Question
You need to create a legal structure for your small business. You would like some of the benefits enjoyed by large corporations, but do not want to be taxed twice. You have four partners who will be shareholders. None of you plan to sell your ownership shares to the public, but do want to be protected from business liabilities. Which legal structure should you set up for your business? Sole Proprietorship Limited Liability Company C-Corporation S-Corporation
Answer
4.2
(256 Votes)
Terrence
Professional · Tutor for 6 years
Answer
D
Explanation
The problem refers to choosing the right business entity considering certain constraints: desire for benefits like large corporations, no double taxation, four partners operating as shareholders, no selling of ownership shares to the public, and needed protection from business liabilities. A sole proprietorship allows sustainable growth for businesses but does not provide protection from business liabilities. The Limited Liability Company (LLC) offers protection from liabilities and flexibility with needed tax options, but fails to facilitate benefits like large corporations. The C-Corporation allows benefits desired with regard to no double taxation can't be applied in this corporate structure. Lastly, with S-Corporation, it tends to convene these needs for shareholders not too high, no double taxation, and liability protection.