Right Entity Formation Aids Business Growth And Credibility

By Author: Alice Coope
Total Articles: 213
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The present day economic scenario showcases a number of business establishments in every industrial sector. With technology equipping the business world with world class IT infrastructure and software applications business seems an easy process for the generation next entrepreneurs. However, running a business needs an in-depth understanding of the products and services, a good insight about customer demands, and good business ethics.

Irrespective of whether starting a business or expanding one, the question that arises is about the types of business entities and the need for forming one. Though there are many views to the pros and cons of business entity formation, entrepreneurs need to understand that forming a business entity creates a protection from any personal liabilities arising from the business activities.

The world over businesses entities are incorporated either as a sole proprietorship, Partnerships, Limited Liability Company or a Corporation. Since most business carry a high-level of risk and personal liabilities ...
... for the owners, choosing the correct entity is very important.

Some of the features of business structures open to the corporate world are

* Sole Proprietorship business structures are those that are run by an individual with no legal distinction between the owner and the business. With no tax aspects linked to it, these form of business is inexpensive to start and can be easily dissolved as everything depends on the sole trader or proprietor. The profits and losses accrued from the business become part of the owner’s personal income and hence the company is disregarded for tax purposes.

* Partnerships – Business entities in the form of partnerships are also relatively inexpensive. However, formed by two or more persons or business entities under the agreement to share the profits and losses, each partner has joint and several liabilities to the business entity. Further, taxation becomes complex, with partnership paying nil taxes but are required to file return to the government based on their profits and losses.

* Limited Liability Companies are highly flexible business entities, which can be used in any industrial sectors. The members of LLC need not compulsorily have limited liability. Further tax planning can either be done like a corporation or as a partnership firm or may also be disregarded from taxes as a sole proprietorship.

* Corporations are more complex and forming a corporation is like creating a new legal entity separate from its owners. Corporations can be owned by one person with the shareholders electing directors to set the policies of the corporation and represent their interests. Legally these corporations need to follow a number of formalities including annual general meetings with shareholders.

With distinct tax planning and business advantages, the corporations and LLCs work out as good options of entity formation for entrepreneurs to build their business with minimal personal liability, greater credibility and brand name.

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