Small Business Idea
University of Phoenix
July 17, 2012
Samuel G. Smith
Starting a business requires a decision governing what form of business organization the company or corporation should operate under. This decision must be made before the business has actually begun operations. The owner must make two initial decisions in order to begin their business operation: the type of business entity to be used and where the business assets will come from. The decision depends on several factors, including the capital requirements of the business, the flexibility of management decisions, costs ...view middle of the document...
Small sole proprietorships are rarely profitable after an owners’ death. (Sitarz, 23)
The relationship of two or more companies conducting business for mutual benefit is a partnership. Generally partnerships have tax advantages, are simple to establish, requires less paperwork, minimal costs, shared control, and can function in more than one state without a license. The disadvantages to choosing partnership include potential conflict between partners which is usually due to the lack of an initial partnership agreement that clearly outlined the rights and duties of each partner. The potential for liability is greater and each partner is subject to unlimited personal liability for the debts of the partnership. Upon the death of a partner, the partnership is usually terminated. (Sitarz, 25)
Companies organized as a separate legal entity owned by stockholders are called corporations. They are governed by laws of the state or states in which they do business. The advantages are: they are responsible for their own debts and obligations as a separate legal entity, can transfer ownership without changing its legal status and continue to thrive even if shareholders die or transfer their ownership, and are able to offer a variety of fringe benefit programs to their officers and employees than any other form of business. The disadvantages of choosing corporation as a form of business is the business is subject to more state regulations concerning both their formation and operation, and the loss of individual control within the organizational structure among officers and board of directors. (Sitarz, 29)
Subchapter S Corporation is a form of corporation, allowed by the IRS for most companies with 75 or fewer shareholders, that allows businesses to reap the benefits of incorporation but be taxed as if it were a partnership. The advantages of S-Corporation are the stocks are freely transferable, can be formed by one individual, and the shareholders can sell their interest without receiving approval from other shareholders. There are disadvantages to forming an S-Corporation such as filing articles of incorporation, keeping corporate minutes, conducting directors’ and shareholders meetings, and allowing shareholders to vote on major corporate decisions. (Entrepreneur)
Different types of Financial statements for each form of business
The owner's equity statement rather than a retained earnings statement is prepared by the sole proprietor. The owner's equity statement reflects the beginning balance in the owner's capital account, along with any investments made by the owner, minus any drawings. (Wiley)
The financial statements of a partnership are similar to those of a corporation. The differences are: the division of net income is shown on the income statement, the owners' equity statement is called a partners' capital statement, and each partner's capital is reported on the balance sheet. (Wiley)
The balance sheet, income statement, cash flow...