Shania has five options in which to consider for her new business: sole proprietorship, a partnership, a corporation, a joint venture, or a Limited Liability Company (LLC). Shania must weigh the benefits and detriments associated with these different opportunities in order to accomplish her business goals. The advice provided will help her make a sound decision on which business form to choose.
The first possibility is sole proprietorship, the easiest startup option, is where she would be the sole owner of the coffeehouse. The main benefit from a sole proprietorship is complete control of the business and all gains would go straight to Shania. In addition, she would not have to pay separate income tax, and she can deduct all losses. Conversely, there are some down sides. According to Cornell University Law School, “The owner, called a sole proprietor, does not pay separate income tax on the company, but reports all losses and profits on his/her individual tax return. Because the owner
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She will be able to combine the advantages of a partnership and a corporation: the tax benefits and management flexibility provided by a partnership, along with the limited liability of a corporation (Kubasek, 2010). It is logistically easier to start an LLC versus a corporation, as it provides flexibility to Shania in the structure of her business as the member, while not losing her ability to manage the coffeehouse as the owner. Perhaps the largest advantage to Shania is avoiding double taxation, which according to Cornell University Law School, “refers to the imposition of taxes on the same income, assets or financial transaction at two different points of time. A common example is the taxing of shareholder dividends after taxation as corporate earnings” (2015). Shania would not need to have a separate taxation on the coffeehouse, only on the individual members of the business’s personal tax