Small Business

Starting a new business can be challenging; however there are several types of business to consider before a business can start. After looking into different type of business, such as taxes, financial statements, and government regulations an individual or partners can move forward.

Business Organization

When making a choice about what type of business an owner is looking at starting, selecting the type of organization is important. Understanding the difference between a sole proprietorship, a partnership, an S- Corporation, or a C-Corporation can make the difference. Not knowing what could happen if taxes are not done correctly, or if the business will be publicly traded.

Sole Proprietorship

Sole Proprietorship is one of the simplest businesses to start up as it only consists of one owner. A disadvantage of sole proprietorship would be the implications legally. With a sole proprietorship, a separation between business and owners in nonresistant, allowing any contract that needs signed be signed by the owner. Legally there is no difference between owner and business, and no protection for liability for the business. The accountability for all the debt falls to the owner, leaving the owner not filing special tax returns. The profits and losses for the business are to be filed on the owners 1040 form (Harroch, 1998). Being an owner, the owner is held responsible for paying all state and federal taxes of the business. The owner is subjected to the responsibility of covering taxes such as self-employment, social security, and Medicare. A sole proprietorship is also responsible for being held accountable for any errors on tax forms provided to the IRS along with any fines or penalties that may occur (Harroch, 1998).

While being an owner the accounting responsibility of the business falls on the owner to keep track of numbers through accounting software, or bookkeeping. Being a small business, the owner does not fall under the Sarbanes-Oxley Act, and because the business is not publicly traded the business does not need to provide financial statements, or use GAAP or FASB. Even though the business is a sole proprietorship that does not need to use GAAP, the owner needs to use an income statement for tax purposes (Kimmel, Weygandt, & Kieso, 2009).

Partnership

A partnership is used for a business where there is more than one owner. A partnership can be broken down into three different sub-categories; these are a general partnership, limited partnership, and limited liability partnership. With a general partnership, each owner is liable with that he or she has invested in the business and is not taxable. However, the legal implication fall the same pattern as a sole proprietorship that there are no legal differences between the owners and the business (Harroch, 1998). With a limited partnership, each owner is held liable only for the amount that he or she had invested into the business, leaving only profits and losses left to him or her according to the partnership agreement. A general partnership had the same tax implication as a sole proprietorship. Owners are protected from liabilities occurred from debts created by the business in a limited liability partnership. The partners are not accountable for the debts as that responsibility is the businesses (Harroch, 1998). With a general partnership the accounting implication are the same as a sole proprietorship. The taxes are the responsibility of the owners. A partnership needs to use an income