Currently Browsing: Business Law

American Airline – US Airways Merger Proposal under Federal Review

A recent merger proposal between American Airlines and US Airways has prompted an inquiry by the US Government Accountability Office. The airlines claim that because of several other high-profile airline mergers that have gone through in the last five years, this deal will level the playing field and raise competition between the flight giants that have been formed. The merger also intends to financially strengthen the airline industry overall.

However, many critics are concerned the merger will have the opposite effect by significantly decreasing competition, resulting in higher prices. The GAO study, Issues Raised by the Proposed Merger of American Airlines and US Airways, notes that even though the merging airlines “overlap on only 12 nonstop routes, no other nonstop competitors exist on 7 of those 12.” Whether or not this kind of reduction in industry competition outweighs the estimated $1.4 billion increase in net gain for the company remains to be decided.

Critics are also concerned that while US Airways is committed to serving smaller communities, the merger will force the company to drop a percentage of their service slots at airports and decrease the availability of flights to those communities.

The merger proposal must also undergo an antitrust review conducted by the Department of Justice before it can be approved. The airlines’ legal teams must be incredibly busy working on this.

This is some big-time business stuff. While most people will never be a part of such a huge business deal, even small businesses can benefit from the knowledge of a business lawyer.

Pass-Through Taxation of an LLC

One of the advantages for small businesses of forming a limited liability company or LLC is that it automatically qualifies for pass-through taxation. This is similar to a partnership, where taxes are essentially “passed-through” the LLC to the individual members of the LLC. Each member then declares their share in the LLC’s annual profits and pays the taxes accordingly, less deductions of course.

The reason that pass-through taxation is desirable for most small businesses is because there is no double taxation such as in a corporate structure, which means the members of the LLC get to keep more profits. And just as profits are shared and taxed accordingly, members also get to offset some losses the LLC sustain in a given year on their other income.

This method of taxation can be beneficial, but it is not at all a simple process. Like a partnership, the LLC files a tax return although it has no tax burden. It is mostly informational on the gains and losses of the LLC, which are then passed on to members’ personal returns. Because the nature of pass-through taxation involves not only LLC activities but takes into account personal income, deductions and exemptions, it can make an inexperienced person’s head spin.

Another benefit of a limited liability company is that investors aren’t held liable when the company is sued. This is a good way to get people to invest in your company without the risk of future lawsuits. LLC’s are normally seen in fields such as construction, oil and other risky businesses.

In most cases, LLC taxation should be handled by a tax lawyer who has extensive experience in handling LLC tax planning that will maximize the benefits of pass-through taxation. Consult with a competent business law firm in your area to ensure that the requirements and rules of the state where you are doing business are fulfilled.