Small Business Idea

Melissa Baird

Accounting ACC/561

June 4, 2012

Michael Gaspar

The receipt of the small business funds would provide an opportunity to open a soup kitchen to feed homeless and low income individuals. The business would be a sole proprietorship because of the simplicity, and because the success or failure of the business is solely contingent on the owner’s actions not those of partner’s or shareholders. In addition, a sole proprietorship is not taxed at the corporate rate instead profits and losses are reported on schedule C of the owner’s personal tax return. Completing a schedule C, income statement, and balance sheet for a sole proprietorship is less complicated than completing partnership or corporate tax returns.

Sole Proprietorships

Sole proprietorships are the easiest form of business to set up and operate and are not subject to state or federal government approval, however, some local governments require business’s to obtain a license to operate. Advantages of sole proprietorships include ease and low cost, the owner makes management decisions, has exclusive use of all profits, and the business can be liquidated without approval from a partner or shareholders. Disadvantages include limited capital, sole liability for all business contracts and possible torts that may be incurred as a result of negligence by employees. Also as a sole proprietor all capital used to start the business will be lost if the business fails and creditors may attach the owners personal assets to settle outstanding business debts (Cheeseman, 2010).

Partnerships

Partnerships are formed by two or more individuals who desire to conduct a for-profit business and share the profits. The partners will draft a partnership agreement outlining the partner’s duties and his or her rights, who will be the