proceedings and the shares are limited
to one class only.
In limited liability Company there is limitless partnership, the property of the
shareholders cannot be used to settle debt, there is freedom of management and the allocation of
profit and losses is flexible (Johnson, 2015). The disadvantages are that the business structure
attracts higher fees, not all business fits this kind of structure, and it is confusing among States.
For a real estate venture, the best business structure is LLC since it has both partnership and
corporation features. The taxes are passed through to members whom they report profits and
losses on their personal tax returns (Johnson, 2015). So there are no cases of double taxation and
thereby more profits are left for the shareholders to enjoy. A real estate business may attract a lot
of partners which makes it the best venture since it has no limit of participants.

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References
Johnson, L. R. (2015). From GP to LLC: Making the Right Choice of Entity Decision. Journal of
the International Academy for Case Studies, 21(6), 159.
Everhart, J. R. (2018). Unlimited tax liability: a common misnomer of limited liability company
taxation in the United States. Small Business Institute Journal, 14(1), 44-51.
Starr, K. T. (2016). "I want to be my own boss:" Self-employment and legal business structures.
Nursing2018, 46(5), 14-15.
Currie, D., Chopra, R., Chen, C., Sun, S. Y., Doshi, S., & Tran, T. (2019). Summaries for the 6th
Annual IRS-SJSU Small Business Tax Institute. The Contemporary Tax Journal, 8(1), 8.