Reply to Rodriguez
Rodriguez, thank you for the post. I believe the choice of business model depends on the size of the organization or business involved. Limited liability companies are mostly startup compared to corporations. Some of the characteristics of a corporation include ease in capital acquisition- because of the ease of selling shares to new investors, paying investors by issuing dividends, a corporation pays income tax on its earnings (Bragg, 2019). A corporation can also theoretically operate forever, shareholders have limited liability, mostly managed by professionals, and lastly, it’s a separate entity from its owners (Bragg, 2019). The characteristics of a corporation sit well with a large corporation that has gone public. I agree with you that a limited liability company has the flexibility to choose on how the business will be taxed compared to a corporation that pays income on its earning. At the same time, the shareholders are also required to pay dividends on their earnings resulting in double taxation.
Reference
Bragg, S. (2019, Sept 08). Characteristics of Corporations. Accounting Tools, https://www.accountingtools.com/articles/2018/1/27/characteristics-of-corporations
Reply to Kaleigh
Kaleigh, thank you for your post. I agree with you that choosing a business model depends on what type of business one is looking to form and who how you want to own the business. Every shareholder enters into a business or invests in a business to get a profit—the more optimized the profits, the better. Corporations require taxation on the bossiness profits and also on the dividends to shareholders resulting in double taxation.
On the other hand, an LLC can choose the mode of taxation and has flexibility. Shareholders will naturally choose the easier way and invest more on LLC. The advantage of being a stockholder lies in the fact that they are not obliged to shoulder the debts and financial obligations incurred by the company, which means creditors cannot compel stockholders to pay them (CFI, 2020). The fact that an LLC is separate from the owners and will continue until there is a dissolving of the company by terms laid out in the operating agreement makes it attractive to shareholders.
Reference
Shareholder – Definition, Roles, and Types of Shareholders. (2020, Feb 18). Retrieved Dec 04, 2020, from https://corporatefinanceinstitute.com/resources/knowledge/finance/shareholder/
Reply to Jaime
Jaime, thank you for your insightful post. I concur with your statement that LLCs are mostly small or mid-size businesses that have limited liability protection. Although small businesses prefer them, it is essential to distinguish them from sole proprietorships. A sole proprietorship is a business structure that is owned by one individual, the sole proprietor, where there is no legal difference between the owner and the business (Cappellino, 2020). The advantages of sole proprietorships are that they are comfortable and inexpensive to start, they require few regulations, and there are no business taxes- Company profits are filed on the business owner’s income tax return (Cappellino, 2020).
On the other hand, LLCs are flexible, owners have limited liability, and the business has tax options to choose from. Entrepreneurs need to distinguish between the business models and make an appropriate decision before investing their capital. It is worth noting that a sole proprietorship can eventually be converted to an LLC, but conversion costs may be substantial.
Reference
Cappellino, A. (2020). How to Choose the Right Business Organization Form. https://academicworks.cuny.edu/cgi/viewcontent.cgi?article=1030&context=nc_oers