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Business Entities, Laws, Regulations

Essay by   •  May 11, 2012  •  Research Paper  •  910 Words (4 Pages)  •  1,334 Views

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The purpose of this paper is to prepare an overview of crucial information regarding business analysis that can help in the further decision regarding potential venture opportunities. When considering an investment it is necessary to evaluate the driving forces that are creating opportunities for future success but also the risks from several aspects. Some of these aspects are legal, social, economic, and demographical as well as impact of the infrastructure and technology that are surrounding or impacting job location and operations.

Professional Practice

Akiva and Tara are newly licensed as obstetricians and want to open a birth clinic together. The will need to take out a large loan to finance their start-up costs. Akiva's and Tara's best option would be to create a limited liability partnership (LLP) to organize their business. To form their LLP, Akiva and Tara will need to write and file articles of partnership in the state in which they wish to operate (Cheeseman, 2010). If they choose to conduct business in another state, they will first need to register as a foreign LLP with that state. Organizing their business as a limited liability partnership offers Akiva and Tara the best combination of liability protection, tax benefits, and control of their business.

By forming a LLP, the partners protect themselves from liability beyond their initial capital contribution should the partnership fail or face a lawsuit (Cheeseman, 2010). Members of an LLP are also not personally liable for the malpractice of one partner and states require LLPs to carry substantial liability insurance in exchange for this limited liability. The limited liability protects Akiva and Tara from being held personally liable for the loan they will take out should the business become insolvent. Because of this many states limit the use of LLPs to professional people such as lawyers and doctors. "The state laws of the state the LLP business operates in governs its operation procedures and most states require LLP business to carry a minimum dollar amount of liability insurance that covers negligence, wrongful acts, and misconduct by partners or employees of the LLP" (Cheeseman, 2010, p. 274). The insurance is a requirement to protect injured third parties but also helps to protect the owners of the LLP, allowing them to continue business practice.

Forming an LLP ensures that Akiva and Tara retain control of their business because they are the only shareholders. For tax purposes, an LLP is not taxed as a separate entity so Akiva and Tara will only pay taxes for the business profits on their individual tax returns. Similar to most partnership businesses, limited liability partnerships benefit from flow-through taxation, which means profits and losses are reported on each individual partner's tax forms. However, an LLP must file an information return with the government so the income or losses are traceable to the individual partners. Risks the partnership include the loss of capital investment

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