14 Jun Discussion Post
Must 250+ words, APA format, intext citations, must have 2-3 legitimate verifiable sources. Due by May 26, 2019 @ 10:00 AM EST time.
Suppose a group of accountants wanted to start an accounting company. What are the various organizational forms of business the accountants should consider? Describe the strengths and weaknesses of each model. Give your recommendation of which model would be best-suited to the group, and WHY.
READ: possible source
https://www.sba.gov/starting-business/choose-your-business-structure
Responses are to 150+ words, APA format, references legitimate verifiable sources to back responses no less than one reference per responses. In text citations.
POST:
Start a new thread using the format: Last Name – Post 1. Please respond to each part of this multi-part discussion topic. Also, respond to at least two of your peers/students. See full instructions in a previous forum, the syllabus and the grading rubric in the syllabus.
Suppose a group of accountants wanted to start an accounting company. What are the various organizational forms of business the accountants should consider? Describe the strengths and weaknesses of each model. Give your recommendation of which model would be best-suited to the group, and WHY.
Suppose a group of accountants wanted to start an accounting company. What are the various organizational forms of business the accountants should consider
Various organizational forms 1) Partnership – An association of two or more partners PROS 1) Ease in filing of taxes 2) A General partnership involving two or more partners as co-owners that does not require special formalities to establish the business. 3) A simple majority vote of the partners is all that is required to make business decisions for the business. 4) Partners are taxed individually, based on their portion of the business profits. 5) Profits are shared equally by the partners. 6) Can continue even if one or more of the partners leave the partnership. CONS 1) Owner’s (Partners) can be held personally liable for business losses. 2) Partners personal assets can be seized to cover business losses or to pay outstanding debts (seized to pay creditors).
2) Incorporate (form a corporation) – Formation of a new business by individuals with a desire to form a business to serve their mutual interest. PROS 1) Limited liability, partners are not individually liable to creditors or are financially liable for legal action taken against the corporation. 2) Can continue even if one or more of the partners cease to be a part of the corporation.
CONS 1) Not easy to found or create – Required to establish a board of elected directors, with regularly established meetings – Annual financial reporting – Must file letters of incorporation, stating an intent to form a corporation -Double taxation, Founders are taxed on individual earnings and profits so there is double taxation.
My recommendation.
The accountants should start their business as a limited liability partnership to begin with due to the ease of starting the business itself. The partners are not required to establish a board, file an intent to incorporate or publish an annual financial reports. Once the business begins to expand then the partners should consider incorporating. Incorporating would protect the personal assets of the partners. Additionally, the corporation could borrow funds to expand the business. Personal assets of the Partners could not be seized to pay creditors or to cover business losses. Source: Course Readings, Boundless Text May 2017 Finc-331- Finance -for-non-finance- Managers
Response:
After reviewing over all the possibilities for opening an accounting firm I wanted to first identify the different types and their pros and cons.
Sole Proprietorship is the most common for many small businesses. Its owned and operated by one person and is unincorporated. A benefit of this type of business is it is any easy and inexpensive way to get a business started and legal costs for initial start up only include the filing of required licenses or permits based off the business a person is starting. Another huge benefit of an sole proprietorship business is once again only one person is required to run the business and the owner doesn’t have to answer to anyone when making decisions about the business itself. Lastly is taxes, in a sole proprietorship the taxes are combined with the owner’s taxes as there is no legal separation from the owner and the business. The lack of separation is also a con when it comes to this type of business venture. There is no liability help when it comes to this business meaning a person could lose their home or their livelihood due to the business as it is all interconnected. Another problem is it is quite hard to get loans or raise money for this type of business. Many banks don’t want the risk of this type of business so its harder to obtain loans.
I do not believe a sole proprietorship business will do well by the accounting firm due to the liability that comes with the accounting field as well as needing input of financial rules and regulations it will be important to have others involved in decisions of the firm and keep track of how it is doing.
Second type of business to consider is an LLC or Limited Liability Company, an LLC is a separate and legally distinct entity that can bear it’s own name, bank account and tax ID number. Benefit of this type of business is the owners or members as they would be called under the LLC have limited liability if the business has financial or other problems, meaning owners are protected from losing personal assets such as homes, money or other items in case of something like a bankruptcy occurs (Wong, 2018). Another benefit of an LLC is the taxes, an LLC can decide if they want to be taxed as a sole, LLC or corporation but if being taxed as a corporation then a board of elections will need to elected.
I believe this is a very good options for the new accountant firm due to the flexibility options with this type of business. It still allows for owners to decide how to run the business but allows for additional safeguards in case of bankruptcy or financial problems. It is also regulated and filed with the state for additional help and loan offerings are widely available.
Finally we have a corporation, corporations are completely seperate entities from the person who begins the business and can also be run in different states which is a big advantage if you plan to offer services in different locations. Corporations are also issued stock when they intitially file for incorporation within their state and can then sell those to stakeholders or the board of directors who will guide and discuss affairs of the business itself. Each year elections are held to determine who those directors will be. Taxes are a bit more complicated and should be handled by a trained professional tax preparer but some items that are taxed are tax deductible like wages, charitable contributions and benefits such as health, vision and dental (Entrepreneur, 2018).
I do not believe this option will be best for the new accounting firm as this option will be best fit for bigger companies or firms that have a good standing in their communities and state.
After reviewing all options I believe the LLC or limited liability company would be the best option for the new accounting firm. The benefits of an LLC is limited liability of the owners to the company itself, flexibility of tax filing and ability to either change to a corporation or sole proprietorship if needed down the line. Another benefit of an LLC for a budding business is the ability to have additional entities within the business to allow it to grow and prosper where a sole proprietorship is a one man company an a corporation would have too many rules and regulations for a small start up company and cost more to even be eligible for corporation.
References:
Sutherland, R., Tariq, I., & Boss, J. (2018). Corporation Definition – Entrepreneur Small Business Encyclopedia. Retrieved May 21, 2019, from https://www.entrepreneur.com/encyclopedia/corporation
Wong. (2018, September 10). LLC vs. Sole Proprietorship. Retrieved May 21, 2019, from https://www.legalzoom.com/articles/llc-vs-sole-proprietorship?li_source=LI&li_medium=KC_bottom
Response:
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