As a business person, one ought to select the best business form that one will utilize. There are several forms of businesses that new business owners can choose. These business forms will affect the company income tax treatment and legal liability.
Limited Liability Company
The suitable business form for Dazzling Doggies Day Spa is a limited liability company (LLC). LLC formation is easier and offers flexibility and protection compared to a corporation. The members of the company are protected against personal liability for the company liabilities or debts. This type of business is flexible in that it is designed to separate the company assets from owners’ personal assets ( Rupasingha, 2017) . LLC combines features of a corporation and a partnership, but it also offers Beth the benefits she desires. LLC is established under the laws of the state, and hence the governing rules of LLCs vary based on where the business is located. LLC has no unique federal tax forms because they are under the state laws.
Delegate your assignment to our experts and they will do the rest.
Therefore paperwork filing will be done in the state and Dazzling Doggies Day Spa will have to pay fees which vary from one state to the other ( Parker et.al, 2012) . There are also some documents called organization articles at will also be filed. Based on the laws of the state the partners will also have to create a contract (agreement) which highlights the percentage interest of each owner in the business. Moreover, the partners will have to spell out the voting power, responsibilities and how the profits and losses will be distributed to avoid conflicts. Dazzling Doggies Day Spa may also have to circulate a notice in the local newspaper stating that they are forming an LLC.
Unethical Actions of Adam
Adam using the business money to for personal expenses is unethical and will cause trouble with the partners. To start with all the business partners have offered their money as capital based on trust and mutual understanding which is essential. Adam has not informed the rest of his actions, and this could lead to a breach of contract. He is using partnership funds for personal expenses and hence using the other business partners’ share of profits. Therefore he is diving in a pool of trouble that will eventually cause problems with the partners.
Separating personal and business expenses are the most crucial advice that any lawyer, accountant or business will say. LLC is established to protect the owner from personal liability that might occur. However, the legal protection may be wiped away if the business owner is co-mingling funds from the business account to pay personal expenses. The best way to separate personal and business expenses is setting up regular payments (salary) to ensure the business stays legit ( Robson et.al, 2012) .
Furthermore, Adam actions could create problems for the company with the Internal Revenue Service (IRS). While undergoing auditing, the burden will lie on Adam to establish whether the expenses are valid business expenses. Nowadays the IRS is allowed to request for the actual QuickBooks file. Hence by allowing the agent to access the accounting data file he/she will see everything. The current administration on IRS is not friendly like the ones of the recent years. They are now stricter to both the preparers and the taxpayers.
In conclusion, it will be the responsibility of Dazzling Doggies Day SPA to provide proof (invoices or receipts) to explain how the money was used. Bookkeeping is of great importance to any business entity especially when the IRS request for all accounting records.
References
Parker, S. C., & Van Praag, C. M. (2012). The entrepreneur's mode of entry: Business takeover or new venture start?. Journal of Business Venturing , 27 (1), 31-46.
Robson, P. J., Akuetteh, C. K., Westhead, P., & Wright, M. (2012). Exporting intensity, human capital and business ownership experience. International Small Business Journal , 30 (4), 367-387.
Rupasingha, A. (2017). Local business ownership and local economic performance: evidence from US counties. Regional Studies , 51 (5), 659-673.
