Small Business Idea Essay

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Small Business Idea

When starting a new company, there are a number of different forms the business can take. It is important to understand the differences between the forms, including their advantages and disadvantages. The main forms for a new small business are sole proprietorship, partnership, C-corporation and S-corporation. The small business that is being considered is a gourmet food truck that will sell the finest Southern barbeque. The truck will be mobile, selling at multiple locations around town. The truck will have a variety of menu items and will generally operate as any restaurant would with respect to the local regulations.

The first form of business to be discussed is the sole proprietorship. This form of business is the easiest to set up. Many "mom and pop" businesses take this business form, which is usually used when the business is only run by one or two people. In sole proprietorships, the owner keeps the income from the business, which is then taxed at the personal income tax rate. The owner also bears all of the risk associated with the business' activities (Taylor, 2006). Financially, whether a sole proprietorship is desirable depends on the differences in the local and national tax rates for corporations and individuals -- often the individual tax rates are higher so this option may increase the tax burden. However, sole proprietorships also face significantly less regulation than do more complex forms of business organization. There are no obligations under Sarbanes-Oxley, no rules for accounting and reporting beyond those required for personal income tax and no obligation to follow any rules under FASB or GAAP. The other major cost that needs to be considered is insurance. Since the proprietor bears legal responsibility, and since food service companies will typically run the risks associated with cooking equipment and things like food poisoning, the business will need insurance to cover the owner against these risks.

The second form of business to be discussed is the partnership.

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This form of business is formed by two or more partners. The degree to which each is responsible for the financing of the business, the division of profits and the division of legal risk will be drawn up in the partnership agreement. Therefore, setting up a partnership is more complicated than setting up a sole proprietorship and maintaining a partnership is also more complicated as the partnership agreement may require frequent revision. However, if more than one person is going to be directly involved in the business, a partnership is probably more viable than a sole proprietorship, as the latter implies that only a single individual is responsible for the business.

Taxation in partnerships is similar to that of sole proprietorships. The income goes to each partner is taxed at the personal income tax rate (Taylor, 2006). The same is true for the risk associated with the business. Partners bear the risk associated with running a food truck, and must therefore purchase insurance to cover against this risk. Partnerships are also similar to sole proprietorships with respect to their legal obligations. They are not obligated to produce financial statements according to GAAP or FASB, as their income is taxed at the personal level. They can use any method they choose to do their internal accounting, because it is not subject to external scrutiny. There are no obligations under Sarbanes-Oxley for partnerships.

There are multiple forms of corporations, two of which are the S-corporation and the C-corporation. All corporations must be officially incorporated, a process that is more costly and time-consuming than setting up either a partnership or a sole proprietorship. The primary difference between an S-corporation and other forms of incorporation is that the income in an S-corporation flows through to the owners and is taxed as personal income. In most other respects, the company is subject to the same rules as other corporations. The corporation is a legal….....

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