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Business Law
Persons establishing a new business or operating an existing business face many difficult issues. One of the first issues any business faces is the choice of business entity. A business may operate under a number of different forms such as a sole proprietor, general partnership, corporation, S-corporation, limited liability company, limited partnership, limited liability partnership, professional corporation, or professional association. The choice of business entity is influenced by a number of factors including the structure of the organization, liability and debt avoidance, and taxes to name a few. The choice of business entity is case specific as there is not a one size fits all solution. It is not a decision to be taken lightly, and an attorney should be consulted. A business entity that offers limited liability protection should be chosen over a business entity that does not. A sole proprietorship and a general partnership are risky business entities as they do not provide limited liability. As a result, they should be avoided. Also, consideration must be given to the tax implications of a particular business entity. For example, some business entities may produce double taxation through the payment of corporate taxes. A corporation will initially pay corporate taxes on the profits, and the shareholders will then pay personal income taxes on the corporate profits subsequently distributed to them. Other business entities are “pass-through” entities. A “pass-through” entity does not involve the double taxation typical of corporations. Rather, the profits are passed directly to the owners of the business entity who pay personal income taxes only and not corporate taxes as well. Generally, “pass-through” entities are preferred to avoid double taxation through the payment of corporate taxes. As all business owners know, the operation of a business does not become any easier once a form of business entity has been chosen. Owners are constantly faced with issues involving the law and its interpretation. These issues may involve contracts, personnel, collections, litigation, or even disputes between partners to name just a few. A wrong decision can form the basis of a costly legal action against the business and its owners or employees. Trusted legal counsel is essential in the operation of any business to avoid a costly legal mistake. |
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