Small_Business_Idea

Small Business Idea Alicia Lopez ACC 561 July 17, 2012 Michael Bradford Small Business Idea It is important for an entrepreneur to consider what type of business to form. It can be a sole proprietorship, having one business owner, a partnership, having two or more owners, a corporation, which is a legal entity owned by shareholders, or a limited liability corporation (LLC), which limits the liability to owners of the entity’s debt and obligations, and its income and losses are passed through to the owners as if it were a partnership. Each type of business organization has some advantages and disadvantages. Advantages and Disadvantages The advantage of a sole proprietorship is that they are easy to formulate and dissolve. There is low overhead, and start up costs. The owner reaps all of the profits. A sole proprietorship has a lesser amount of regulations. The proprietor does not have to worry about corporate income tax. They can just file their personal income tax. The disadvantage would be that there is unlimited liability. The owner is personally liable for the business, and any employee actions at the business (studyfinance.com). There is a limited life to the business. If the owner passes away, the business is not passed on to their relatives. A corporation is considered an entity by itself. It has unlimited commercial life (studyfinance.com). The advantages for a corporation are that it has room to sell stock and raise capital. It can transfer ownership by selling stock. It also has limited liability. The shareholders will not lose any stock or money if the corporation should encounter legal obligations against it. The disadvantages are that there are regulatory restrictions. Corporations are monitored by government agencies include state and local government. Not being in compliance with regulations can cost the corporation (studyfinance.com). A corporation can experience higher cost for operations and organization. Articles have to be filed with appropriate state authorities for incorporation. These expenses can bring along budgetary issues. Double taxation can be a major issue. A corporation pays taxes on its net income. If dividends are also paid out to shareholders, the shareholder must pay taxes on the dividend on their personal income tax. It is considered earned income for shareholders. An LLC has the advantage that profits are taxed at the member level; there is no double taxation. The members, who are the owners, are protected from acts and debts of the LLC (limitedliabilitycenter.com). There is a “check-the-box” taxation in which the LLC can choose to be taxed as a sole proprietor, partnership, S-corp., or corporation. This gives the LLC much flexibility. An LLC can be created with just one person involved, or one owner in some states. There are no annual meetings of shareholders (in some states) (limitedliabilitycenter.com). Power is not lost to board members. The life of the LLC is long-term. The entity will endure even after the death of its owners. There is less administrative paperwork and recordkeeping. The disadvantages of an LLC over another entity are that earnings of members are subject to self-employment tax. LLC is considered a partnership. If 50% or more of the capital and profit interests are sold or exchanged within a 12 month period, the LLC will terminate for federal tax purposes. An LLC cannot take advantage of stock options, tax-free reorganization, or issue stock (limitedliabilitycenter.com). To be considered as a partnership, an LLC must have two members. Changing an existing business into an LLC can result in tax recognition on appreciated assets. Sarbanes-Oxley Act of 2002 The Sarbanes-Oxley Act of 2002 was passed to restore investor confidence in Corporate America in the best interest of the economy, publicly traded corporations, and investors. The cost of compliance is high. Through new substantive requirements, increased penalties, and an increased emphasis on enforcement, SOX regulations have increased the risk that corporate officers and directors will be subject to personal civil and criminal liability. This risk results in increased legal fees; executive, board and officer compensation; insurance premiums and outsourcing costs to help monitor internal audits (s-ox.com). Which type of business organization to Choose' A person wanting to start a business may want to begin as a sole proprietor. It is easy to start, and dissolve with low overhead. Sometime in the future, the same person may want to convert to an LLC. Because there is no double taxation, members are taxed if they profit, and not the LLC. The LLC will endure long after the members have passed. There is less paperwork and recordkeeping. LLC members can profit, and the can fulfill their obligation by appointing qualified persons to run the LLC. Starting as a sole proprietor opens the door to growth and stability. References Garrison, S. Dr. (n.d.). Types of Business Organizations. http://www.studyfinance.com Retrieved 07/16/2012 Lowengrub, P. (2005). The Impact of Sarbanes-Oxley on Companies, Investors, & Financial Markets. http://www.s-ox.com Retrieved 7/16/2012 Staub, D. K. (n.d.). What is an LLC' http://www.limitedliabilitycenter.com Retrieved 7/16/2012 Writing Rubric Template |Writing Rubric Template |Possible Points|Points | | | |Earned | |50% Content/Development | | | |Subject Matter: | | | |Key elements of assignments covered | | | |Content is comprehensive/accurate/persuasive | | | |Displays an understanding of relevant theory | | | |Major points supported by specific details/examples | | | |Research is adequate/timely | | | |Writer has gone beyond textbook for resources | | | |Higher-Order Thinking: | | | |Writer compares/contrasts/integrates theory/subject matter with work environment/experience | | | |At an appropriate level, the writer analyzes and synthesizes theory/practice to develop new ideas and ways of | | | |conceptualizing and performing | | | |20% Organization | | | |The introduction clearly states the objective/ideas leading to the purpose of paper | | | |Ideas and concepts are focused on ideas and concepts within paragraphs | | | |Sentences are well-connected and meaningful | | | |Each topic logically follows the objective. | | | |The conclusion draws the ideas together | | | |10% Format | | | |Appropriate APA guidelines are adhered to | | | |Citations/reference page follow guidelines | | | |Properly cites ideas/info from other sources | | | |Paper is laid out effectively--uses, heading and other reader-friendly tools | | | |Paper is neat/shows attention to detail | | | |Length guidelines are adhered to | | | |The required grading Rubric is attached at the end of each written assignment | | | |10% Spelling, Grammar & Punctuation | | | |Rules of grammar, usage, punctuation are followed | | | |Spelling is correct | | | | | | | |Sentences are complete, clear, and concise | | | |Sentences are well-constructed with consistently strong, varied structure | | | |Transitions between sentences/paragraphs/sections help maintain the flow of thought | | | |Words used are precise and unambiguous | | | |The tone is appropriate to the audience, content, and assignment | | | |10% Clarity and Style | | | |Reading audience is correctly identified demonstrated by appropriate language usage | | | |Jargon is avoided | | | |Complex concepts are appropriately simplified | | | |Writing is concise and in an active voice | | | |Total Points | | |