Business Environment - Assignment Example

There are three types of business structures which are sole ownership, partnership, and corporation. Each of the three options available has its advantages and disadvantages. Sole ownership is considered the easiest type of organization to set up. If you are eager to start the computer business right away you should seriously considered the sole ownership option. To start a sole ownership business all you need to do is report your business income and expenses on your Form 1040 Schedule C (Perez, 2011).

The filing of taxes is performed at the end of year. A business can choose to either go with the natural year or a fiscal year. The natural year end on December 31, 2011. The fiscal year refers to the passage of one full year after the business is started. For example if your company starting operating of March 1, 2011 the end of the fiscal year would be February 28, 2012. The owner of a small business is typically the manager of the operation. If you choose this option you have be prepared to work long hours because you will be the person in charge.

Usually only a relatively small amount of money or capital is necessary to start a business as a proprietorship (Weygand & Kieso & Kimmel, 2002). One of the disadvantages of choosing sole proprietorship is that the owner is personally liable for the debts of the entire business. There is no distinction between the business and its owner. The second type of organizational structure you can chose for your computer business is partnership. A partnership can be defined as a business owned by two or more persons.

Each person in a partnership contributes money, property, labor, skill, and expects to share in the profits or losses of the business (Irs, 2010). A partnership agreement sets forth the terms of the partnership which includes initial investment, duties of each partner, and division of income. The friend that will be working with you in the business can either be an employee or a partner. If you need additional investment you should consider talking to your friend in order to arrange a partnership agreement.

Also you can make your friend a partner in order to avoid paying him a salary. Instead the person would get paid in for of income redistribution. “A partnership must file an annual information return to report income, deductions, and gains, etc., from its operations, but is does not pay income taxes” (Irs, 2010). The fact that partnerships do not pay income taxes is an advantage of this type of business structure. The third type of business structure is the corporation. A corporation can be defined as a business organization organized as a separate legal entity under state corporation law and having ownership divided into transferable shares of stock.

(Weygandt, et. al. , 2002). A corporation is a completely separate legal entity from its owner. This means that if the business fails the owner is not legally responsible for the debt of the corporation. Due to the fact that the chances of succeeding in a new business project are low you should seriously considered the corporate structure. The truth about starting a new business is that 50% of new businesses fail within the first year and 95% seize to exist within five years (Schaefer, 2010).

There many advantages associated with starting a business in the form of a corporation. The advantages of the corporate structure are listed below: Shareholders have limited liability Corporations can