The LLC is an ideal way for small businesses to organize themselves. There are also similar arrangements for partnerships and corporations as well. Depending on elections made by the LLC and the number of members, the IRS will treat an LLC as either a corporation, partnership, or as part of the LLC's owner's tax return (a "disregarded entity") (IRS, 2012). However, the exact rules can vary by state as well as what type of industry that the company is operating in. Therefore it is recommended that the individual who wishes to pursue his invention seek local consultation before deciding upon the LLC form of the sole proprietorship.
New Invention
Business Environment
Legal, Social, and Economic Environments of New Product Development
There are three basic forms in which of businesses can be organized: sole proprietorships, partnerships, and corporations. There are also many different versions of each form. For example, there are many different kinds of corporations. However, based on the scenario represented for the individual who has an idea for a product a sole proprietorship would most likely represent the ideal form for the individual to get started with and if the product does turn out to be a success then they could always reorganize the business later on. Although the individual has an idea for a product that he believes will be a success he does not have a lot of capital to launch a major product development campaign. Furthermore, although the economy is recovering, the external environment is still plagued with high levels of competition and many industries are still struggling. Therefore it is recommended that the individual begin small with a sole proprietorship and it is also recommended that they strongly consider filing as a limited liability company (LLC) as well.
Legal, Social, and Economic Environments of New Product Development
There are three basic forms in which businesses can be organized. The primary difference in the three forms lies in the way that both liability and ownership is arranged. For example, in a sole proprietorship the individual owns the entire company but also has to maintain all of the liability as well; however, there are some versions of this arrangement that allow the individual to distribute some of the liability so that they are not "personally" responsible such as in a limited liability company (LLC). The sole proprietorship is the easiest way to organize a business because it is the simplest form. Therefore this will probably be the ideal way to the individual to form their business.
In the partnership form of a business, two or more individuals share the risk and rewards that would be found in a sole proprietorship. However the actual structure of the business would be similar to what would be found in a business with only one owner with the exception that it is shared among more individuals. One of the advantages to forming a partnership is that it allows individuals to pool their resources and their talents which can give the partnership an advantage over one individual operating on their own. In many cases partnerships will have comparatively more resources to work with.
The final business form is a corporation which is considered totally different than the other two forms. When a corporation is formed it is considered a separate entity. Although the corporation will have owners, these owners will take no personal liability from the business. All of the liability is vested in the separate entity itself and therefore the only thing that the investors can lose if something goes wrong is their investment in the company. This is one of the most popular forms of business for companies that a larger or that have substantial amount of capital invested in their companies. However, these are generally more complicated to run because of the added requirements necessary to organize the company as a corporation as well as the additional tax requirements in many cases.
One unique business form that bridges some of the advantages of a corporation with the flexibilities found in sole proprietorships is known as a limited liability company. A limited liability company, or LLC, is similar to a partnership but has the legal protections of personal assets that a corporation offers without the burdensome formalities, paperwork and fees; however the exact rules for forming an LLC vary by state (The Wall Street Journal, N.d.). The LLC form was introduced as a way to spur more small business investments and start-ups because it reduces the personal liability that an individual might have and therefore works to reduce the risk that would be found in starting a small business.
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