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Small Business

In: Business and Management

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The government has released funds for creating a small business. This is the best time to get Webb’ Inc started. Sandy Webb will sit down and examine the forms of the four business organization would best suit her service. The company will consider legal, tax, accounting, and other implications when selecting from the four business types.
The Four Forms of Business’
There are four main forms of business organizations that Sandy the owner of Webb Inc. must choose form to start the process of forming her business. The legal entity in which a business owner can choose from is sole proprietorship, partnership, C corporation, and S corporation. Along, with the advantages and disadvantages of each type of business form.
Sole proprietorship is the most common form utilized for a small business. This type of form is used, especially in the early stages of a business controlled by one person. This one person is directly responsible for the management and conduct of the company. The advantage of present the sole proprietorship is that this is least experience to own and operate because there are no particulars concerning the legal organization. There are no rules governing in which it must have a purpose. The disadvantage of this type of form is that the owner is liable for the actions and debts created for and against the company.
Tax implications for sole proprietors are taxes are paid on his or her personals income taxes. The business is not taxed separately. The legal implications of being a sole proprietor means they are held personally liable for any business-related obligation. The creditor can come after their house or any other of their possessions. The accounting implications for this type of company is not subject to the financial accounting standards board (FASB) or Sarbanes-Oxley Act (SOX) they may choose to hire an Accounting firm.

Partnership is at which the company is run by two or more individuals with each person acquiring ownership of the responsibility, liabilities, and the assets. A partnership expands more from sole owner by “partners bring unique skills or resources to the partnership” (Kimmel, Weygandt, et al., 2009. P. 12). The advantage of this form is it increased ability to raise more capital with the combine skills from the partners. The disadvantage would be that all of the partners are legally stuck liable for the debt of the company but not the limited partners because they are only liable for what they invested into the company.
Partners in a business are collectively responsible for all the debts of the business. Each partner has separate tax liabilities and pays taxes on their own share of the income of the business. The legal implications are every partner in the firm is liable jointly with the others, for all the debts and obligations that the company has incurred whilst they have been in partnership. For the accounting implications they are basically the same as sole proprietorship.
A C corporation is “a business organized as a separate legal entity owned by stockholders” (Kimmel et al., 2009. p. 4). A corporation can be purchased by one person, and it can also be held by multiple people. If Webb Inc does decide to go this way it would be in the best interest for Sandy to have the majority of ownership (51% of the shares). Webb Inc. shares can be publically traded or they can be privately traded for money or property. One advantage of this form is the liability protection. Personal assets will not come into play if action is sought legally against the corporation. The disadvantage of this type of form is the higher cost of having to file numerous federal and state fees with each state having their won regulations. The Internal Revenue Services (IRS) can double dip by taxing twice on the earning of the company and the shareholders too.
C corporation tax implications are subject to double taxation. The corporation pays income taxes on their profits, and the shareholders must report their dividends on their personal income tax return. The legal implication with a C corporation is that they are legally independent from the owners and is not a personal tax liability. The accounting implication for C corporation is to abide by SOX and FASB rules and regulations.
S corporations are corporations that choose to pass their corporate income, losses, deductions, and credit through their shareholders for federal tax purposes. “Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates” (IRS, 2012). The advantages of S corporation is that they provide the shareholders are not liable for the corporation’s debts because of their ownership. The disadvantages of this type of form are all the rules and fees because of the requirements to file a number of both federal and state documents with the weight on the shareholder meetings.
S corporation has the ability to have their profits and losses pass through to their shareholder’s personal tax return. The company is not taxed only the shareholders are. The legal implications for this type of corporation is there can only be one class of stock, and no more than 75, they must all be United States citizens or residents. At any given time the company can drop the S status. Just like the C corporations the S must follow the rules and regulations of the SOX and FASB in accounting implications.

Financial statements
The Sole proprietor’s and partnership primary statements are: the Income statement, Balance Sheet, and Statement of Owner’s Equity.
C and S corporation financial statements are: income statement, balance sheet, and cash flow statement.
S corporation has the ability to have their profits and losses pass through to their shareholder’s personal tax return. The company is not taxed only the shareholders are.
Webb’s Inc is a business that will cater to the elderly or shut-in. They will help provide one hot meal a day and friendly visits for the shut-ins. This company will be a partnership between Sandy and her husband Vearl. This business decision came about when Vearl’s friend was recovering from a heart attack. With the wife working full-time that meant he had to be home alone for eight hours. They did some research and discovered there was not much out there for senior citizens and getting help while recovering at home. The going rate was $21 an hour and how many seniors can afford that. Webb Inc will see to it that people will get a hot meal and a little visit if they want it.

References
IRS (2012). Retrieved on April 22, 2012 from http://www.irs.gov/businesses/small/article/0,,id=98263,00.html
Kimmel, P.D., Weygandt, J.J., & Kieso, D.E. (2009). Accounting: Tools for business decision making (3rd. ed.). Hoboken, NJ: John Wiley & Sons.

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