Small Business Idea

• Income Taxes: S- Corporations are tax paying entity, the business files tax returns but not taxed on earnings. The stockholders claim losses or profits on their personal tax returns.

INCOME TAXES- S-corp differs from C-corp taxation; taxes are passed through to the shareholders only. The company itself does not pay taxes.

A partnership is the creation of two or more people who operate a business as co-owners and share profits. There is a collective amount of money that is contributed to the organization as it pertains to all aspect of the business and in return each individual share equally the profits and losses of the business. Partnerships require that there be a partnership agreement established because more than one person can make decisions for the partnership. The agreement should include how future business decisions will be made, the profits will be split among the partners, and the dissolving of the partnership (sba.gov). The partnership must file an annual information return that reports income, deductions, gains, and losses that occur from normal business operations. The business does not pay income taxes but the business pass through any profits and losses to its partners. Taxes that are included in a partnership are: employment tax, excise tax, annual return of income, income tax, self-employment tax, and estimated tax. Other qualifications of a partnership is that partners must furnish a copy of their Schedule K-1 form to all the partners by the date of the Form. It is important to remember that partners are not employees and they are not to be issued a W-2 Form.

The partners report the shares of the income or losses from the partnership on their individual taxes.

The Sarbanes-Oxley Act of 2002, which is also known as the Public Company Accounting and Investor Protection Act or the Corporate and Auditing Accountability and Responsibility Act and then more commonly called Sarbanes-Oxley, or SOX, is a United States federal law that set new or enhanced standards for all of the United States public company boards, management and public accounting firms.

All profits belong to the owner of the business in addition to all debts, losses, and liabilities (Small Business Association). In order to form a sole proprietorship, a business owner must simply begin practicing their business. There are no legal or formal actions required to form a sole proprietorship (Malinak). In order to sustain, such a structure, one must obtain the correct licenses and permits. These are obtained by meeting legal requirements set by the state and local government for the applicable industry (Bloomsbury). When one is considering different business structures, they must also consider the taxation methods of the various structures, as these methods vary. In a sole proprietorship, the business is not taxed as a separate entity from the owner of the business as they are considered to be the same being (Small Business Association). Now that all of the information has been gathered on this structure, it is imperative to evaluate the advantages and the disadvantages of this model. The advantages of a sole proprietorship are simple and low-cost formation of the structure, complete control of business by sole owner, and low tax rates. Some disadvantages of a sole proprietorship would include complete personal liability and the difficulty of running a business as the lone owner and employee (Bloomsbury).

Generally, an S corporation does not pay corporate level tax, as C corporations do. The corporate income, whether distributed or not, is always taxed to the shareholders, and the shareholders assets and bank accounts are protected from any business

* Pass through entity: This simply means that in most circumstances all income pass to the shareholders to be reported under their personal income tax returns; therefore, profits are being taxed once vs. a C corporation where it is first taxed as the corporate level, and then in the shareholders personal return as dividends. Tax as dividends are tax max at a fifteen percent rate (15%) but it is still a double taxation. Most businesses have losses at the beginning of their operations. Having this type of entity can save in personal income tax against other income the shareholders report. Losses can be carried backwards during two (2) years, and or forward for twenty years if not fully used.

Study Objectives 1. Identify the characteristics of the partnership form of business organization. 2. Explain the accounting entries for the formation of a partnership. 3. Identify the bases for dividing net income or net loss. 4. Describe the form and content of partnership financial statements. 5. Explain the effects of the entries to record the liquidation of a partnership. *6. Explain the effects of the entries when a new partner is admitted. *7. Describe the effects of the entries when a partner withdraws from the firm.

The Sarbanes-Oxley Act (SOX) was enacted in July 30, 2002, by Congress to protect shareholders and the general public from fraudulent corporate practices and accounting errors and to maintain auditor independence.   In protecting the shareholders and the general public the SOX Act is intended to improve the transparency of the financial reporting.   Financial reports are to be certified by the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) creating increased responsibility and independence with auditing by independent audit firms. In discussing the SOX Act, we will focus on how this act affects the CEOs; CFOs; outside independent audit firms; the advantages and a

Is the most common business type, where the business is operated and owned by a single individual. In this type of business, the sole proprietor provides capital, does not share profit or loss and runs the business alone. As such, the business and the owner are indistinguishable for tax and legal purposes (Dlabay, 2011). To differentiate this business from other business types, a sole proprietorship is discussed under the following characteristics.

According to Internal Revenue Code, a partnership is an association formed by two or more persons to carry on a trade or business, with each contributing money, property, labor, or skill, and with

Partnerships are symbiotic relationships that require each partner to act in good faith as they ‘owe a fiduciary duty to one another’ and must places the needs of their partner below their own. The advantages of a partnership are based entirely on the partner’s relationship. There is a shared cost for starting and maintain the business, as well as shared time and effort in running it. There is also the advantage of having shared liability, however this can also be a disadvantage if your partner abandons you, as you are also liable for their debts. Another disadvantage is that of shared decisions, whilst most partnerships are of joint minded individuals, there are some issues that would have to be resolved by vote, and a partnership stops you from making sole

Susan, Sonil and Shao have the options of two different business structures that they may consider; Partnership and Limited Company. A partnership is defined as a structure comprised of two or more partners coming together for a business venture that is looking to make a financial profit (Atrill, McLaney, & Harvey, 2015). A partnership is established through an agreement between the partners, either formal or informal (Atrill et al., 2015). Due to the fact that partnerships often fall out due to disagreements between the partners (Tasmanian Government, 2016), it is advised for any individuals seeking a partnership, to establish a formal agreement for security. A partnership has many advantages such as greater access to

A. A partnership is a type of business organizational structure where two or more individuals join together voluntarily in a business as co-owners and each of them has unlimited personal liability for the debts of the partnership. When forming a partnership, each partner enters into an agreement that specifies not only the name of the company, location, scope of the business and the identity of the partners but also their ownership rights and obligations and distribution of profits or losses. Upon the formation of the partnership, each partner contributes capital into the company which can be either in a cash form (money) or non-cash form (other assets) such as equipment, machinery, etc. As the ownerships rights are divided among two or more partners, each partner has a separate capital and drawing account which tracks on their investments, distributions and share of gains and losses. The capital account is opened in their names in balance sheet and all transactions are accounted there. For illustration, if the investment from the partner is made on cash we debit the cash account and we credit the capital partner’s account. On the other hand, if the capital is introduced in non-cash form (assets), asset account is debited and partner’s capital account is credited normally at fair market value. As individuals provide cash or other assets to have a share in the capital of the partnership, there are two methods that can be used for handling such formation and organization of a