Question

Sheila is an engineering student at the Great University in Gainesville. She has developed an idea for a cellphone camera that takes photos of the user and then allows them to be placed in any scene they wish for posting to social media. Sheila believes this product will be highly successful, but she needs to determine how to start her business. She believes that she will start small, but will need to raise money for her projects at some point. If the product is as successful as she believes, then the company may need to sell shares of stock to raise capital for expansion.

Directions

1. What forms of business should Sheila consider and why?

2. Which form of business is the least likely to meet Sheila’s needs?

3. What are the tax consequences of the entity you are recommending?

Answer 1

Answer 1 and Answer 2 - Sheila will have to start with a Limited liability corporation as it has some of the characteristics of Company and has a certain advantages on liability and tax management over a company.

LLC will cover almost almost all the points required by Sheila except share of stock to raise capital for that if she has to convert her LLC into company by statutory conversion, however there are some advantage and disadvantage of this conversion like she will have benefit of open investment from public but her tax liability will likely rise.

Answer 3 - On single owner LLC tax liability falls upon single owner and the profit earned in an accounting year will be taxable.

On multiple owner LLC the liability falls upon the owners in the proportion of there share in a LLC.

In company the tax liability is divided into 2 types that is C type company and a S type Company.If your company qualified to be a C type company then you have to pay corporate tax on your profit as well as share holders have to pay tax on there dividend also.

If your company qualified to be a S type company then you'll have to pay tax on company's profit only.