What entities or business forms are available for a new enterprise? Explain the advantages and

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What entities or business forms are available for a new enterprise? Explain the advantages and disadvantages of each.

 

Begin by selecting the entity or business forms available for a new enterprise. (Select all that apply.)



A.

Corporations

 



B.

Limited liability partnerships (LLP)

 



C.

Limited liability companies (LLC)

 



D.

Sole proprietorships

 



E.

Partnerships

 

 

 

Select an "X" for the entities or business forms that offer the tax advantage listed when doing business as that type of entity. (If the entity or business form does not create the advantage listed, leave the cell blank. For LLCs and LLPs, assume that the entity has two or more owners and has not elected to be treated as acorporation.)

 
 
 
Partner-
S
C
Sole
Advantages
LLC
LLP
ship
Corp
Corp
proprietor
Losses can be used to offset income from other sources (may be
 
 
 
 
 
 
subject to limitations.)
 
 
 
 
 
 
Not taxed as a separate business entity. Instead, all profits and losses
 
 
 
 
 
 
pass through to the owner(s) or member(s).
 
 
 
 
 
 
Shareholders generally can contribute money to or
 
 
 
 
 
 
withdraw money from this entity without recognizing gain.
 
 
 
 
 
 
Shareholder-employees are entitled to nontaxable fringe benefits.
 
 
 
 
 
 
Income is not subject to double taxation.
 
 
 
 
 
 
The entity can use a fiscal instead of a calendar year as its reporting period
 
 
 
 
 
 
without demonstrating a business purpose or making a special election.
 
 
 
 
 
 
There are no restrictions on the types of owners the company can have.
 
 
 
 
 
 
Offers its owners some form of limited liability.
 
 
 
 
 
 
Select an "X" for the entities or business forms that carry the disadvantages listed when doing business as that type of entity. (If the entity or business form does not create the disadvantage listed, leave the cell blank. For LLCs and LLPs, assume that the entity has two or more owners and has not elected to be treated as a corporation.)

 
 
 
Partner-
S
C
Sole
Disadvantages
LLC
LLP
ship
Corp
Corp
proprietor
Double taxation of income results when the entity distributes
 
 
 
 
 
 
dividends to shareholders or, effectively, when shareholders sell
 
 
 
 
 
 
their stock.
 
 
 
 
 
 
Generally cannot defer income by choosing a fiscal year other than
 
 
 
 
 
 
a calendar year unless it can establish a legitimate business purpose
 
 
 
 
 
 
for a fiscal year or unless it makes a special election.
 
 
 
 
 
 
Certain nontaxable fringe benefits generally are not available.
 
 
 
 
 
 
Capital losses confer no tax benefit to the owners in the year the entity
 
 
 
 
 
 
incurs them.
 
 
 
 
 
 
Must use the same accounting period for business and personal purposes.
 
 
 
 
 
 
All profits are taxed to the owner(s)/partner(s) and/or shareholder(s) when
 
 
 
 
 
 
earned, even if not distributed.
 
 
 
 
 
 
Must pay the full amount of Social Security taxes on wages because the
 
 
 
 
 
 
owner is not considered to be an employee of the business.
 
 
 
 
 
 
 

 
 
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