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Legal Structure Essay

1080 words - 5 pages

Selecting a Legal Structure
Selecting an appropriate legal structure of business is essential to establish a new business for entrepreneurs. Decision making on the type of business will affect tax, legal, and accounting issues during business operations. According to Kimmel, Weygandt, and Kieso (2009) business structures include sole proprietorships, partnerships, and corporations. The purpose of this paper is to review the advantages, disadvantages, tax implications, legal implications, and accounting implications of each type of business to decide an optimal structure for a new small business proposal, named “The Green Korean Cuisine”.
Sole Proprietorship
“A sole proprietorship is an ...view middle of the document...

& Libby P.A., 2011). The Sarbanes-Oxley Act (SOX) only applies to larger businesses such as corporations.
A business owned two or more persons reaching mutual agreement about relationship is a partnership (Phillips, Libby, R. & Libby P.A., 2011). According to Kimmel, Weygandt, and Kieso (2009), partnerships are formed when an individual does not have enough economic resources or unique skills. Unlike a sole proprietorship, the profits, losses, debts, and liabilities are shared among the partners. A partnership is also simple to establish and provide a shared control (Kimmel, Weygandt, & Kieso, 2009). Anderson et al. (2012) stated that a tax advantage for partnerships is only taxed at a partner level and not individually taxed to each partner. Otherwise, a partner should pay the full self-employment taxes because the partner is not considered as an employee (Anderson et al., 2012). In balance sheet, dividends are not indicated because partnership does not provide stock to shareholders.
Another form of business organization is the corporation. It is easier to transfer ownership, raise funds, and offers no personal liabilities (Kimmel, Weygandt, & Kieso, 2009). Corporations include two types: C corporations and S corporations (Anderson et al., 2012). C corporations and S corporations are taxed differently. C corporations are taxed at corporate level then taxed again at the share holder level. S corporations are taxed once much like a partnership and taxed only at the share holder level (Anderson et al., 2012). Balance sheet, Income statement, statement of cash flows, and retained earnings statement are all important for corporations. Creditors are paid first before shareholders. It is vital to review balance sheet and retained earnings statement by shareholders to decide whether to reinvest or not. Retained earnings statement shows what part of profits are paid to shareholders as dividends. Balance sheet indicates amount of liabilities paid to creditors. Corporations are subject to the SOX and Financial Accounting Standard Board (FASB). This is to prevent financial frauds and reduce unethical corporate behavior (Kimmel, Weygandt, & Kieso, 2009).
“The Green Side Galore”
Korean cuisine is well-known as a healthy food. In 2010, South Korea’s obesity rate came in at 3.5 percent and the obesity rate of the United States was 34.4 percent (“Easy Korean Food”, 2010). Healthy foods, one of the...

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