Business Structure Advice - Essay Example

DEVELOPMENT OF A BUSINESS IDEA In reference to the earlier sent email regarding advice on the way forward regarding development of your business idea, and the consequences of any decision you may choose to take, I appreciate this opportunity to help you understand the process of setting up a business. In your email, you expressed dilemma in deciding whether to take on partners and financing your idea. To ensure we both agree, I will be giving my advice based on the facts you provided.

With reference to your predicament, you have two business structures to consider pursuing. Depending on whether you take on partners and the method of financing your business may either be:1. Sole proprietorship2. PartnershipSole proprietorshipIn this case, you decide to be the sole owner. You provide all the startup capital either from your savings, loans of from family members. Advantages, you as a sole proprietor will enjoy are:Being your own managerYou enjoy all the profitsInitial investment is lowEasy to start and manage Greater flexibility of the businessDisadvantages of venturing into sole proprietorship are:Unlimited liability that is personal assets may be used to settle debtsLow credit accessGreater responsibility in decision-makingSuffer from reduced power to attract and retain talentThe life of the business is limited to your existenceYou bear all the taxes alone (Sole-proprietorship-advantages-and-disadvantages, 2014)PartnershipThis is where you choose to take on partners.

Partners contribute capital to start the business. The business may be a limited partnership that is different from a partnership because some partners (limited partners) have limited liability for the company’s debts while others have unlimited liability (general partners). Advantages of a Partnership will be:Easy to start unlike companiesBetter credit terms offered by banks because of existence of securityBetter talent retentionTax savings as a result of profit sharingLess strict monitoring and regulationThey enjoy flexibilityDisadvantages will be:There is unlimited liabilityDisagreements affect performanceActions of a partner as a representative of the business affect the othersHigher taxes reduce profit margins TaxA sole proprietorship is liable for the following taxes and requirements as per the internal revenue service IRS:Income tax.

Self-employment taxFederal unemployment taxExcise TaxesRequirements are:Providing information on Social Security taxes and Medicare taxes and income tax Filing information returns for payments made and other transactions.On the other hand, a partnership is subject to the following:Income taxExcise TaxesEmployment taxes:Social Security and Medicare and Income Tax Federal unemployment taxDepositing employment taxesIn addition to these taxes that the business is subject to, each partner is liable to the following:Income TaxSelf-employment taxEstimated tax.

My recommendation to you as a new business owner is to start a business as a sole proprietorship and refrain from taking on partners. The sole proprietorship business structure will give you the opportunity start at a lower cost and offer you the flexibility of controlling the business. Once the business is stable, you can safely move to other business structures based on the company’s requirements. I hope that the above facts help you arrive at a more confident ReferencesSole-proprietorship-advantages-and-disadvantages.

(2014, September 9). Retrieved from Tasmanian Government: https://www.business.tas.gov.au/starting-a-business/starting-a-business-from-scratch/choosing-a-business-structure-intro/sole-proprietorship-advantages-and-disadvantages., Department of State Growth -