With support from the government-issued funds for small businesses, I plan to set up an African jewelry shop in my town of residence. I chose this business primarily because there is a ready market and it costs much less to run an African jewelry shop compared to other businesses. To decide on the best business structure for the business, I have to first assess the competitive advantages of all four types of organizations before drawing to a conclusion. This assessment is provided below.
A sole proprietorship is a type of business that has one individual (the owner) running all the operations of the business. The owner is also personally accountable for managing the business’s income and expenditure (Abrams, 2003).
Among the primary advantages of a sole proprietorship is that the owner has the executive right to make decisions about the business. Few formal requirements when setting up the business and exemption from corporate tax payments are the other reasons why this business structure is attractive.
The disadvantages of a sole proprietorship include the fact that when the business is not doing well, it is up to the owner to find ways of stabilizing it. In addition, investors are usually not willing to fund sole proprietorships, and all losses suffered by the business fall on the shoulders of the owner (Kimmel, Weygandt, and Kieso, 2009). In sole proprietorships, the owner is personally accountable for any lawsuits that the company incurs. Sole proprietorships are not distinguishable from the owners and, therefore, the owner is responsible for submitting all the taxes incurred by the business.
Financial statements for sole proprietorships
For a sole proprietorship, the primary financial documents required to ascertain health are the income statement and the balance sheet.
A partnership is a decision by a group of people to start, fund, and run a business.
The advantages of partnerships include the fact that it is much easier to raise funds for capital and operate the business (Heintz and Parry, 2010). With the number of people in a partnership increased, the business benefits from the complementary skills that each of the partners brings in. In addition, taxes and losses are shared, making the impact less injurious compared to sole proprietorships.
As far as disadvantages are concerned, the profit enjoyed by each partner is reduced because the total income must be shared (Kimmel, Weygandt, and Kieso, 2009). It is also difficult to decide on this type of business because each partner must be consulted even for relatively simple issues.
Financial statements for partnerships
For partnerships, there are three primary financial statements of relevance. These are the statement of partners’ equity, the balance sheet, and the income statement (Abrams, 2003).
Corporations are business establishments that are completely separated from the owners. The owners are referred to as shareholders because they only own part of the company.
Corporations have the advantage of the ability to easily raise funds for both setup and administration. The shareholders have limited liability for any debts or lawsuits that the company may suffer. Taxation is also done on an institutional level, relieving the shareholders from the tasks of following up on taxes.
Among the disadvantages of corporations include the fact that setting up a corporation requires more funding and more processes than with any other type of business. Corporations are subjected to more taxes and require more documents during the incorporation process.
Financial statements for corporations
For corporations, the most important statements are the balance sheet, the income statement, and the statement of cash flows (Heintz and Parry, 2010).
Limited Liability Corporations (LLC)
LLC’s have the advantage of being entirely separated from the private assets owned by the shareholders (Cartano, 2008). In this regard, any losses or liability that the company suffers are handled separately from the property owned by the owners.
A disadvantage of LLC’s is that by law, the owners are not regarded as separate entities and are, therefore, required to pay taxes for the company as part of
their income taxes (Heintz and Parry, 2010).
Financial statements for LLCs
The financial statements required to assess the financial growth of an LLC include balance sheets, income statements, statements of cash flow, and statements of membership capital (Cartano, 2008).
FASB and SOX
The Financial Accounting Standards Board (FASB) and Sarbanes–Oxley Act (SOX) is relevant in auditing the financial statements released by corporations and LLCs.
The product I have chosen is unique because no shops are dealing with African jewelry in the area I am targeting. I have also settled on this business because I have the necessary skill required to operate such a business.
The capital requirement for the business is also not demanding. As far as the business structure is concerned, I have opted for a sole proprietorship. This is fundamental because I believe that to run a successful business, the owners must be fully interested in the product. As of now, I am yet to meet someone who has as keen an interest in African jewelry as me hence the decision to start and run the business alone.
Abrams, R. (2003). The successful business plan: Secrets & strategies. California: The Planning Shop.
Cartano, D.J. (2008). Federal and State Taxation of Limited Liability Companies 2009. Chicago: CCH.
Heintz, J.A. & Parry, R. (2010). College Accounting. California: Cengage Learning.
Kimmel, P.D., Weygandt, J.J. & Kieso, D.E. (2009). Accounting: Tools for Business Decision Making. Hoboken, NJ: John Wiley & Sons.