Discussion:
You have a good friend named Frank who is planning to form a new business. He comes to you for advice. He is a Christian, and he wants to obey God in the operation of his business. He is concerned as to whether Christians should attempt to minimize their tax burdens, after all, “Render unto Caesar that which is Caesar’s,” right? Further, he is concerned as to what liability protection really means and whether a Christian should use an entity that provides for liability protection. He fears that by using such an entity he might be shirking his personal responsibilities. In order to help Frank with his decision, answer the following questions:
- Define what is meant by the concepts of limited liability, and/or liability protection. From the perspective of a Christian worldview, is it wrong for a business owner to use a business organization form that provides for liability protection?
- From the perspective of a Christian worldview, is it wrong for a business to try to minimize its overall tax burden?
Classmate’s Response
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Christian Response to Limiting Liability and Taxation
A Christian friend is seeking advice regarding liability and taxation; specifically, whether is it biblical to minimize corporate liability and tax burden. To understand the scope of corporate liability, it is critical to understand the different types of business forms. Provided the friend is going into business by himself and not with a partner, there are several business forms he could chose to organize his business.
The most basic business form is the sole proprietorship, a business organized by a single person with no special form. Langvardt, et. al (2018) explain that a sole proprietorship is basically an extension of the owner: all business income is taxed directly to the owner, the owner assumes responsibility for all liabilities of the business, and if the owner hires employees, the owner has agency responsibilities for those employees. (Langvardt, Barnes, Prenkert, McCrory, & Perry, 2018, p. 1032)
Other forms of business organization he could use are the corporation or the limited liability company (LLC). Each business form has differences regarding taxation and governance; however, regarding liability, each of them are limited only to the owner’s capital contribution and the owner’s individual torts. (Langvardt, Barnes, Prenkert, McCrory, & Perry, 2018, p. 1036)
The concern is whether it is biblical to limit responsibility, as the principle of personal responsibility is woven throughout the Scriptures. Galatians 6:5 plainly teaches that people should be responsible for their own actions, so would limiting responsibility be biblical? It is important to understand that business forms such as the corporation or the LLC do not completely absolve the owner of responsibility because the owner is still liable for torts committed as well as the amount of contributed captial. Brian Thompson (2019) points out that if the business is operated as a sole proprietorship and loses a lawsuit, the owner could lose their personal assets such as their home, car, and savings accounts. (Thompson, 2019) Although speaking in the context of surety, Proverbs 22:27 (King James Version) says “If thou hast nothing to pay, why should he take away thy bed from under thee?” A business may lose a lawsuit that had nothing to do with the owner, and then he and his family would suffer for it. People commonly take steps to mitigate risk, such as purchasing insurance policies. Mitigating risk by choosing to form a business as either a corporation or an LLC is wise and not unbiblical.
Regarding taxation, an understanding of tax principles and why tax incentives are built into the tax code is essential to ascertain if it is biblical to minimize taxes owed. The tax code offers credit and deductions for many different situations, from having children to saving for retirement. The reason for these, according to Spilker et al. (2020) is that “by allowing deductions from income, our federal tax system…encourage[s] certain behaviors like charitable contributions, retirement savings, and research and development.” (Spilker et al, 2020, p. 1-4) The tax code permits deductions and provides credit because the government has various goals, such as stimulating the economy or encouraging certain behaviors; therefore, using deductions and credits to minimize your tax burden is not unbiblical. Romans 13:7 tells Christians to pay what taxes are due, and provided those taxes are lessoned through legal deductions or credits, there is nothing unbiblical with minimizing tax burden.
REFERENCES
King James Bible.
Langvardt, A., Barnes, J. A., Prenkert, J. D., McCrory, M. A., & Perry, J. (2018). Business Law (17th ed.). McGraw-Hill Education.
Spilker, B. C., Outslay, E., Ayers, B. C., Barrick, J. A., Robinson, J. R., & Worsham, R. G. (2020). McGraw-Hill’s taxation of individuals and business entities. New York, NY: McGraw-Hill/Irwin.
Thompson, Brian. (2019) Should I have a single-person s-corporation? https://www.forbes.com/sites/brianthompson1/2019/02/17/should-i-have-a-single-person-s-corporation/#5fba9edf6c05
