...and what rules apply for the state in which the company is located. For the purposes of this paper, the potential small business owner will use the State of Colorado as the state in which the company will be headquartered and Colorado Springs as the city. The business that will be established is a high end pawnbroker in the north end of Colorado Springs. In establishing a business in Colorado Springs, Colorado, one must look at the local, state and federal ordinances and laws in establishing a business. The business owner must also decide on how the company will be registered in Colorado such as Sole proprietorship, Partnership, C corporation, S corporation, or an LLC – Limited Liability Company. This paper will show the advantages and disadvantage of each of these entities as it relates to a pawnbroker business, while also examining the different types of financial statements associated with each business entity and consequences such as tax, accounting, and legal implications. The final section of the paper will explain the reasoning behind the start up of a pawnbroker store, the classification chosen and why this choice was made for this new business. Sole Proprietorship This type of structure is established if the business is owned and operated by a single person. If the person is running the business other that his or her first and full last names they must register as a trade name or DBA (Doing Business As). This is the most common form of legal structure according to the...
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...new owner’s ideas. In addition, the business owner will need to review all tax legalities and implications associated with the different forms of business for her organization. This paper will discuss the four forms of business and the different types of financial statements associated with the forms of business in relation to consequences of taxes, liabilities, and accounting implications. Sole Proprietorship Sole proprietorship is the most common and easiest form of business to create. Some of the benefits of a sole proprietorship are that the owner can make decisions of hiring and firing employees, decisions of which vendors to use, what materials and equipment to purchase and what direction they want the business to take. A disadvantage is that the owner is limited to funds as a sole proprietor can only access the funds that are available. In addition, the sole proprietor is responsible for all liabilities associated with the business. The financial statement associated with at sole proprietorship is the statement of cash flow. The statements of cash flows provide financial information regarding cash receipts and payments of the organization in a specific period of time. This is important because lenders would like to see the amount of cash the organization has. This will determine if vendors will grant credit to the business or establish a credit limit for a loan from a bank. Because a sole proprietor is the least expensive of the four forms of business to create...
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...business structures to consider when looking at starting a business. Each of structures has advantages and disadvantages. By doing, in-depth research on each structure will allow for the best decision on a business structure. A careful consideration of the organizational structures: Sole proprietorship, Partnership, Corporation, S Corporation and Limited liability company (LLC) are advantageous in helping a business to succeed. Sole Proprietorship Sole proprietorship is the most common business structure. This type of structure is owned and operated by one proprietor. An advantage is that sole proprietorship is a simpler and inexpensive structure to start compared to other business structures. This type of structure is considered a "pass-through" tax entity, where all of the revenues and costs pass through the business to the proprietors, who report their portion of the revenues (or deduct their portion of the costs) on their individual income tax returns (Gaff & Fryzel, 2012). Some more advantages of a sole proprietorship are independence, autonomy, one-decision-maker and an effective management structure ("Sole Proprietorship," 2007). A disadvantage of sole proprietorship is a business and proprietor is one and the same with unlimited personal liability (Gaff & Fryzel, 2012). All pressure of successes and failures is the responsibility of the proprietor. Another disadvantage, capital is harder to secure. In addition, this type of business cannot be handed down to the next generation...
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...of gross income from the restaurant that he owned from his 2012 tax return. The return indicates gross income of $ 200,000 when he files it on April 14 2013. As of what date can the IRS no longer pursue Kevin with the threat of collection of the related tax, interest, and penalties? Answer: There is no statute of limitation. The IRS can pursue Kevin with additional taxes, interest, and penalties if they are able to prove fraud was committed by deliberately omitted $40,000 of gross profit. However if the IRS is unable to prove Kevin deliberately omitted $40,000 of gross income as fraud expire date would be April 15, 2016. 42. When Keith created a new corporation as a sole shareholder, he was advised by his accountant to treat 50 percent of the amount invested as a loan and 50 percent as a purchase of stock. What are the advantages and disadvantages of this structure as compared with treating the entire investment as a purchase of stock? Answer: The advantages of treating 50 percent of the amount invested as a loan and 50 percent as a purchase of stock this structure as compared with treating the entire investment as a purchase of stock is Keith will be able to deduct interest from the company gross income as a sole shareholder and pay interest on the company debt. The disadvantage of not treating the entire investment as a purchase of stock is the dividends would be...
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...Limited Liability Company (LLC) vs. Sub-Chapter S Corporation (S Corp) What is the difference between an LLC and an S Corp? When choosing to incorporate, the most common decision smaller businesses face is which type of corporation to form. Here is a comparison between LLCs and S-Corporations. LLC formation came into its own at the end of 1996 when the “check-the-box” taxation regulations were passed and LLCs were allowed to enjoy, among other things limited liability, flexibility of management, and the option to elect pass-through taxation. A limited liability company is a hybrid type of legal structure that provides the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. The "owners" of an LLC are referred to as "members." Depending on the state, the members can consist of a single individual (one owner), two or more individuals, corporations or other LLCs. Unlike shareholders in a corporation, LLCs are not taxed as a separate business entity. LLC members report profits and losses on their personal federal tax returns, just like the owners of a partnership would. When forming an LLC there are some general principles one must adhere to per State. First when choosing a name for your LLC you need to follow three rules. One it must be different from an existing LLC in your state. Two it must indicate that it's an LLC (such as "LLC" or Limited Company"). And three it must not include words restricted by your state...
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...Sole Proprietorship is a form of business that is owned and ran by one certain individual. That individual is responsible for all the losses and liabilities and is entitled to all the profits from the business. Advantages: Easy and inexpensive to form. Costs are minimal, most of the costs are due to obtaining the proper permits. Complete control of the business. The owner makes all of the decisions. That person is not expected to consult with anyone when making decisions or changes to the business. Easy tax preparation is also an advantage. This form of business is not taxed separately. The tax rates are also the lowest of the business structures. Disadvantages: Unlimited personal liability. Legally there is no separation between you and your business, so you are personally responsible for all the debts and obligations of the business. Many challenges are faced when it comes to raising money for this type of business. Since you can’t sell stock in the business, investors won’t often invest. Also, banks are terribly hesistant to loan money to this type of business for lack of credibility if the business ends up failing. General Partnership is a form of business where two or more people share the ownership of one business. Each partner contributes to all aspects of the business including money, property, labor and skill. In return, each partner shares in the losses and gains of the business. Partnerships entail more than one person when it comes to decision making. It is very...
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...Small Business Idea Paper ACC/561 Anne Holland University of Phoenix Michael De Marco July 16, 2012 Small Business Idea Paper When having the excitement of starting a business, there are several factors and steps to go through before getting the plan started. In the fallowing paper bravely describe our business plan for our new company. We will mention some of the factors that go alone with the process of starting a business. Therefore, summarizing in a substantial way the different types of business structures that are suitable for small and medium sized business, along with describe the legal, tax, accounting, and other implications when of each form of business structure. Business Plan According to Abrams, R. (2003), “ The business plan process entails five fundamental steps: (1) Laying out your basic business concept, (2) Gathering data on the feasibility and specifics of your concept, (3) Focusing and refining the concept based on the data you compile, (4) Outlining the specifics of your business, and (5) Putting your plan in compelling form”. New Business Project Business Name: Universal ATM Service Product or Service: Retailed of Automated Teller Machines, Automated Teller Machines Products, Transactions Processing, Automated Teller Machines Placement, and Automated Teller Machines Services and Repairs. Business Structure: Limited Liability Company (LLC) Rationale for choosing this form of business organization: the founders of Universal ATM Service...
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...LIT1 Task 310.1.2-01-06 PART A Sole Proprietorship - This is considered one of the most common forms of business in America. There are advantages and disadvantages in being a sole proprietor. An advantage would be that you, as the sole proprietor, are your own boss. In contrast a large disadvantage would be that you, as the sole proprietor, are completely liable for every aspect of the business. * Liability: Sole proprietorships have what is considered to be one of the biggest risks when it comes to liability in that they have unlimited liability. Unlimited liability means the sole proprietor is ultimately responsible if the business fails, this would include debts. * Income taxes: legally there is no dissimilarity in the proprietor and the business, so all the organizations income is taxed as if the owner were working like an ordinary person. * Continuity of the organization: Sole Proprietorships will only last as long as the owner is alive. If the owner dies so does the business, so any employees that the owner had would be left to find other means of employment. * Control: Control of a sole proprietorship lies solely in the owner’s hands, he/she has complete discretion of what direction the business will go or even if the business will continue or not. * Profit retention: The profits from the business go completely to the owner, and would not be shared with any employees. However, this also ties to the financial aspect of the business. If there...
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...years and received a lump sum payment of $300,000 for his work plus an additional $25,000 for pre-paid expenses. He wants to know how this money will be treated for tax purposes. John’s company is what is known as an LLC or Limited Liability Company, and for U.S. federal income tax purposes, an LLC is treated by default as a pass-through entity. Since John is the only person in the company, the LLC is treated as a “disregarded entity” for tax purposes, and an individual owner would report the LLC’s income or loss on Schedule C of his individual tax return. According to the IRS, Taxable earned income includes: • Wages, salaries, tips, and other taxable employee pay • Union strike benefits • Long-term disability benefits received prior to minimum retirement age • Net earnings from self-employment • Gross income received as a statutory employee (What is Earned Income?, 2012) According to the IRS description above, John earned a total of $325,000 from the case that would be considered taxable income. The $25,000 is included as income for the expenses that John has incurred over the past two years. However, John will only be able to deduct expenses that occurred during the current year and any prior year expenses should have been deducted in the tax year that they were incurred. If this was not completed, he should amend any previous year’s return to reflect the deductions. This money is reported as income and should be reported as such on John and Jane’s personal income...
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...include the following: • Forming a sole proprietorship is easy and does not cost a lot. • No federal or state government approval is required. • The owner has the right to make all management decisions concerning the business, including those involving hiring and firing employees. • The sole proprietor owns all of the business and has the right to receive all of the business’s profits. • A sole proprietorship can be easily transferred or sold if and when the owner desires to do so; no other approval (such as from partners or shareholders) is necessary (Cheeseman, 2010). • Owner would only have to file one set of taxes, instead of filing personal and business taxes separately. There are some disadvantages to being a sole proprietor, too. These are as follows: • Owner has to use own funds...
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...University of Phoenix Material Sabrina Morton Business Forms Worksheet There are seven forms of business: sole proprietorship, partnership, limited liability partnership, limited liability company (including the single member LLC), S Corporation, Franchise, and Corporation. 1. Research and provide three advantages and three disadvantages for each business form. 2. Provide a 100- to 200-word summary in which you provide an example business that you would start for each form. What is legally necessary to file in order to form that business? Discuss at least one of the advantages and one of the disadvantages of that form. Sole Proprietorship Advantages 1. Ths sole proprietor (owner) has complete control and decision making power of the business. 2. Sale or transfer can be completed at the discretion of the sole proprietor. 3. No corporate tax payments. Disadvantages 1. The sole proprietor can be held personally liable for debts and obligations of the business. 2. All responsibilities and business decisions fall on the shoulders of the sole proprieter. 3. Investors don’t usually invest in sole proprietorships. Summary I would start an online costume selling business as a sole proprietorship. I would choose this type |of business as a sole proprietorship because it is an inexpensive business. I would not have to open up | |an actual building to sell the costume jewelry. I would have a...
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...This is because every company has different credit rating and hence borrow at different cost. IRS helps to monitor the mix of fixed and floating rate interest in the company’s debt mix as well. A company may want to change from borrowing at a floating rate to borrowing at fixed rates if interest rate are expected to increase, vice versa. Besides, when the company seldom access to capital market, either due to its low credit rating or it is relatively obscure in the market, IRS helps to obtain fixed rate borrowing commitments by swapping floating interest rate by fixed rate of interest. In addition, it can provide a longer period protection against interest rate movement than other method as the interest rate swaps can be planned up for ten years. IRS involved a low transaction cost even it is tailor made. Last, there is no upfront payment in IRS (Sundar, 2012). The major problem of IRS is that Swaps do not allow purchasers or sellers to gain in favorable interest rate movements and restrict any downside losses. Also, it engaged credit risk, also called as default risk, and market risk. Last, two initial parties had accepted credit status of each other, and the purchaser of the swap may not be acceptable to the original counterparty...
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...independent contractor when tax season comes around. There are non-tax benefits for the business in choosing to classify a worker as an independent contractor as well. Employers do not have to worry about paying into workers’ compensation plans for independent contractors, they do not have to pay health or welfare benefits, pay into pension plans, or reimburse business expenses. With all of those pros to classifying a worker as an independent contractor you have to wonder why businesses choose not to. Along with those many benefits there are also a few disadvantages. Independent contractors, by definition, do not work set hours which means they are free to come and go as they please which could lead to schedule disruption. There are risks of disloyalty to the company that are increased by hiring as an independent contractor because their livelihood is not connected with the business entity. A third major disadvantage is that the “companies may not own the copyrights on materials created by independent contractors” (Durban, 2010). Those negative alone certainly do not seem like they would do enough to dissuade an...
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...suit her service. The company will consider legal, tax, accounting, and other implications when selecting from the four business types. The Four Forms of Business’ There are four main forms of business organizations that Sandy the owner of Webb Inc. must choose form to start the process of forming her business. The legal entity in which a business owner can choose from is sole proprietorship, partnership, C corporation, and S corporation. Along, with the advantages and disadvantages of each type of business form. Sole proprietorship is the most common form utilized for a small business. This type of form is used, especially in the early stages of a business controlled by one person. This one person is directly responsible for the management and conduct of the company. The advantage of present the sole proprietorship is that this is least experience to own and operate because there are no particulars concerning the legal organization. There are no rules governing in which it must have a purpose. The disadvantage of this type of form is that the owner is liable for the actions and debts created for and against the company. Tax implications for sole proprietors are taxes are paid on his or her personals income taxes. The business is not taxed separately. The legal implications of being a sole proprietor means they are held personally liable for any business-related obligation. The creditor can come after their house or any other of their possessions. The accounting implications...
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...Memo: To: Penelope, Mark, and John Date: October 13, 2013 Re: Entity Selection Part I: The different forms of organization you can elect are joint venture, corporation or partnership. The form of corporation you can chose is an S corporation which will help you avoid double taxation. Since you will be working in an environment that incurs various risk (liability) issues I would recommend to establish a Limited Liability Corporation because it would protect the partners to a higher extent. Part II: The LLC is the preferred choice because it contains aspects of both a partnership and a corporation that provides protection for its members. The LLC needs to actually be a business entity and treated as corporation and afterwards chose an S corporation tax status. While forming a corporation they can get investors to invest in the company but limit to 100 shareholders to keep the S corporation status. Using the S corporation status avoids double taxation because the corporation has to pay taxes on profit and you will have to pay taxes on any dividends you received from the corporation. One huge benefit of the S corporation status is that the net income/loss from the corporation will be reported by each member on a schedule K – 1 that will flow into individual member’s tax return. Part III: These contributions with an S corporation would be treated as the basis for the company. The link below goes into further detail. “An S corporation is also subject to Internal Revenue...
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