Small Business Idea Paper
The government recently released funds to individuals who want to create a small business. This concept of releasing funds to individuals will create more jobs and stimulate the economy. The first step for a small business owner is to determine which of the four forms of business the organization will best fit with the 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, tax liabilities, profit and losses, and deductions are reported in the federal income tax return of the owner. Therefore, all tax liabilities are the responsibility of the sole proprietor.
Partnership
A partnership is an agreement between two or more people who want to form a business. Partnerships share business expenses, debts, profits, and losses of the organization. Partnerships are equally responsible and liable for any problems committed from them or of any employee of the organization. Partnerships must have at least one general partner. A disadvantages of establishing a partnership is that one of the partners may want to retire or sale his part of them business. This could cause problems between the partners and tension and uncertainty could develop among the employees, vendors, lenders, and customers associated with the organization. The business does not have to pay taxes for the business, instead the profits and losses are reported to the federal government and each partner is responsible to file his or her own federal tax return. The financial statements associated with are income statements and retained earnings statement. The income statement reports the profits and losses of the organization during a specific period of time. Income statements show the organization’s profits and losses and provide a recording of the revenues and operating expenses for the company. The retained earnings statements show the amounts and causes of changes in retained earnings for a specific period of time (Wiley PLUS, 2012). These reports are important for partnerships because they evaluate dividend payments of the company and show the owner’s equity of the organization for a period of time. In addition, these statements can help bring investors into the organization and help set up credit accounts with vendors, and establish credit limits with vendors.

C Corporation C Corporation is an incorporated business and can have one or many owners. C Corporations is formed by shareholders who share and exchange money, property or both. The shareholders of the organization have limited liability protection and full discretion over the amount of profits they can distribute or retain. (IRS, 2012). An advantage of forming a C Corporation is that the business is a separate entity and the business reports all taxes to the federal government while each shareholder reports his or her own tax return. A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income (IRS, 2012). One of the disadvantages of a C Corporation is double taxation. In this level of business, the business owner must pay taxes for the business as a separate entity and the shareholders file individual taxes. Another disadvantage is that the organization is paperwork involved is extensive and should be checked for errors to keep from being audited from the government. For tax purposes, the business is considered as a separate taxpaying entity and does not get tax deductions when it distributes dividends to shareholders. Shareholders cannot use any losses of the organization as a deduction on their personal taxes. The income statements best used in C Corporations are income statements and statement of cash flows.
S Corporation S Corporations are similar to corporate and LLC except that S Corporations have more restrictions and are protected by the IRS from double taxation. S Corporations must have at least one shareholder and cannot have more than 100 and must be US citizens or residents. If a shareholder provides services to the business, the organization must pay that shareholder a reasonable salary. S Corporations have specific guidelines that must be met by the IRS. In addition, the expense of keeping the organization an S Corporation is expensive and could have too many restrictions on the business owner. Another disadvantage of S Corporations is that the organization may not meet the IRS regulations and guidelines. S Corporations are corporations that elect to pass corporate income, losses, deductions, and credit through to their shareholders for federal tax purposes (IRS, 2012). Shareholders pay flow of income and losses on their personal tax returns and are assessed tax on their individual tax returns. This helps shareholders from being doubled taxed. The income statements best associated with S Corporations are income statements, cash flow statements, and retained earnings statements. The Shoppe Around the Corner The Shoppe Around the Corner is a small business that carries imported and decorative household items. The store sales dinnerware, flatware, small household furniture, picture frames, knickknacks, and linens for the home. All items are imported from Mexico, South America, India, and Africa. The business owner is limited in funds and therefore, has established her company with a family member to form a C Corporation. The advantage of creating a C Corporation is that the owner could entice potential investors to help establish more credit with vendors and lenders, and hopefully expand the business into other locations throughout the city. The business would benefit from a corporation because all taxes, profits and losses will be reported to the federal government and all employees and the owner will file their own income taxes. The corporation could bring in more investors to the organization for expansion and all profits, liabilities, and losses will be shared. In addition, vendors and lenders will grant more opportunities to a corporation than a sole proprietor.
Conclusion
Establishing a business takes much sacrifice, hard work, and dedication. The first step for a person interested in opening up a business is to establish the form of business that will best fit the individual. This paper discussed the four forms of business and provided information that would benefit a new owner to make the right decision for the business.

References
Internal Revenue Services. (2012). Internal revenue services. Retrieved from irs.gov/businesses/small/article0,,id=98263,00.hthl
Wiley PLUS. (2000-2012). Introduction to finanical statements. Retrieved from Wiley PLUS, ACC561 website.