Small Business Idea
Paula Boyce
University of Phoenix
Accounting
ACC - 561
Professor Trenda Hackett
December 07, 2011

Small Business Idea The government has released fund for creating small businesses. One’s interest is to establish a small business and must determine which of the four forms of business organization will best suit the business chosen. Legal, tax, accounting, and other implications when selecting from the four business types are matters of considerations (University, 2008 - 2011). The four forms of business include Sole proprietorship, Partnership, C Corporation, and S Corporation. Discussion will explain advantages and disadvantages of the four forms of business, financial statement associated with each form of business organization, and the consequences of tax implications, legal implications, and accounting implications such as SOX and FASB. An explanation what one’s business provides, the choice of one’s business organization form, and one’s rationale for choosing the form of business organization chosen (University, 2002).
Sole proprietorship advantages and disadvantages Sole proprietorship is the most common and simplest form of business. An individual owns and manages the business and is responsible for business transactions and responsible for debts and liabilities incurred (AllBusiness.com, 2007, p. 1). Advantages of sole proprietorship is the proprietor is in full control of the business, no corporate taxes, legal cost is at a minimal, formal business requirements are at a minimal. Disadvantages of sole proprietorship is the proprietor is responsible for personally liable of debt and obligations, can be responsible for liabilities committed by employees, and investors usually will not invest in a sole proprietorship (AllBusiness.com, 2007, p. 1).
Partnership advantages and disadvantages Partnership is an agreement between two or more people to finance and operate a business. The profits and losses flow through to the partner’s income tax returns (meaning the percentage of ownership is percentage of profits or losses that the partner reports on his or her income tax return). Advantages of a partnership is partnerships do not take much to establish, borrowing is better because more than one to invest in making the possibility of repayment better, and the possibility of becoming a partner make employment attractive. Two or more are better at brainstorming, have a wider pool of knowledge, skills, contacts, and creativity, also if the partners have different skill that pertain to the business this is cost-effective. Disadvantages of a partnership is partners are jointly and individually liable for actions of the other partner must decide how he or she will share the profit, because situations can change, and disagreement can occur causing a split up. Death of a partner will end the partnership, and a partnership has limitations preventing the business from becoming a large business ("Partnership Advantages and Disadvantages," 2009, p. 1).
C corporation advantages and disadvantages Once a small business incorporates C corporation become automatic consideration. The corporation is seen legally as an individual entity. The owners become stockholders and separate from the corporation. Incorporating the business mean the personal assets are not subject lawsuits unless the owners are doing something illegal and debt belongs to the corporation. Advantages of a C corporation is limited liability, investors is willing to buy stock knowing they will receive dividends when corporation profits. Stock option, and fringe benefits attracts top notch employees for employment, and can deduct some of the fringe benefits on income tax returns. Disadvantages of a C corporation are double taxation, governed by state and federal statute, therefore needing to hire tax preparers, and legal assistance. Profits are paid out according to stockholdings ("C CORPORATION," 2011, p. 1).
S corporation advantages and disadvantages A S corporation is a corporation treated, for federal tax purposes and the Internal Revenue Service makes the determination. Articles of incorporation are files of registry with the Secretary of State. A S corporation has some of the same benefits as a C corporation. Personal bank accounts cannot come under seizer to satisfy business liabilities. Advantages outweigh disadvantages. Assets have protection, does not pay federal taxes at the corporate level, can draw a salary as an employee of the corporation, and easy to establish credibility. Disadvantages are failure to meet tax qualifications can cause termination for S corporations, can have only one class of stock, and closer IRS scrutiny ("S corporation Advantages and Disadvantages," 2011, p. 1).
Financial Statements Statements prepared for a sole proprietorship are the income statement, balance sheet, and statement of changes in owner equity. The partnership use general ledger, income statement, balance sheet, cash flow statement, and ratio analysis. C, and S corporations use income statements, retained earnings statements, balance sheet, statement of cash flows and statement of comprehensive income.
Consequences Associated with Tax Implications for each Form of Business Income tax can increase in a sole proprietorship. Sole proprietors file personal and business income tax together on the same tax return causing proprietors to go into a higher tax bracket, and receive double taxation. Partnerships share the taxes paid and could be half and half or the percentage of ownership in the company. C, and S corporation file Federal and state income taxes on the net profit of the C, and S Corporation ("Types of Business Entities and Tax Implications," 2011, p. 1).
Consequences Associated with Legal Implications for each Form of Business Legal implications for Sole proprietors if sued become the responsibility of the owner and the business that are one. Partnership share the legal obligations, C, and S Corporations are the entities that a suit will affect the shareholder are exempt unless he or she did something illegal, the law pierces the veil.
Consequences Associated with Accounting Implications for each Form of Business Accounting implications are few for Sole proprietors and financial information only reported on individual income tax returns. Sole proprietors are not subject to FASB regulation, and SOX. Partnership each has a separate capital account for investing, separate withdrawal account, but share the net income or loss. C, and S corporations must follow the FASB regulations and SOX.
Small Business Service One chooses the business of a daycare center. The service will provide daycare for children between the ages of two months to 12 years. Children will learn the basics such as reciting alphabets and numbers, learn to color, write, and how to use scissors. Reading will be a part of the curriculum as well as after school care. Children of all ages will learn ethics, moral, and how to grow to be decent human beings as well as doctors, lawyers, and presidents. The business will be a S corporation, and the S corporation is corporation of choice because of the benefits that comes with the S corporation. The corporation receives protection on the assets, does not pay taxes at the corporate level, can draw a salary as an employee, and credibility establishment is easy. In conclusion an explanation of the advantages and disadvantages of the four forms of business, discussion of the financial statement used by each form, and the consequences associated with tax, legal, and account implications are topics of discussion. One also explained a small business, the type of business and the actions of the business and a rational of why one chose to form of business chosen.
References
AllBusiness.com. (2007). Advantages and Disadvantages of Sole Proprietorships. Retrieved from http://www.nytimes.com/allbusiness/AB4113314_primary.html
C CORPORATION. (2011). Retrieved from http://www.referenceforbusiness.com/small/Bo-Co/C-Corporation.html
Partnership Advantages and Disadvantages. (2009). Retrieved from http://www.how-to-start-a-business-guide.com/partnership-advantages.html
S corporation Advantages and Disadvantages. (2011). Retrieved from http://www.bizfilings.com/learn/s-corporation-advantages-and-disadvantages.aspx
Types of Business Entities and Tax Implications. (2011). Retrieved from http://www.house.leg.state.mn.us/hrd/pubs/taxsmbus.pdf
University of Phoenix. (2011). University of Phoenix Syllabus. Retrieved December 07, 2011 ACC/561 - Accounting.