Various Forms Of Organizations: Penelope, Mark, And John

I. Research and describe the main characteristics of the various forms of organization (i.e., entity) that are available to Penelope, Mark, and John.

Some available options to Penelope, Mark, and John are the following:
Partnership: Two or more persons join the business and form partnership where everyone contributes cash, property, and skill, and share in the profits and losses that could be done by Penelope, Mark and John (“Partnerships,” n.d.).
Corporation (C or S): S corporation is another option which is good for small business. Its requirement is also simple. It can be between close friends and family and does not require filling with (SEC). S corporation has the benefits that the corporate business, but they also may take advantage

They may choose to get equal percentage for example 33% each or it may be based on their capital contributions. Generally, any losses are divide in the same limit that profits are, unless the corporation contract states otherwise.
VII. Discuss, in detail, how the individuals are taxed (if at all) with respect to the net profits from this entity and what filing requirements they will each have with the IRS (discuss only for the entity you have recommended). As S corporation status is elected, the business can continue to pass through its gains and losses to the owners. The profits or losses of the business, pass directly through the Member's personal income tax return (IRS Form 1040) and by-pass the typical “business profit” tax at the company level. Each owner reports their pro-rata share of corporate income and deductions on Schedule K-1 (Form 1120S). (“Electing S Corporation Status for a Limited Liability Company,” 2013), (“S Corporations,” n.d.).
VIII. Discuss how Penelope, Mark and John will calculate their "basis" in the new entity. Be sure to include the impact that debt has on basis, if any (discuss only for the entity you have

Debt basis is not considered when determining the taxability of a distribution for S corporation. (“Tax Implications: LLC Versus S Corporations - Hutchison PLLC,” n.d.).
IX. Regarding limited liability, discuss the exposure that Penelope, Mark, and John's personal assets will have to the debts and lawsuits of the entity you have recommended (discuss only for the entity you have recommended).
When an LLC elects’ S status, its operating agreement and protection of liability follow the S corporation eligibility requirements - The business will exist separate and independent from its owners. Generally, all member's personal liability will be limited to his or her investment in the LLC. It differs from general partnership, in which each owner is subject to liability for all of the debts of the business. (“Electing S Corporation Status for a Limited Liability Company,” n.d.).
X. Conclude why entity selection is important to a newly forming