A regular corporation or C Corporation has a legal entity which is separate and apart from its owners. The owners of the corporation are known as stockholders and they invest money or assets in return for shares of stock at a predetermined price (Small Business Development Center of South Carolina, 2002). The stockholders are at risk only for the amount of money they have invested in the stock of the corporation and their personal assets are not at risk (ibid. ).
Corporations generate additional funds through the sale of stocks or bonds and a portion of corporate earnings known as dividends are paid out to the shareholders in the form of cash, stock, property or other securities. Dividends paid to shareholders are essentially taxed twice. They are taxed once at the corporate level (on the corporation’s Form 1120), and again at the individual level (on the person’s Form 1040) (Perez, 2008).
A subchapter S corporation is a form of corporation, allowed by the Internal Revenue Service for most companies with 75 or fewer shareholders, which enables the company to enjoy the benefits of incorporation but be taxed as if it were a partnership (InvestorWords. com, 2008). It is not subject to corporate
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LLC has the limited liability, flexible management, no required record of minutes, one-level taxation and flexible profit and loss distribution. However, owners of the LLC cannot go public and issue shares of stock. When a member dies or undergoes bankruptcy, the limited liability company is dissolved. Obtain Business Fund One of the most important aspects of starting a business is determining how much money is needed to fund the business. Getting the necessary fund for the establishment and operation of the business may be obtained through personal savings and income, grant, loan, and equity (Bytestart Limited, 2007).
The most practical and safest way to fund a business is by using a personal savings. If anything goes wrong with the business, the lost would affect the entrepreneurs’ money but they would not be burdened with debt. Another way of raising fund is by maintaining a regular work in another company while working on the business on a part time basis. Some entrepreneurs handle a regular weekday job while doing their part-time computer graphic business after office hours and during weekends.
Borrowing money from friends, families and relatives is another option but it is important to secure a legally binding agreement. There are several non-government organizations, regional development agencies and companies that provide business grants to entrepreneurs depending on the nature of the business and where it is located. These organizations will provide cash without the need to repay but they usually monitor the progress of the business and require submission of feasibility study and financial records.
Small businesses have raised money through commercial loans with fixed or variable repayments over a pre-agreed number of months or years. In a fixed repayment scheme, borrowers know how much they need to repay for the duration of the loan. In a variable rate, loan payments fluctuate over time. If interest rates are low, the borrower will pay less but if the rate increases, he will pay more. Some also offer loans with a capped interest rate to safeguard the debtor so if there is any increase in interest rates, the rate won’t rise above the agreed level for the capped period.
Select a Location The choice of location will largely depend on the type of goods and services, customers, suppliers, employees and government restrictions. The location would contribute to the success or failure of the business. It is important to study the business needs and pick a suitable site that meets these requirements. For example, if the business that you are planning to establish is beside a university, it would be best to put up a restaurant, a school supply store, or a dormitory.