Question

In: Finance

You have graduated from Holmes Institute with a Master’s Degree in Professional Accounting, and you’re employed...

You have graduated from Holmes Institute with a Master’s Degree in Professional Accounting, and you’re employed as an accountant/financial advisor, for an accounting firm called Big Business Accountants. Harry is a client, and he has made an appointment to see you. Harry is keen in starting a business. This business he is proposing to start is a bakery. Harry has qualifications in bakery which includes making cakes, bread, pastries. Harry, has saved up his money and he has about $50,000.00 in cash. He hasn’t bought any equipment but he has found a shop which he is considering leasing where his bakery business will be operating from. Harry has always been an employee and now he would like to know what type of business structure he should have for his bakery. Your task is to write a report to Harry about the types of business structures that you consider would be suitable for Harry to consider

Solutions

Expert Solution

The most common forms of business are sole proprietorship,Partnership(Including Limited Liablity Partnership),Corporation,S corporation and Limited liablity company.The business structure influences everything from day to day operations,to taxes,to how much of your personal assets are at risk.

i)Sole proprietorship:A sole proprietorship is easy to form and gives you complete control of your business.You are automatically considered to be sole proprietorship if you do business activities but not register as any other kind of business.

ii)Partnership:In case of Partnership your business will be owned and operated by more than two individuals including you.In a general partnership,the partners manage the business and assume resposibility for the partnership's debt and other obligations.

iii)Corporation:The corporate structure is more complex and expensive than most other business structures.A corporation is independent leagal entity,separate from its owners,and as such,it require complying with more regualtions and tax requirements.

iv)S Corpoartion:The S Corpoartion is more attractive to small business owners due to appealing tax benefit and still provides business owners with the liablity protection of a corporation.With an S corporation,income and losses are passed through to shareholders and included on their individual tax returns.There is just one level of federal tax to pay unlike in regualar corporation.

v)LImited Liablity Company(LLC):An LLC is a hybrid entity,bringing together some of the best features of partnership and corpoartion.LLC were created to provide business owners with the liablity protection that corporations enjoy without the double taxation.Earning and losses pass through to the owners and are included on their personal tax returns.

All the above business structures have its own advantages and disadvantages.Considering the position of Harry,Sole propritorship is suitable business structure for him as his investment is small and new to the business.Accordingly if he select sole proprietorship,he would not required to comply with stringent compliance as required in other businesss structure and dedicate his all time to grow his business.


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