In order to select the most appropriate business structure, I will need to weigh the advantages and disadvantages of each form, identify the different types of financial statements of each form of business, and understand the consequences associated with each form of business. I am interested in starting a financial consultant business that would target community schools and small start- up businesses. The financial consulting piece would be geared toward the startup of businesses that would lack expertise In establishing an appropriate financial framework.
People may be passionate about wanting to start a new business; however, they can be intimidated about the financial aspects of starting and maintaining a business. My services will provide that expertise until the business owner Is knowledgeable enough to handle things on their own. The services I would provide extend to, the set-up and preparation of payroll, the timely payment of payroll and related taxes, the processing of accounts payable, the recording, and collection of accounts receivables, the preparation, presentation, and analysis of financial statements and cash flow projections.
In addition, I would assist with the generation of accounting policies and procedures that address the financial aspect of businesses. Given my background in accounting and human resources, I would 1 OFF aspect of the company. A sole proprietorship, is simple to establish, and has one owner thereby granting me control over business decisions. The taxes are the easiest to file as a sole proprietor, so I can more easily prepare my own personal tax returns on the Schedule C form off 1040 return. Given this, I would have no corporate tax payments.
The sole proprietorship personally can expose me legally as ell as expose my personal assets to company risk by lawsuits from vendors associated with my business ("The New York Times," 2007). The financial statements for a sole proprietorship include a balance sheet, income statement, and statement of changes in owner's equity, and statement of cash flows. A partnership is also simple to establish as a business. There are two or more owners, which creates a shared control environment pertaining to the decision-making of the company.
Partnerships can be advantageous because of the access to additional talents, skill test, and money each owner can contribute to the company ("All Business," 2012). Setting up a partnership is simpler, requires less paperwork and is less expensive. A partnership agreement should be created that spells out the business purpose and owners responsibilities. The tax advantages in a partnership include no corporate taxes. A partnership can have disadvantages; such as negative involvement in situations that personally expose both me and my partners legally for business related mishaps.
Both owners' personal assets can be exposed to company risk by suits from situations associated with my business. The financial statements for a sole proprietorship, includes a balance sheet, income statement, and statement of changes in owner's equity, and statement of cash flows (Kismet, Wesleyan, ; Skies, A C Corporation is a regular corporation where the owner experiences 2009). Double taxation. Taxes are filed with the IRS using form 1120 and C Corporations pay corporate tax rates and individual taxes on form 1040.
The financial statements associated with a S corporation are; the balance sheet, income statement, statement f cash flows, and statement of retained earnings. The C Corporation is also bound by the ethics compliance of the Serbians-Solely Act (SOX) that is designed to regulate the accounting and financial disclosure reporting process for corporations. The implementation of SOX created additional audit fees as costs to the organization undergoing an independent audit.
The independent auditors incur additional compliance workload, resulting in the hire of additional auditors and related staff Just to keep up with the ever-changing standards surrounding SOX. Audits can take anger because of the added steps created for more related documentation proving accuracy and authenticity. One of the positive changes involves a more accelerated shift to better organized electronic documentation. A S Corporation is considered a separate legal entity, created through filing Articles of Incorporation through the state and a filing with the IRS for federal tax purposes.
As such, there is no personal liability associated with a S Corporation. S Corporations have directors and officers. Owned by stockholders (no more than 100), it is easy to transfer ownership, and it is such easier to raise funds. Moreover, a person can become a stockholder with very little investment of funds through the purchase of stock is traded on the New York Stock Exchange, for example. Many companies can evolve (with legal assistance) from a single proprietorship to a partnership and ultimately into a corporation over discontinued or situations in which ownership is transferred.
There is only one class of stock issued in an S Corporation. Taxation as a pass-thru entity is another advantage in a S Corporation, which meaner I am generally not subject to corporate ax rates. Business related income or loss for that matter, and is considered a pass- thru, which meaner the shareholder will report this income or loss on their personal income tax return. Other disadvantages include this type of entity being more closely monitored by the Internal Revenue Service particularly where it pertains to potential misclassification of shareholder payments as wages or as dividends ("Beginnings," 2012).
A deliberate misclassification to bypass taxes can subject my corporation to employment tax liability. The financial statements associated with a S reparation are; the balance sheet, income statement, statement of cash flows, and statement of retained earnings. An LLC-Limited Liability Company has a similar structure as the S Corporation; however, there are some differences. All's can have subsidiary companies. S corporations cannot be owned by All's, partnerships or C Corporations. All's may have dissolution dates in their formation documents, which can be triggered by certain events, such as death, or withdrawal of a member.
Given this, the LLC has to dissolve. AS Corporation can be ongoing. As an added advantage, I would also enjoy the tax classification of a partnership and avoid the "double taxation" I would experience as a regular corporation ("Beginnings," 2012). Now I have a better understanding of each organization's structural make-up to make an informed decision about which form of business organization is best suited for my consultant business. I weighed the advantages and disadvantages of each form, identifying the different types of financial statements of each form, and understand the consequences associated with each form.
Given this, the LLC-Limited Liability Company is the most appropriate business structure for my consultant business, mainly because of the personal legal protections associated with this classification.