ACC 561 Week 2
Determining which form of business organization to operate as is imperative when opening a business. One needs to be knowledgeable of the intentions of the business, who is involved in the formation of the business, and components needed for a business to succeed. The business established gives a good determination of which form of business organization to pursue. In this paper, one will discuss a new small business and the goods or services it provides. Also, one will discuss the different forms of business organizations and which will work for the new business.
“Sole proprietorship is the simplest and most general structure chosen to start a business. It is an unincorporated business owned and run by one individual” (Small Business Administration, 2014, para. 1). One main advantage of sole proprietorship is having one owner, which means one would be entitled to all the profits. Another advantage to a sole proprietorship is that one can make all the business decisions without consulting with anyone. However, one who chooses a sole proprietorship assumes responsibility for debts and liabilities, which can become a burden to some business owners. Moreover, when operating as a sole proprietorship it is hard to raise money as investors and banks are leery to invest financially due to the lack of credibility.
A partnership is “the single business where two or more people share ownership. Each partner contributes to all aspects of the business, including money, property, labor or skill” (Small Business Administration, 2014, para.1).A partnership is much like sole proprietorship except instead of one owner, there are two or more. There are three general partner agreements; limited, general, and joint venture. Partnerships are seen as inexpensive and easy business structure. However, because partners share the responsibility for debts and liabilities it also means they will are responsible for the liabilities of the other partners. Conflict is another disadvantage to a partnership as not all individuals will agree on decisions of the business or sharing the profits, which can cause tension and discord.
S Corporation’s “are a special corporation created through an IRS tax election” (Small Business Administration, 2014, para. 1). This form of business organization will not have owners, but shareholders who hold a stake in the business. One advantage of an S corporation is the tax savings because only wages ofan S Corp shareholder employee are taxed (SBA, 2014). Tax credits are also another advantage meaning that certain expenditure can be written off. Noted disadvantages of an S corporation are that there is a stringent operations process meaning shareholders are required to gather for meetings.
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