Small Business Idea

Small Business Idea Paper

ACC561

Small Business Idea Paper

Matt Brown, an entrepreneur, received funds from the federal government to start a small business. Mr. Brown’s business will be called Legendary Armament. Before he starts his business, Mr. Brown must understand the four types of business organizations, tax implications and legal implications associated with each business. Finally, Mr. Brown will provide a brief summary of his product and chosen business organization that best suits his needs as an owner.

Types of Business Organizations

The first type of business organization is a sole proprietorship. A sole proprietorship is a business organization with only one owner. The owner is responsible for paying income tax on revenues generated from the business. All liabilities and debits in a sole proprietorship are absorbed by the owner as well. The advantage of a sole proprietorship is that reporting taxes is not complex and can be completed on a Form 1040 Schedule C. The disadvantage of a sole proprietorship is that as the company grows; obtaining capital funding is harder because there are no shareholders.

The second type of business organization is a partnership. A partnership is a business organization in which two or more individuals own a business. In a partnership, each owner is equally responsible for paying income taxes on revenues generated from the business. All liabilities and debits in a partnership are absorbed by each partner equally. A partnership can be a limited in the sense that one owner is responsible for actions of the business while the other partner is a limited partner who invests money and receives profits from revenues, but not personally liable for liabilities and debts. This type of partnership is called a limited partnership.

The third type of business organization is a Limited Liability Company (LLC). “A limited liability company is a hybrid type of legal structure that provides the...