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UK Forms of Business Organisation

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When forming a business, there are many different types of Business Structures you can choose for your company. These business structure types consist of a Sole proprietorship, Limited Liability Company (LLC), corporation, cooperative, partnership, and S Corporation. The few types of business structures that I believe are most significant are an LLC, Partnership, and an S Corporation. There are many similarities and differenced between these three business structures and numerous advantages and disadvantages to each.

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Liability – Good only when there’s a small risk for liability exposure. An accident at the factory, en route to a job site, or at the job site can result in loss of not only the business assets but also all personal assets. Income taxes – Self-employment taxes for Medicare and Social Security are paid in full, as opposed to employees who pay half and the employer pays the other half. Half of the cost of self-employment taxes is deductible. Business profit is considered self-employment income and is reported on a Schedule C tax form. You receive no salary as a Schedule C business owner. If you wanted to leave money in the business with the intention of increasing inventory or saving for a new piece of equipment you may be paying higher taxes. “If you operate as a sole proprietor, those “retained” profits would be taxed at your marginal individual tax rate, which is probably more than 25%. But, if you incorporate, that $50,000 would be taxed at the lower 15% corporate rate”. In other words, you will be taxed on all profits of the business regardless of the amount of money you withdraw from the business. Longevity or continuity of business – The business dissolves when owner dies or sells assets and liabilities of business.

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Corporations are subject to levels of regulation and governmental oversight thatcan place a burden on small businesses. Finally, corporations are subject to what’s generallycalled “double taxation.” Corporations are taxed by the federal and state governments ontheir earnings

When these earnings are distributed as dividends, the shareholders pay taxeson these dividends (Fred Chico Lager, 1994). Corporate profits are thus taxed twice—the corporation pays the taxes thefirst time and the shareholders pay the taxes the second time. In addition to the three commonly adopted forms of business organization—soleproprietorship, partnership, and regular corporations—some business owners select otherforms of organization to meet their particular needs (United States Census Bureau 2011).

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In sum, the three forms of business organization include sole Proprietorship, Partnership and Corporation

In a sole proprietorship, one individual owns and controls the business. The person handles all complains from customers, bears all risk of ownership, make decisions and most importantly the person receive all the benefits from the business .

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Fred Chico Lager (1994). Ben & Jerry’s: The Inside Scoop. New York: Crown Publishers.2 IRS (2015).

“SOI Bulletin Historical Table 12: Number of Business Income Tax Returns, by Size ofBusiness for Income Years 1990-2013.”

United States Census Bureau (2011). “Number of Tax Returns, Receipts, and Net Income by Type ofBusiness.”

The Bill and Melinda Gates Foundation (2016). “Who We Are: Foundation Fact Sheet.”

Fulghieri, P. (2009). Organization and Financing of Innovation, and the Choice between Corporate and Independent Venture Capital. Journal of Financial & Quantitative Analysis, 44(6), 1291-1321.

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