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Business Entities - Laws and Regulations Paper

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Autor:   •  April 30, 2011  •  Term Paper  •  888 Words (4 Pages)  •  1,032 Views

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When starting a business it takes careful planning and research. One must research regulations, laws and of course licensing. Furthermore, a business owner must decide which business entity he or she will operate their company under. This is very important when it comes to the protection of the company on a tax and liability level. In this paper we will take a look at two hypothetical businesses and discuss the taxation, liability, legal, regulatory and risk issues that each company my face. We will also take a look at a situation and discuss the legal and regulatory issues in where a hiring manger must decide who to hire for a jackhammer position.

In the first scenario, Frank, a wealthy movie star wants to start a construction company and call it Stonecraft Builders. Frank knows nothing about construction but he is planning on hiring someone to run and manage the company for him. In starting his company Frank needs to set the company up as an LLC, Limited Liability Company. "An LLC is not a partnership or a corporation, but instead has the powers of both a corporation and a partnership".

Frank must first register Stonecraft Builders with the state. The process for registering and establishing an LLC varies from state to state. Once the LLC is established Frank can fully operate. Frank will need an operating agreement. "Corporations have bylaws. Partnerships have partnership agreements. With an LLC, the operating agreement controls how the company is run". Furthermore, "without an operating agreement, the laws of your state of incorporation will control your LLC. This is dangerous because every state is different and it's unlikely that your state's rules are what you and your partners (members) have in mind".

When it comes to the taxation of an LLC, Frank is at an advantage. With a Limited Liability Company, the owner can choose to operate as a partnership, sole proprietor, or like a company which means that Frank is exempt from double taxation. Also, the profits or losses of a Limited Liability Company can be listed on the members' personal income tax returns which can result in large tax savings. Lastly, if Frank decides to draw a salary and earn profits, he could file Stonecraft as an S Corporation which would allow him to distribute profits to the company shareholders on a tax free basis for Medicare taxes and Social Security.

Irene, the hiring manager of Stonecraft has a position available for a jackhammer operator. Irene advertised the position for an applicant who has a high school diploma and jackhammer experience. Irene's occupation is to consider the most capable applicant for the job with the least likely hood of putting the company and other employees in harms way. Irene will

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