An LLC is a relatively new form of business organization whose goal is to operate and be taxed like a partnership but retain limited liability for owners, thus a combination of partnership and corporation. If changing the company organization from a sole proprietorship to an LLC, the advantages are as follows. Since an LLC is functioned as a partnership, the funds raised from other partners will enlarge the scale of the company and relieve the cash flow and capacity problems and enrich its asset, thus further meet the demand for its cakes. Single Taxation.
The owners of LLC are still taxed once for their personal incomes, avoiding the corporation situation of double taxation. Limited liability. An LLC retains limited liability for owners rather than unlimited liability of a sole proprietorship. So that Mr. and Mrs. Magee’s liability will be no more than their investment which is different from the sole proprietorship case. There are also some disadvantages. Personal benefits unknown. In an LLC, the profits will be distributed among the partners in proportion of their investments. Mr. and Mrs.
Magee probably receive smaller profits though the scale and profits of the company grow. Disagreement may occur. Any failure to spell out the rights and duties of the partners will frequently leads to misunderstandings later on, which has negative effect on the company. Sometimes it’s difficult to balance the rights, obligations and benefits between partners. If changing the business form from sole proprietorship to corporation, the advantages are, Limited Liability. The main advantage to incorporating is the limited liability of the incorporated company.
Unlike the sole proprietorship, where the business owner assumes all the liability of the company, when a business becomes incorporated, an individual shareholder’s liability is limited to the amount he or she has invested in the company. Separation of ownership and management. Ownership can be readily transferred and the life of the corporation is therefore not limited. The stockholders of the corporation have limited liabilities for corporate debts. Also the board of directors can select professional managers who have expertise in running a cake company. (3)Easier to raise money.
The corporation has an enhanced ability to raise cash from shareholders, thus enlarge the asset capacity and solve the problem of cash flows and meet the demand of the market. (4)Liquidity and marketability. Shares can be exchanged without termination of the corporation. Common stock can be listed on stock exchanges. (5)Income Control. If you incorporate your small business, you can determine when you personally receive income, a real tax advantage. Instead of getting your income when it’s received, being incorporated allows you to take your income at a time when you’ll pay less in tax. 6)Increased Business. Having Ltd. , Inc. , Ltee. , or Corp. as part of your company’s name may increase your business, as people perceive corporations as being more stable than unincorporated businesses. If you’re a contractor, you may also find that some companies will only do business with incorporated companies, because of liability issues. The disadvantages are, Double Tax. Corporation has double taxation while a sole proprietorship not. Agency problem. Corporations frequently face agency problems and the control of the corporation is tough.