Joe’s business operates as a sole proprietorship since it is “a business that is owned and operated by an individual. No formal action is required by law to establish a sole proprietorship; however, proper name registration and certain permits and license may be required” (N.C. Department of Commerce, n.d.). “The business has no existence apart from the owner. Its liabilities are your personal liabilities and you undertake the risks of the business for all assets owned” (Department of the Treasury, n.d.) His individual tax return will include income and expenses from your business. “Joe is legally responsible for his actions, including any actions taken on behalf of or in the name of his business” (N. C. Department of Commerce, n.d.). Joe can enhance and protect his business and personal holdings by selecting a different entity of business. The entity selection of a limited liability company can modify Joe’s business. “Limited Liability Companies (LLC’s) are ideal for small or family-operated businesses” (Nevada Corporate Resources, 2001). An LLC structure can benefit Joe’s business by limiting his liability and allowing tax advantages. The owners of an LLC are called members. One or more members can organize a limited liability company.
“An LLC is created through filings much like those used when creating a corporation. Articles of organization are filed with the state official, usually the secretary of state. The name of the LLC must acknowledge the special nature of this organizational form by including the phrase “limited liability company,” or “limited company,” or some abbreviation, such as “LLC” or “LC.” The LLC must apply to the state to be authorized to transact business legally. An LLC also must file annual reports with the states in which it operates” (UOP, 2002).
Small Business Primer (n.d.) states a limited liability company has the tax advantages of a partnership. Implementing the new entity will provide Joe with added flexibility for business and tax planning. However, if Joe’s business is not properly structured as an LLC, his business will be subjected to double taxation as a corporation. “If the limited liability company is structured properly, each member reports his or her share of the profit and loss on his or her individual state and federal income tax returns. Therefore, it is taxed like a partnership or an S corporation” (Small Business Primer, n.d.). LLC also pays self-employment taxes and estimated taxes.
Joe’s business as a sole proprietorship imposes much more liability, and one major incident could dissolve his company. “In a limited liability company, a member’s legal liability is limited to his or her investment in the business. Generally, a member’s personal assets are not at risk” (Small Business Primer, n.d.). However, Small Business Primer (n.d.) states that a member’s personal assets may be at risk if a member personally guarantees a business debt, the form of business is not properly formed or maintained, or a member becomes personally liable as a result of his or her own acts or conduct.
Small Business Primer (n.d.) notes that the period of existence of a limited liability company can be specified in the articles of organization or a written operating agreement. The articles will also spell out the procedures for continuing the business after a member withdraws. However, if the period of existence is not specified in the articles and a member dies, dissolution of the business will occur. Joe’s article of organization should incorporate his period of existence when filed with the secretary of state.
Certain professional advice, dealing with types of services, charges for the services, terms and conditions of payment, and employee selection, can help eliminate unnecessary penalties, cash flow issues, and employee turnover. An attorney, accountant, and temporary agency are professionals who can offer business advice for Joe’s commercial landscaping and tree business. An attorney would advise Joe to incorporate commercial and equipment rental contracts into his business. A commercial contract describes the type of services a client requests and/or receives and the charges for those services. The equipment rental contract describes the type of rental equipment, the period of rental, and fees. Each contract will include and explain Joe’s payment terms and penalties for late charges. An attorney could also advise on statutory laws, which change every year. An accountant can help Joe with his cash flow, tax issues and filings, and investments. Joe employs seasonal employees, and a temporary agency can advise him regarding this type of employment. By using seasonal employees, Joe can eliminate overhead expenses such as taxes and medical insurance.
Business formation entails determining the type of entity, the purpose of the business, legal and regulatory issues, and professional advice necessity. Changing the business entity of Joe’s commercial landscaping and tree trimming business from a sole proprietorship to an LLC enhances and protects his business and personal holdings. Small Business Primer (n.d.) states a limited liability company has the tax advantages of a partnership. Implementing this new entity for Joe’s business will provide added flexibility for business and tax planning. Professional advice will assure that Joe complys with local, state, and government laws. Joe’s business will profit as an LLC due to limited liability and tax advantages. “Limited Liability Companies (LLC’s) are ideal for small or family-operated businesses” (Nevada Corporate Resources, 2001).
References
Gibbs Landscape Co. (n.d.). Commercial Landscaping. Retrieved December 6, 2004, from .
Nevada Corporate Resources. 2001. Small or Family Businesses. Retrieved December 8, 2004, from .
Nevada Corporate Resources. 2001. Choosing to Implement a Limited Liability Company. Retrieved December 8, 2004, from .
North Carolina Department of Commerce. (n.d.). Business Structures & Links. Retrieved December 7, 2004, from .
North Carolina Department of Treasury. (n.d.). Internal Revenue Services, Sole Proprietorships. Retrieved December 7, 2004, from .
Small Business Primer. (n.d.). Limited Liability Company, A Guide for North Carolinians. Retreived December 9, 2004, from
Depts/fcs/business/llc.html.
University of Phoenix. (Ed.). (2002). The Legal & Regulatory Environment of Business, Twelfth Edition. Business Organizations and Securities Regulation. The McGraw-Hill Companies.
