Small-Business Idea Paper - Essay Example

Advantages and disadvantages of sole proprietorship Sole proprietorship is the most popular and the longest practiced form of business organization. Some of its advantages are the ease with which it can be established and the ease with which it can be wound up. The processes are cheap, and are free from legal formalities because only establishing a business requires registration of business name and work permit. The proprietor is entitled to all profits from the business and this motivates efforts for a successful venture.

Pride in the proprietorship’s success is another advantage of the form of business organization and acts as an incentive among sole proprietors. This further facilitates healthy competition among players in the form of business organization and has positive impacts on macroeconomic aspects such as gross productivity level of an economy. Simple approach to tax that treats business revenue as the proprietor’s income, is another advantage because of the low tax rates and ease of filing tax returns.

The form of business is also flexible because the proprietor is the boss. Ease of decision making due to lack of formal or moral obligations for consultations is another advantage (Pride, Hunges and Kapoor, 2011). Despite the many advantages, sole proprietorship has many disadvantages. The business has unlimited liabilities and this means that the proprietor’s personal resources can be seized to settle business’ debts. The enterprise’s life is also limited to that of the proprietor and capital base are limited because of lack of sufficient security for accessing capital.

The owner also suffers all the losses and this may be significant to affect sustainability (Pride, Hunges and Kapoor, 2011). Types of financial statements for each form of business organization Financial statements for a sole proprietorship form of business are income statement, balance sheet, cash flow statement, and statement of owner’s equity. Income statement outlines costs and expenditure in the merchandise processes towards determination of net profit. Statement of owner’s equity traces, and accounts for, a business’ accumulated capital while the balance sheet offers an account of the business’ financial position by accounting for the assets and their sources.

The statement of cash flow accounts for cash receipts and payments within an accounting period. The financial statements also apply to other forms of business organizations but their contents vary in complexity. Accounting for partnerships however includes partnership account besides these (Warren, Reeve and Duchac, 2011). Consequences of tax and legal implications Different legal and tax provisions apply to the different forms of business organization. Sole proprietorship is not subject to legal requirements and its taxes are treated as the proprietor’s personal income.

Partnerships are subject to legal requirements such as registration of official business name, if the business does not operate under partners’ names, and subjection to formal documents such as article of association, memorandum of association. Partnerships’