This week’s assignment is all about small businesses which to discuss the forms of business organizations. Also, the intent of this paper is to discuss the accounting structure for the lending process along with all the legal documentation. The intent of the paper will also discuss starting up a small business which will be a spa and massage parlor on St. Simons Island, Ga. while also evaluating the pros and cons of the four types of business organizations.
The four types of business organizations that we will discuss are which are sole proprietorship, partnership, a C corporation, and an S corporation.
All businesses have to choose what business form they want to operate the business in. There are four main business organizations that are used in the business environment today that has been mentioned previously. It has to be decided before the process begins what type of organization the owner wants.
A sole proprietorship is a business owned by a single person (Kimmel,
Weygandt, & Kieso, 2009). An advantage of sole proprietorship is it is simple to begin and allows the owner to have the decision making over the business
(Kimmel, Weygandt, & Kieso, 2009). The pro for a business person who has the desire to start a new company is that they have choice to decide how they want to operate the new company. There are cons to operating a new business as a sole proprietorship. A sole proprietor is personally liable for debts of the business
(Kimmel, Weygandt, & Kieso, 2009). The new business owner is taking chances and risking some assets if the business is not successful.
If two or more individuals own an organization and has control it is considered a partnership (Kimmel, Weygandt, & Kieso, 2009). This is a great advantage because partners can showcase new attributes to the new business adventure. The partners should formalize their duties and contributions in a written partnership agreement (Kimmel, Weygandt, & Kieso, 2009). Usually these documents describes who is responsible for what each individual will do while operating the business and usually how much money each of the individuals will ante up for the new business opportunity. Like a sole proprietorship, all people are held accountable for any bad debts of the new adventure (Kimmel,
Weygandt, & Kieso, 2009).
A corporation is much different than a sole proprietorship and partnership.
An investor in a corporation would receive shares of stock to indicate ownership in the company (Kimmel, Weygandt, & Kieso, 2009). This means that the investors are stockholders in the corporation and own a certain part of the company. There are two types of corporations one being identified as a C corporation and the other being identified as an S corporation. A C corporation is a business which is separate entity from its owners. An S corporation that is usually has fewer shareholders which allows the business but has different benefits of the traditional corporation. “An S corporation could be taxed as it would be a partnership”.
An advantage of a corporation business organization is that buying stock is often more attractive than investing in a partnership because shares of stock are easy to sell or easy to transfer ownership (Kimmel, Weygandt, & Kieso,
2009). Therefore, it is easier for corporations to raise funds and become more successful in the end (Kimmel, Weygandt, & Kieso, 2009). The main advantage of starting a C corporation is that you can have many owners. The main disadvantage of a C corporation is the possibility of double taxation. The main advantage of an S corporation is the pass-through taxation. The main disadvantage of S corporations is that it cannot have more than one hundred shareholders. This can be a problem if you the owners want to trade publicly on the stock exchange.
There are four