Chapter 2

Recognizing Business Types and Their Tax Rules

In This Chapter

arrow Exploring sole proprietorships

arrow Taking a look at partnerships

arrow Checking out limited liability companies

arrow Comparing different types of corporations

All businesses need to prepare key financial statements, but some businesses can prepare less formal statements than others. The way a business is legally organized greatly impacts the way it reports its financials to the public and the depth of that reporting.

For a small business, financial reporting is needed only to monitor the success or failure of operations. But as the business grows, and as more outsiders — such as investors and creditors — become involved, financial reporting becomes more formalized until the company reaches the point at which audited financial statements are required.

Each business structure also follows a different set of rules about what financial information the business must file with state, local, and federal agencies. In this chapter, I review the basics on how each type of business structure is organized, how taxation differs, which ...

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