Business forms - Research Paper Example

? Accounting Introduction Starting a small business requires a person to have an understanding of various business forms. This is fundamental because the person starting a business can measure the pros and cons of each as it relates to the business idea. This paper intends to relate various business forms and determine which suits the chosen small business idea. In order to perform a succinct selection of the business form, consideration of taxes, legal plus accounting issues will be vital. Sole proprietorship This is a business organization owned by a single person who is responsible for entire operations of the business. Advantages and disadvantages A sole proprietor is responsible for various decisions that affect the business. He is accountable for the business because he conducts all transactions. Any operations such as sales are possible through the authority of the owner. In sole proprietorship, the owner of the business enjoys exemption of taxes such as corporate tax (Goldman & Sigismond, 2011). Those starting a new business enjoy the presence of few trade requirements. Legal costs are considerable, hence, making it easier to run the business. A sole proprietor benefits from the profits acquired because he has not formed a partnership. Sole proprietorship has limitations where the owner is responsible for debts and other roles of the business. In case of losses, the owner suffers alone with no one to share the loss. Sole proprietorship is liable to various risks that associates workers conduct within the business. Financial statements for sole proprietorship The cash flows statement provides a description of money movement within a time frame. It indicates the amount at the commencement and termination of the period. The statement of changes in equity for the owner relates income statement and the balance sheet by indicating the increases or decreases of the capital (Goldman & Sigismond, 2011). A balance sheet depicts finances of the sole proprietor by including assets plus liabilities and capital. The financial performance document displays earnings for a known timeframe and depicts the net income of the owner for the period indicated. Tax, legal plus accounting implications A sole proprietor faces challenges when dealing with accounting issues, for example, it is exhausting to handle records of various operations without making errors. It consumes time to scrutinize both purchases and sales in different documents. For sole proprietorship, taxation is similar to other business forms where it occurs in income-tax rates. Improper accounting may lead to tax complexities. Sole proprietorship does not have protection enjoyed by other companies. The owner becomes responsible for various issues that result from operations (Goldman & Sigismond, 2011). Partnership Advantages plus disadvantages This is a form of business ownership in which people come together and form a business based on their interests. It involves two or several people who implement a business idea after careful planning. Persons intending to start a partnership find it suitable because they can raise funds easily (Pride et al., 2011). Partnership can grow tremendously because people can share ideas to enhance its improvement. Partnership attracts various people with intentions of commencing businesses because partners can share loses plus profits that arise from business operations. Although it is advantageous, the business form has some limitations such as sharing of profits plus losses. All partners become accountable for the conduct of the entire fraternity. There is a possibility of benefits being limited by taxes or returns. The lifespan for a partnership can be short because members may choose to leave for other endeavors (Pride et al., 2011). Financial documents for partnership Partnership utilizes the common statements such as balance sheets, cash flows, income and owner’s equity statements (Pride et al., 2011). This is similar to sole proprietorship with a small difference in capital and other issues that relate partnerships. For example, the balance sheet for partnership indicates the capital for all partners unlike sole proprietorship that includes a single name. Tax, legal plus accounting implications Partnerships fail to offer protection of assets plus liability limits. Partners become accountable for various debts and challenges that influence their business. The partners face various limitations that arise from income tax, plus the capital gains tax. The business must experience the procedures involved for registering the name for the chosen business. There are various legal features that relate to sequence planning (Pride et al., 2011). C Corporation Advantages plus disadvantages This is a company whose taxation is separate from the owners. A C-Corporation enjoys low taxation rates for the commencing 75000 dollars of yearly revenue (Pride et al., 2011). This applies to companies which do not provide personal services. There is a possibility of fiscal year made availability. Owners plus employees of the corporation can have immense benefits that relate to audit potential, capital gains plus ordinary loss reductions. A C-Corporation becomes disadvantaged when revenue exceeds 75000 dollars because income taxation rates rises. The company can face double taxation where assets gain value or sales become dissolute (Goldman & Sigismond, 2011). Financial statements for a C Corporation A C-Corporation utilizes various financial documents to enhance proper operations. The cash flows display the profit plus revenues and expenditures. The balance sheet should indicate taxation based on income tax. There are other documents such as accountants report, retained earnings plus reconciliation statements (Pride et al., 2011). Tax, legal plus accounting implications Since a C-corporation stands as a separate business, it faces double taxation. The corporation must pay income taxes. The income taxes are deductible from the profits that the company accrues from its operations. A company can experience a few or no audits if revenue that does not exceed 100,000 dollars. A C-Corporation should ensure proper accounting, which is enhanced, by audits which check any anomalies (Pride et al., 2011). S Corporation Advantages plus disadvantages An S-Corporation possesses experiences better legal safeguarding in terms of accounting and other issues compared to C Corporations. In various cases, an S-Corporation is likely to avoid various taxes such as income taxes. There are little expenses incurred from taxes originating from pay rolls. This corporation is advantageous because it incorporates many investors. An S-Corporation should follow various roles that govern corporations. For example, it should provide a variety of documents such as minutes and reports. There are restrictions related to shareholders that include taxation (Pride et al., 2011). Financial statements These are vital for well running of a company. They include audit reports. Income documents balance sheets and other accounting documents (Pride et al., 2011). Tax, legal plus accounting implications An S corporation is not liable to double taxation because profits plus losses are passable to shareholders of the company. An S-corporation does not pay a federal tax. The corporation should keep proper accounting records and follow legal procedures (Pride et al., 2011). Limited Liability Company A limited liability company enjoys the benefits of financial security. Shareholders can only face debts that arise from the company but depending on their level of shares. A limited company can exist even when its members cease to work. The company benefits because it only receives taxations from its profits (Greenfield, 2011). Financial statements These are common in most organizations and include balance sheets, income statements, reports and other documents (Greenfield, 2011). Tax, legal plus accounting implications The company should ensure recording of various documents in accordance to various company laws. Double taxation is not possible, self employment tax must apply (Greenfield, 2011). Product description, business form and rationale The business venture is a coffee shop that will operate in a suitable environment. After performing a market research, the area chosen is the best for this business. It will involve the sale of coffee to customers within, especially those from nearby institutions. The business will involve making of snacks such as biscuits and bagels. The business will incorporate desired features for improving quality and customer satisfaction (Greenfield, 2011). In order to attain a desired share of the market, the business intends to maintain proper hygiene and other customer preferences. Inclusion of other related drinks will be fundamental. This is because it will help cope with competition that may arise from other businesses. The best business form in this case is partnership. Partnership is vital because the capital involved for the business will not be difficult to find. In case of loses, each individual will face the challenge (Greenfield, 2011). Partnership is likely to succeed because an individual in it can utilize their diverse ideas to improve the stature of business. References Goldman, A. J., & Sigismond, W. D. (2011). Business law: Principles and practices. Mason, OH: South-Western Cengage Learning. Pride, William M., Hughes, Robert J., & Kapoor, Jack R. (2011). Foundations of Business. South-Western Pub. Greenfield, K. (2011). Limited Lie Ability. Nation, 292(26), 19-20. Read More