Business Structure According to Law
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Business Law – also known as Commercial Law is a specialized field of law that presides over any business and commercial transactions. Business law encompasses such business transactions and activities as creation and incorporation of companies; patents, trademarks, and copyrights; business guarantees and contracts; hiring and employment policies and rules; and corporate structure and composition among others. Generally, Business law is intended to ensure proper management of businesses for the benefit of all stakeholders, owners and the consuming public alike.
One of the basics of Business Law is intended to classify and provide ground rules on the proper business structure. There are a number of business structures; each differs in several essential aspects. These aspects vary differently among these business structures. Here are the most common aspects that may distinguish these business structures from the other – Taxation, Risk and Control, Liability, Continuity of Existence, Expense and Formality, and Transferability.
The two major aspects can be said to be Taxation and Liability. Traditionally there were tradeoffs between these two in a way that a company may risk having a bigger liability with low taxation or the other way around. However, some business forms like LLC’s and Corporations may have limited pass-through taxation and liability all at once.
Taxation may differ among these business structures. Many countries differ on this implementation, but generally there are many tax incentives and rules that may be available on a different degree among business forms. Taxation may include corporate taxes, and rules on how these taxes may be passed through consumers.
Liability, on the other hand, is a risk a business owner exposes oneself in doing business. Liability maybe understood as the legal accountability of the business and its owner to the effect and consequences of the business on the environment and the community.
Here are the most common legal business structures.
Sole Proprietorship
It is considered the simplest among business structures and is particularly prevalent among small scale businesses. The proprietor or the sole owner can only incur a little amount of expenses in setting the business.
General Partnership
It is generally the form referring to the association of two or more business people in creating a profitable business. This form is characterized mainly to having pass-through taxation. In General Partnership the owners are liable personally for the business and its incurred debts. In this form, the law specifically limits the ownership to at least two (2). This partnership need not be registered formally or in written formal documents.
Limited Partnership
This is a limited form of Partnership between two or more business people. In this set-up, the partnership can be classified into the General Partners – which are personally exposed in liability and involves in management of the business; and the Limited Partners – which does not participate directly in running the business but offers financial capital infusion and investment to the business thus without personal liability.
Limited Liability Partnership
This is a partnership derivative where-in all partners enjoy only limited liability. This form is prevalent in the legal and accounting profession. This structure is commonly used in Law and Accounting firms where individual professionals can act at their own personal capacity and is exposed to the inherent liability of their profession.
Corporation
This form is commonly prevalent among the large business entities. It is characterized by the separation and distinction of the business entity from the owners. In the eyes of the law, Business Owners enjoy limited liability and may not be involved in running the business. A corporation may have their management structure that may consist of people aside from or completely different from the owners. Furthermore, a distinguishable fact and attribute of a corporation are its perpetual existence and easy share transferability. Also, depending on the local law of the country, there are laid rules and restriction for eligibility shareholders of the corporation.
Limited Liability Company (LLC)
This form is characterized by a limited liability of the owner of the business. In law, LLC can have at least one (1) member or owner. This structure is associated with a flow-through taxation which might be undesirable but generally better than a Corporation in terms of taxes and better income allocation flexibility.
Authenticating your Business
Initiating a business is not an easy thing to do. It could not be established in a blink of an eye because there is a due process for starting one. You need to have enough money to support the business and comply with the necessary requirements. There are many things that need to be considered and these means that the business you have planned should conform to the law. If you are a newbie in starting such, you can consult government agencies or friends that are knowledgeable about creating a business. It is also best to consult a lawyer to be aware of the different legalities regarding the business. This will surely help you on what to do and consider. It will take a long time but it will surely prevent any violations to the rules and regulations that may possibly lead to the closure of the business and lawsuits. Those who plan to start a business should make a list of all the necessary things to accomplish so that not a single requirement would be missed out.
The first thing that should be decided is the name of the business and its availability should be checked. Usually to attract consumers, it should be unique and catchy. A creative name should not only catch the attention of the consumers but it should not have a duplicate because it will produce troubles in the future. The chosen name should be registered to the appropriate government agency for approval and to make it legal. It is also best to consider the taxation of the business. The sales and expenses should be duly documented and liquidated to avoid questioning and trouble with the government. It is the responsibility of the business owners to be liable enough to adhere to the law. It is necessary for different businesses to pay their taxes for them to be in accordance with what is supposed to be followed and prevent tax evasion lawsuits. The type of ownership will definitely affect the taxes of the business so it is also better to consider this aspect. This will prevent hassles and allow the business to continue functioning. There are businesses that were ordered to shut down because they fail to pay their taxes.
A business license will make your business legal therefore it is mandatory to avail one upon having a business. It will signify that the business is allowed to operate and serve the public. In order for the government to release a license and a permit, there are many things that need to be inspected and scrutinized. A common aspect that is being examined is the health and safety status of a certain business most especially those who are planning to engage in retail. The place of the business should be clean and should meet the standards set by the agency. The place should have adequate lighting and ventilation. The adequacy of the place and insurance should be issued to those big time companies with a great number of employees. Welfare of the employees and consumers are significant aspects and should be considered. The area should be free from hazardous elements that may put the consumers at risk. The location of the business should be properly situated to the kind of services offered to be able to acquire a permit. There are those businesses that failed during the inspection and were forced to close their business. If you have a big business and you are hiring a number of employees, it should also important to provide the employees with benefits usually indicated in the law. All employees should receive the minimum wage that is set by the government and the owner of the business should not violate this. Employees that are hired should be qualified and should be based from the rules and regulations.
Indeed there are many things that need to be done and paperworks to accomplish and submit to establish a business. It may also cost you to spend more but it will surely prevent future problems and expenses. It is not as easy as it looks though, but being in line with the law would promote a smooth sailing business that will surely provide the necessary services that the consumers would want to have.
The Legalities an Individual Would Face When Forming a Business
In these tough times, money is really hard to earn since it is not just easily picked up in the streets. An individual needs to earn hard for it. Blood, sweat, and tears are allotted for every penny earned during what we consider “pay day”. In order to have a lot of money in the fastest possible time, you have to either possess a winning lottery ticket having a jackpot of more than a million dollars or to establish some sort of business that has eventually clicked and progressed thereby leading to a bigger bank account of the individual who has engaged in that particular business. But in order to establish a type of business, an individual must first have knowledge regarding the legalities of engaging in business. Because the government must have an eye to every form of business in the society whether it is small or big in terms of profit, any form of business must undergo proper due process of making it a certified legal one. An individual can’t just form a particular type of business without a permit to operate by the government. As citizens of the society, we are obliged to pay our taxes and forming a type of business is an additional tax which is considered to be known as business tax. In addition, all the profit of which shall be audited by the government for documentation and in order to determine the amount of tax an individual must pay. Any form of incompliance by the business operators with regards to the rules stipulated by the government shall mean discontinuance of their business operations and confiscation of their business permit to operate. With all these legal requirements, how can an individual start to form a legal form of business? When can an individual say that he or she in now legally allowed by the law to begin business operations? Where can an individual find help if he or she is confused with the legal process of forming a business? Is it really necessary to have a business permit when forming a certain type of business even if its profit is just minimal? And lastly, what is the reason why taxes are imposed in forming a type of business? Considering the fact that not all people in the whole world are literate and not all are fully aware of the law specifically imposed on business, questions like the abovementioned will definitely be raised. As the discussion moves along, these questions will be given answers.
Forming a certain type of business, let us say a flower shop, is indeed very challenging. The mixture of the elements of excitement and anxiety brought about by the fact that any form of business is a in a way a form of gamble makes the whole experience more thrilling. An individual can never tell if the chosen type of business will either turn into a devastating failure or a joyful success. It needs a lot critical analysis and careful planning for it to grow. But before all of these, first, it must be legalized by the government in order for things to run smoothly and according to the law. If one does not want the hassles of having the government shutting down the business that one has worked hard for, then abiding to the law is very important.
In starting to build a business, register it first legally. Go to the government office and have the proper certifications to make one’s business be legal. Once the proper documentations are processed and the permit to start business operations is released, that is the time when an individual can say that he or she is now legally allowed by the law to begin business operations. If ever one does get confused about the whole legal process, seek appropriate help and assistance. Ask a friend who knows about it or better yet ask a government lawyer. In this way, one can be sure that he or she is receiving accurate information regarding the legalities of starting a business. Whether a business earns a small amount of profit, it still needs a permit to operate. It is according to the law; therefore as responsible citizens, it must then be followed. Taxes are imposed on business so that it could help in the economic development of a certain country. It intends to make a country stable as far as the economy is concerned.