Businesses Are The Cornerstone Of A Capitalistic Research Paper

Length: 8 pages Sources: 8 Subject: Business Type: Research Paper Paper: #47235600 Related Topics: Business Operations, Taxation, Stocks And Bonds, Organic Farming

Excerpt from Research Paper :

Businesses are the cornerstone of a capitalistic society. Businesses often drive economic growth and overall societal prosperity. In many instances, business can enhance the overall quality of life of those living in civilization. Looking back briefly at history, provides a unique perspective of business as it relates to societal development. Currently, looking at a minimum wage individual living in America today, they are able to perform tasks and activities that many of the wealthiest individuals in society during 1900 could only dream of. The minimum wage individual can watch television, listen to music on a cell phone, use the internet and even control the weather within their vehicle. This has occurred primarily due to the profit incentive embedded in a capitalistic society. The same will occur with Alex, Bill, Carl, Devon, and Xavier as there farm business developments. These same principles are present for all Christians who want their business to be organized and operated in accordance with the Christian worldview. As indicated by the case, the profit orientation that is consistent with most business is also embedded into the firm. As such, the best form of corporation is that of an S corporation. In this instance it will allow the partners to allow Xavier to have control of the day-to-day activities while allowing the other partners to remain relatively anonymous regarding taxes (Conard, 1976). The first entity is that of a corporation. Anyone who operates a business, alone or with others, may incorporate. This is also true for anyone or any group engaged in religious, civil, non-profit or charitable endeavors. This is particularly important for businesses with christian values embedded within the business. Expanding commercial enterprise is the work of christian men and women around the world. An individual does not have to be a business giant to be able to have the financial and other benefits of operating a corporation. Given the right circumstances, the owner of a business of any size can benefit from incorporating. A general Corporation is the most common corporate structure. The corporation is a separate legal entity that is owned by stockholders (Blumberg, 1996). A general corporation may have an unlimited number of stockholders that, due to the separate legal nature of the corporation, are protected from the creditors of the business. A stockholder's personal liability is usually limited tothe amount of investment in the corporation and no more. The first primary advantage of a corporation is that the owners' personal assets are protected from business debt and liability. Corporations have unlimited life extending beyond the illness or death of the owners. In regards to the farm, there is no sign that the partners have thought thoroughly about succession planning. As such, there may not be a business need to keep the corporation around after the death of Xavier. However, if all the partners do desire, to great a long thriving business, a corporation would be a viable option. Corporations, also have tax free benefits such as insurance, travel, and retirement plan deductions. The transfer of ownership is also very seamless and is facilitated by the sale of stock. It is also easier to raise the needed capital through sale of stocks and bonds (Barnet, 1974).

However there are some disadvantages in regards to a corporation. First this entity is the most expensive to form than proprietorship or partnerships. There is also more legal formality, consisting of state and federal rules and regulations

In addition the partners, have th ability to form an S corporation. With the Tax Reform Act of 1986, the S Corporation became a highly desirable entity for corporate tax purposes. An S Corporation is not really a different type of corporation. It is a special tax designation applied for and granted by the IRS to corporations that have already been formed. Many entrepreneurs and small business owners are partial to the S Corporation because it combines many of the advantages of a sole proprietorship, partnership and the corporate forms of business structure.

S Corporations have the same basic advantages and disadvantages of general or close corporation with the added benefit of the S Corporation special tax provisions. When a standard corporation makes a profit, it pays a federal corporate income tax on the profit. If the company declares a dividend, the shareholders must report the dividend as personal income and pay more taxes.

S Corporations avoid this "double taxation" because all income or loss is reported only once on the personal tax returns of the shareholders. However, like standard corporations...


In summary, S corporations are merely corporations that elect to pass corporate income, losses, deductions, and credit through to their shareholders for federal tax purposes. The S corporation rules are contained in Subchapters of Chapter 1 of the Internal Revenue Code sections 1361 through 1379. S status combines the legal environment of C corporations with U.S. federal income taxation similar to that of partnerships. Like a C corporation, an S corporation is generally a corporation under the law of the state in which the entity is organized. For Federal income tax purposes, however, taxation of S corporations resembles that of partnerships. As with partnerships, the income, deductions, and tax credits of an S corporation flow through to shareholders annually, regardless of whether distributions are made. Thus, income is taxed at the shareholder level and not at the corporate level. Payments to S. shareholders by the corporation are distributed tax-free to the extent that the distributed earnings were not previously taxed. Also, certain corporate penalty taxes such as accumulated earnings tax, personal holding company tax and the alternative minimum tax do not apply to an S corporation.
Like many of the other forms of business discussed throughout the document, the S Corporation does have restrictions. First, to elect S Corporation status, your corporation must meet specific guidelines. As a result of the 1996 Tax Law, which became effective January 1, 1997, many of these qualifying guidelines have been changed which significantly impact S corporation formation. First, prior to the 1996 Tax Law, the maximum number of shareholders was 35. The maximum number of shareholders for an S Corporation has now been increased to 75. Previously, S Corporation ownership was limited to individuals, estates, and certain trusts. Under the new law, stock of an S Corporation may be held by a new "electing small business trust." All beneficiaries of the trust must be individuals or estates, except that charitable organizations may hold limited interests. Interests in the trust must be acquired by gift or bequest -- not by purchase. Each potential current beneficiary of the trust is counted towards the 75 shareholder limit on S Corporation shareholders. S Corporations are now allowed to own 80% or more of the stock of a regular C corporation, which may elect to file a consolidated return with other affiliated regular C corporations (Barnet, a1974).

The next best alternative, next to the S corporation is that of the Limited Liability Company.

LLCs have long been a traditional form of business structure in Europe and Latin America. LLCs were first introduced in the United States by the state of Wyoming in 1977 and authorized for pass- through taxation (similar to partnerships and S Corporations) by the IRS in 1988. With the recent inclusion of Hawaii, all 50 states and Washington, D.C. have now adopted some form of LLC legislation for both domestic and foreign (out of state) limited liability companies.Many business professionals believe LLCs present a superior alternative to corporations and partnerships because LLCs combine many of the advantages of both. With an LLC, the owners can have the corporate liability protection for their personal assets from business debt as well as the tax advantages of partnerships or S Corporations. It is similar to an S Corporation without the IRS' restrictions. The first major advantage of an LLC is that of the protection of personal assets from business debt. This concept is very pertinent to the case as many of the partners other than Xavier do not want to put their personal assets at risk. In addition, it seems that other partners are not as well versed as to the daily business operations of the firm. As such, they are less likely to risk personal assets in an endeavor they are unfamiliar with. As such, the LLC protects the assets of the partners in the event the business venture doe not go well. In addition, profits and losses pass through to personal income tax returns of the owners. This is of particular important is the entity realizes substantial profits. The farm partners will also have greater flexibility in management and organization of the business. They will not be subject to the whims and desires of stockholders or hostile owners. Under an LLC, the partners will have majority control of the operations of the firm and make decisions accordingly. Under many of the other arrangements, the firm would be subject to large shareholders who could exercise their ownership might…

Sources Used in Documents:


1. Barnet, Richard; Ronald E. Muller (1974). Global Reach: The Power of the Multinational Corporation. New York, NY: Simon & Schuster.

2. Blumberg, Phillip I., The Multinational Challenge to Corporation Law: The Search for a New Corporate Personality, (1993)

3. Cadman, John William. The Corporation in New Jersey: Business and Politics,, (1949)

4. Conard, Alfred F Corporations in Perspective. 1976.

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