A business is defined by Wikipedia as a company or organisation that engages in business or commercial activities for profit. A business may also include any set of relationships or exchanges between persons or organisations that are engaged in trading, investment, providing services or products, lending or receiving payments. Companies can be either private non-profit organisations or for-profit ones that conduct business in order to meet a social purpose or further a socially beneficial cause. Businesses also include trusts, partnership businesses and joint ventures. A business can either be domestic or international in nature.
The main article on Business in The World can be found at: ‘Business – The fundamental economic activity of acquiring and disseminating wealth.’ Business and the profits it generates are often used as a proportionate measure of wealth. For instance, public enterprises such as the Central State Library in Rome, Italy or the State University in Washinton DC, USA, that have large public budgets, are considered to be ‘large businesses’. This means that the library alone can probably be seen as having a ‘large’ profit for its owners.
Another example of a publicly traded business is the Limited Liability Company or LLC. Most businesses may be incorporated as sole proprietorships or corporations but many small businesses are also incorporated as LLCs. LLCs are not known as corporations for the simple reason that they are created by a person (the ‘sole proprietor’) who owns all the share holders in the business while still being liable for all the debts of the business. The same is true for a Limited Liability Company as well as a Corporation. Being a ‘sole proprietor’ entitles the owner to no tax benefits.
The IRS calls most publicly traded corporations VECO (Volkswagen Electric Workshops). On the other hand, a privately owned business is referred to as a S-corp or C-corp. A S-corp is composed of a corporation and a Limited Liability Company or LLC. A C-corp consists of a corporation and one or more limited liability companies.
So what really is the difference between corporations and LLCs? The IRS recognizes both as being business organizations although only one has the tax advantages. For starters, there is no ‘investment’ capital requirement for a corporation. In contrast, a sole proprietorship needs to invest at least 25% of its assets into its business in order to meet the IRS ‘investment’ requirements. Furthermore, there is no income or profit tax on corporations.
But what about the similarities and differences between a corporation and a sole proprietorship? Well, first of all, a corporation is not considered a business organization because it does not have any tangible assets. For example, a sole proprietorship can issue shares and can own property. It does not need any property or assets in order to operate. A business organization, however, must have its own buildings, equipment, and assets in order to operate profitably. It must also hire workers, buy property, and so on.
Moreover, as already mentioned, there are tax benefits associated with corporations. One of the most significant tax benefits is the ability to issue a ‘follow-on’ stock. This means that the owners of the original entity can sell their shares and control the other entities immediately without having to register them separately as individual investors. As long as the proceeds are invested in taxable investments, the share capital can be passed on to the new owner free and clear. If the business becomes an S-corp, the new owners will need to register their personal investments as individual investors and report them on their personal income tax returns.
Hopefully this short article has given you some key takeaways about business corporations, sole proprietorships, and limited liability companies. There is a lot more to business than just being a business. Indeed, business management and ownership are a complex and highly specialized area of tax law. For further information, feel free to contact a business lawyer today.