Assignment
First of all we define these three structures of small business entity :-
While starting business or changing the existing structure of the business the owner of the small business entity can adopt three most popular business structures . These are as follows :-
C- CORPORATION :- A C- corporation is the business structure which the owner of the small business entity adopt in order to limit their legal and financial liability.
S- CORPORATION :- A S- corporation is also known as sub chapter S . It is the form of corporation that s meets specific Internal Revenue code rqeuirement . It is a corporation incorporated with 100 or less shareholder with the facility of being tax as the partnership .
PARTNERSHIP :- In this form the entity , the onwer can make a partnership with other persons or entities from which there is certain benefit to the business. A partnership deed will be made between them agreeging upon certain terms and conditions.
Now we are comparing these three in following terms :-
Tax consequences at the formation :- In order to build certain legal protection to your business better to incorporate it.Now a day many owner's of the business had started incorporating their business entity in order to safe guard their personal assets from the liabilities of the companies such as lawsuit or creditors. The federal Income tax rules and regulation had suggested differenent types of the corporations which is governed by the Internal Revenue code. sub chapter C of Internal Revenue code defines the C corporation and S corporation is governers by sub chapter S of Internal Revenue code. S corporation is the special type of The C corporation having certain special Tax selection.
Basically we can say that the law says that you can form a corporation for the sole purpose of limiting your personal liability for business debt, agreements , law suits . As long as you follow the rules and regulation of these corporation they will provide a safe sheild to you .
But , in the partnership it requires a deed containing certain common agreed term and condition agreed between the partners. The partners are fully liable or personal liable for the business liability , law suits and debts. It is not a corporate entity.
Share holder restriction :- Among the different type of the business struction the most common is C corporation structure with having more than 100 shareholder virtually all the public traded corporation are c corporation . A c corporation can consist of one person only , there is no restriction. on the other hand in s corporation the share holders will be 100 or less than 100 only.
In partnership structure , the firm can be formed between two or more persons.
Income allocation :- In c corporation , all the Income generated by the corporation are taxed in the hand of the corporation and the income tax return is to be filled with Internal revenue service authority . After deducting all the business expenses and salaries , the remaining Income is liablle to be taxed and the net income will be tranferred to the sharehloder in the form of divident . on the other hand in s corporation the whole on the income generated by the corporation wll be transferred to the share holder and they will pay the taxes accordingly . The corporation will not be liable to tax . But in case of partnership the firm will pay the taxes on the revenue generated and distribute the remaining to its partner as the share of the profit.
Basis calculations :- In c corporation , all the business expenses are deducted from the total revenue generated by the corporation and taxed accordingly in the hand of the corporation and the remaining income will be tranffered to its shareholders and the shareholder will be taxed accordingly on indivisual basis. On the other hand in s corporation the whole of the revenue is tranffered to its shareholders and they will be liable to pay tax indivisually on it . But in the partnership firm the firm is laibile to pay taxes on the revenue generated minus deductable business expenditure and the net remaining revenue is tranffered to the patners as their share of profit.
Compensation to owners :- In c corporation, after the taxes paid by the corporation the remaining Income is tranferred to its owners i.e. shareholder in the form of divident . on the other hand in s corporation the whole of the revenue of the corporation is tranffered to its owners i.e. shareholder and they will file the tax return of this Income on indivisual basis. But in the partnership firm ,the firm will be liable to pay tax on entity basis and tranferred the remaining left to the partners or owners of the business as their share of profit as prescrised in the partnership deed.
Taxation of distribution :- There is a double taxation in the c corporation First on the entity basis secondly on the Indivisual basis . the corporation has to pay taxes before distribution the profit to its shareholder as divident , then these divident is also liable to be taxed indivisually in the hands of shareholders. On the other hand in S corporation the revenue is distributed amount the shareholder and they are liable to be taxed indivisually. But in case of partnership the entity is liable to pay tax and then distribute the profit to the partners on the basis on profit sharing ratio.
Accounting period :- All of these business structure had to follow the accounting period staring fro january to december basis or 12 month accounting period.
The following information is to be collected regarding a business venture in order to make preferences :-
1) size of the share holder .
2) bunisess revenue quatum
3) nature of business - whether large numder of law suit / debt involved in the business
4) Personal assets of the owners
5) liability which may arise in the future .
C- Corporation :-.