Acc 561 Small Business Idea

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Small Business Idea
Starting a business can be one of the most challenging endeavors to engage. Indentifying a need or want in a given industry, completing the pre-business research, demographics and analyses, then determining financial feasibility is only the tip of the iceberg. Choosing the right business structure will contribute to its long term success. Therefore, when selecting the appropriate business type, one must carefully consider the following: taxes, liability, administrative burdens, start-up and long term costs, legal implications, accounting, public reporting, a business partner’s agenda, the best method to reach financial goals, as well as considering the different types of financial statements associated with each form. The four basic forms of a business are sole proprietorships, partnerships, c corporations and s corporations. Each of these forms has distinct advantages and disadvantages in relation to taxes, legal implications, accounting requirements and meeting the business’ objectives. Please refer to the illustration of these areas in the table below:

ADVANTAGESDISADVANTAGESFINANCIAL FORMS
SOLE PROPRIETORSHIP
(Investor Guide. com, n.d.) and (All Business, n.d.)
A sole proprietor has complete control and decision-making power over the business.

The sole proprietor of the business can be held personally liable for the debts and obligations of the business and its employees

Income statement and balance sheet
Sale or transfer can take place at the discretion of the sole proprietor.

No corporate tax payments
All responsibilities and business decisions fall on the shoulders of the sole proprietor.

all profits are fully distributed to the shareholders, and reported & taxed on each shareholder's 1040
Minimal legal costs to forming a sole proprietorship, it’s easy to set up.
Investors won’t usually invest in sole proprietorships.

Pays taxes on business profits through personal income tax
PARTNERSHIP
(Investor Guide. com, n.d.) and (All Business, n.d.)
Partnerships are relatively easy to establish; however time should be invested in developing the partnership agreement. Business partnerships can be either general or limited, and as far as tax codes are concerned, exist as long as profits, losses and costs of a business are shared. While general partnerships are more common, limited partnerships are a popular method of raising capital from passive investors who prefer to not be involved in day-to-day business operations.Business Partners are jointly and individually liable for the actions of the other partners.It is fairly easy to compute tax if partners have invested only cash. However, if non-cash financing options, such as vehicles or real estate, are involved more complicated tax rules are applicable.

With more than one owner, the ability to raise funds - Debt vs Equity may be increased. Limited partnerships (LPs) have two sets of partners, namely one or more general partners who have personal liability and one or more limited partners who are not liable for debts. Business owners who do not want the liability for the debts incurred by the corporation prefer this option. Profits must be shared with others.

Since decisions are shared, disagreements can occur.
all profits are fully distributed to the shareholders, and reported & taxed on each shareholder's 1040
The profits from the business flow directly through to the partners' personal tax returns.

Do not have to register with the state and pay a costly fee like a corporation.Some employee benefits are not deductible from business income on tax returns.

The partnership may have a limited life; it may end upon the withdrawal or death of a partner.
the auditor's report and the audited financial statements are also required C CORPORATION
(Investor Guide. com, n.d.) and (All Business, n.d.)

In a C corporation, there can be an unlimited number of stockholders....
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