Small Business Idea Paper
Recently, the government released funds for persons willing for establishing a small business. This releasing funds’ concept will form many jobs, and the economy will be stimulated by it. For the owner of a small business, the first step is to determining which business form is best suited to his or her ideas. Furthermore, it is essential for the owner of business to evaluate implications of legalities and tax related to his or her business forms. The purpose of this paper is to define the advantages and disadvantages of the four different forms of business organization, including sole proprietorship, partnership, C ...view middle of the document...
It is significant for the reason that creditors would want to realize the cash amount that the business has. Statements of cash flows will define whether or not a credit limit for a loan will be established. Deductions, profit, and losses, and tax liabilities are stated in the owner’s federal income tax return because a sole owner is have the smallest amount of expenses. For that reason, the sole proprietor is responsible for all tax liabilities.
“Partnership is a business organization in which two or more individuals manage and operate the business. Both owners are equally and personally liable for the debts from the business” (Investopedia, 2013). Business losses, profits, debts, and expenses are shared by the Partnership. Partnership is equally liable and responsible for every issue related to partners or of any of the partner. There must be one general partner in the partnership. A drawback of forming a partnership includes the retirement of a partner that can become the reason for issues amid the partners, and uncertainty as well as tension could take place amid the customers, lenders, vendors, and employees related to the business. For the business, there is no need of paying taxes by the partnership, in its place the losses and profits are stated to the central government and every partner is accountable for filling his individual federal tax return. Statement of retained earnings and income statements are the financial statements related to partnership. The organization’s profits and losses are reported in the income statement throughout a particular period. Profits and losses of the organization are demonstrated by the income statements, and it provides a recording of the organization’s operating expenses and revenues. The cash amounts and reasons of alterations in retained earnings for a particular time period are demonstrated in the statements of retained earnings (WileyPLUS, 2013). For partnerships, these financial statements are significant because they assess the organization’s dividend payments and show the owner’s equity. Furthermore, these reports can assist in bringing investors into the business and assist in setting up credit accounts, and establishing credit limits with dealers.
It is a “legal structure that businesses can choose to organize themselves under in order to limit their owners' legal and financial liabilities. C corporations are legally considered separate entities from their owners” (Investopedia, 2013). The organization’s shareholders have protection of limited liability and full freedom of choice over the profits that can be distributed or retained by them (IRS, 2013). A benefit of establishing this form of business is that the business is considered as a distinct entity and all taxes of the business are reported to the federal government, on the other hand, all shareholders report their individual tax return. For...