Business_Structure

My brother and I want to venture into an e-commerce business where we would create crafts and sell them online. When starting up a business, it is crucial to look into some factors in determining what kind of business structure would be more effective especially to an online business. Some of the factors to consider when deciding which business or legal structure is best for our company are: “how much control both of us intend to have on the business, how vulnerable the business is towards lawsuits, what type of tax implications will be impacted by the business structure we select, if we intend to use the profits to reinvest back into the business” (Bill, H., 2010). The most five major types of business or legal structure that most organization form are sole proprietorship, C-corporation, Subchapter S- Corporation, Limited Liability Company, and General Partnership. Limited Liability Company which is normally known as LLC is the best business or legal structure option for our company and it can be defined as “an hybrid form of business organization that allows entrepreneurs and small business owners to enjoy the same limited personal liability that shareholders in a corporation have while retaining the status in a partnership” (Kubasek, N., 2009). The LLCs are the newest form of business organization in America and are essentially the creations of the state legislatures (Spadaccini, M., 2009). The reason why LLC is the best the option for our business venture is because of the flexibility it provides and also the tax benefits, being able to have the best of the partnership structure as well as the corporation structure is one of the factors that was researched on. Also given the borderless, rapid and uncertainty development of the ecommerce law and taxation, LLC provides a way because losses and profits are passing through to each member of the company, and the company is not being taxed which eliminates the double taxation that corporations are faced with. Forming a Limited Liability Company (LLC) might be complex and costly than sole proprietorship and partnership, but as long as we follow the rules of governess relating to LLC, it would be all worth it, mostly because we are in the e-commerce line of business where we need personal liability for business debt and court judgment to be limited. As an internet business owner, one is more vulnerable to lawsuit because the long arm statute relating to jurisdiction which applies to e-commerce owners regardless of what state the owners are residing or operating from. Operating businesses over the internet, means that we are not just operating in one state but in multiple states as well, which is where the issue of tax emerges from, and no one can predict where or what the tax rates apply. Since the company or business is formed as an LLC, the business itself is not taxable; instead all the profit and loss flows through to all members of the company, who are now taxed on individual basis. Also, LLC provides more flexibility in the allocation of profit and loss, and also the delegation of managerial duties (Adler, 1999-2009). One of the issues that is plaguing business owners relating to LLC is that since the limited liability is a new business form, there hasn’t been a body of legal precedent governing LLCs. Therefore, LLC owners and professionals may face operating questions and issues for which they have little or legal guidance. with that said, this concerns lessens as the state develops a reliable body of laws concerning LLCs, and it is not much of an issue for a small business like us (Spadaccini, 2009). This is why a Uniform Limited Liability Company Act (ULLCA) was issued which covers the formation, operation, and termination of LLCs. Each state must determine through its legislature whether the ULLCA will become state law, and forty-eight states have adopted all or part of the Uniform Act as its state statute (Kubasek, 2009). Also the issue of the LLC expanding can be a disadvantage for LLCs owners because venture capitalist tends to shy away from investing in LLCs. Basically if for the lifespan of our business, which we intend to make it a family organization, grows and we want to become a public company, it will be difficult to find investors to invest in our company which will mean we would have to change the structure of the company from LLC to a corporation. Also the required annual fees and filings to the state might be another issue that most owners do not want to be faced with. Overall, analyzing all the factors relating to this business to the requirements of the formation of a LLC company, I will say that LLC is a better fit for us. Since we want to be equal partners regardless of who invested more into the company, LLC provides us with that flexibility; it also allows us to use different levels of investing from transferring stock to investing with real estates and other monetary values. LLCs formation provides with limited liability which is important to us, since we are going to be merchandising online, this makes us more vulnerable to lawsuits and with the liability protection, only the company as an entity will be liable not the owners. Also as an LLC we do not have the restriction of how many members can be included in the company unlike a corporation; in addition, we do not face the double taxation that corporations face since our profit and losses flows through to each members. Being an internet business, the fact that we are not restricted with so many laws and regulation makes Limited Liability Company (LLC) business structure the most efficient structure for our business venture. References Kubasek, N., Brennan, B., & Browne, M.  (2009). The legal environment of business: A critical thinking approach, pg 467-491 (5th ed.). Upper Saddle River, NJ: Pearson-Prentice Hall. Adler, D. (1999-2009). Choose a legal structure for your online business. Retrieved January 24, 2010, from Adler and Francyzk: http://www.ecommerceattorney.com/legalstructure.html H., B. (n.d.). Choose a Business Structure. Retrieved January 24, 2010, from Sell it on the web: http://www.entrepreneur.com/startingabusiness/startupbasics/article200516.html Spadaccini, M. (2009, March 09). The Basic of Business Structure. Retrieved January 24, 2010, from Enterpreneur: http://www.entrepreneur.com/startingabusiness/startupbasics/article200516.html