Liability, Taxation, And Recordkeeping Essay

2286 Words Apr 25th, 2016 10 Pages
A. Business Entity Distinctions
Business entities are chosen based on three criteria: liability, taxation, and recordkeeping. The first criterion (liability) focuses on how much debt an owner is personally liable for as well as how the debt ratio affects an owner’s ability to acquire capital. In his current election as a sole proprietorship, Mr. Jones is personally liable for all debts incurred while in operation. If Mr. Jones is unable to repay business debts; his personal assets can be seized to pay back everything owed. Partnerships are like sole proprietorships when it comes to business liability except the burden falls on the shoulders of two or more individuals instead of just the sole business owner. Each individual who contributes cash and non-cash property is expected to receive his or her portion of the income, liabilities, and expenses. A C-corporation is best known as a “separate entity”. As a separate entity, the owners are not personally liable for any debts accumulated by the corporation and personal assets are not subject to seizure if corporate debts are not paid. If Mr. Jones decides to elect the S-corporation status, the business debts are separated from the owners and shareholders. Therefore, his personal assets are protected from creditor seizure under general limited liability protection. Unpaid debts decrease eligibility for businesses to secure extended credit or future financing, so a business entity election with limited liability protection will…

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