The Four Forms of Business

The Four Forms of Business

Accounting 561

Tom Myers, CPA MST

April 27, 2012

Introduction

When starting a new business, one must make a decision on what type of business would be most beneficial. There are several questions that must be answered before making this decision. What degree of liability will there be for the owners? What type of tax breaks are available for the different types of business organizations? Who maintains control over business decisions? How much personal risk are the owners willing to assume?

With these questions in mind, I will evaluate the four forms of business: Sole proprietorship, partnership, C Corporation, and S Corporation. I will apply these findings to determine which type of ownership best suits my new business, “Affordables,” which is a second hand thrift store. The goal for this business venture is to provide second-hand items to those in need at an “affordable” price.

Sole Proprietorship

Sole Proprietorship is the most common form of business ownership. The business is owned by one person that will make all necessary business decisions. There are several advantages as well as disadvantages associated with this type of business.

Advantages Disadvantages

1. Low start-up costs Unlimited Liability

2. Greatest freedom from regulation Business ceases on death of owner

3. Direct control for the owner Difficulty in raising capital

4. Minimal working capital requirements

5. Tax advantages

6. All profits belong to the owner

Generally, financial reporting is only necessary when seeking outside funding. Basic profit and loss information as well as asset and liability information would be necessary for the qualification of a loan. Although financial reporting is not a requirement, business owners should have at least a basic profit and loss statement. This statement should be generated periodically as a good business practice. The Profit and Loss statement will allow the owners to evaluate how well the...