Choosing a Corporation over a Sole Proprietorship Essay

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Business Organization



When determining which form of business organization to adopt for one's business, it is important to consider a number of variables before making a decision. These factors can include: the level of control the owner wishes to have, the structure of the company, the company's level of vulnerability to lawsuit, expectations of profit/loss, and whether there is a need for re-investment of capital back into the company. These considerations can greatly impact the form of organization one chooses. For the case of West Casing, these factors when addressed point to an S Corporation being the best option for Steve West and his 6-man crew. This paper will explain why and S Corp would work for West.



The chief characteristics of the S Corporation are that the business is set up as a separate entity (so in the unfortunate event that there is a casing leak and the company is sued, Steve West himself is not liable but rather the company). The owner is considered a shareholder, as in a regular corporation, and can be hired as a regular worker. The S Corp stipulates that if there is a profit, the shareholder must be paid a reasonable wage. For tax purposes, this could actually be beneficial for West once the business does become profitable, because his own personal taxes will be less due to the wage that he receives.

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For his company, West would be the primary shareholder of the company, and though he is not anticipating earning a profit in the first couple of years, when the business does begin to turn a profit, West can pay himself a wage from the company and thus being personally taxed based on profits alone. The S Corp, like the LLC, allows the owner to avoid paying both corporate and personal taxes. The So Corp. would be beneficial for West because in addition, West would receive a salary from the business as well as personal dividends from profits (Dahl, 2015).



The S Corp would also be much better than starting a sole proprietorship because the latter would leave West exposed to lawsuit: with the corporation, he is better protected in case of accident. Even though West's company is currently small, he does plan to expand in the coming years -- and with expansion, the assumption is that profit will follow. Also, with….....

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References


Dahl, G. (2015). S Corp vs. LLC. INC. Retrieved from http://www.inc.com/guides/201103/s-corp-vs.-llc.html

Laurence, B. (2015). S Corporations. NOLO. Retrieved from https://www.nolo.com/legal-encyclopedia/s-corporation-facts-30002.html

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