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Starting A Business: Sole Proprietorship Or Partnership

1346 words - 6 pages

Starting a Business: Sole Proprietorship or Partnership
XXXXXXX X. XXXX
ACC/561
November 7, 2011
Verbena Williams

Starting a Business: Sole Proprietorship or Partnership
Starting a business takes conducting research, knowing the disadvantages and advantages in the designing and establishment of the company, understanding legal obligations the company must possess, and determining how the funding for the company, to name a few. Certain benefits are available as well as several shortcomings, when using different ownership choices This paper will address the advantages and disadvantages in a sole proprietorship and partnership business, financial statements, and other areas of ...view middle of the document...

• Possible loss of personal assets to cover business debts.
With a partnership, the advantages and disadvantages will be different because of the shared responsibility within the company. A few of the advantages of a partnership are:
• Favorable tax treatment (Kimmel, Weygandt, & Kieso, 2009).
• Easier to raise capital for the business with two contributors.
• More diverse management background.
• Sharing of talent to increase or improve the efficiency in the company.
A few disadvantages to partnership are:
• Sharing of all business decisions. No one partner can make change with approval from the other.
• Limited life and unlimited liability (Kimmel, Weygandt, & Kieso, 2009, G-4).
• The actions of one partner may affect another partner.
• Conflict between partners about business decisions.
Although each choice of ownership has its advantages and disadvantages, owners must conduct research to determine which type of ownership will yield the greatest profit and stability. Owners must also weigh the advantages against the disadvantages and determine which ones are manageable to ensure company growth, longevity, and success.
Financial Side of a Business
Although a sole proprietorship and partnership has ownership similarities as well as differences, how the business shows its financial stability, profits and losses, and performance differs as well. In a sole proprietorship business, the financial statements found are the balance sheet, income statement, and the owner’s equity statement. All of these statements play an important role in ensuring the business is profitable and growing. The balance sheet will list the assets, minus liabilities, for a specified period. The income statement reports all income, net profits and losses, and expenses for a specified period (Topic Iii Sole Proprietorships and Partnerships", n.d.). The owner’s equity statement will give the increases and decreases of the owner’s equity during a specific period and will show the equity balance current, at the end of the period.
When looking at the financial statements for a partnership, similar items to the sole proprietorship are visible. Financial statements for a partnership will include an income statement, and a partner’s capital statement (comparable to an owner’s equity statement). The balance sheet with a partnership will show the capital balances of the partners (Kimmel, Weygandt, & Kieso, 2009). When reviewing the financial statements of a partnership, distribution of the business’ net loss and net profit is present.
Taxes and the Law
Taxes for a sole proprietorship may seem to be at an ease, as the taxes are filed under the owner’s personal taxes. Legal responsibility of the correct payment and deduction of the businesses’ taxes solely lie on the owner. Some tax implications a sole proprietorship business may incur are full liability for all debts, higher income taxes, and the Internal Revenue Code does not allow tax deductions for life...

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