Introduction: As you work on this task, ask yourself why one form of business organization would be selected over another, particularly for a small…

Introduction:As you work on this task, ask yourself why one form of business organization would beselected over another, particularly for a small business. What are the advantages anddisadvantages of each form?The business entity characteristics owners should consider fall into these seven categories:• Liability: What are the limits on liability and protection of not only business assets, butpersonal assets and future earning power of the owner beyond this particular business?• Income taxes: What are the features of each business entity that affect the amount offederal, state, and local income taxes paid by the business and/or owners?• Longevity or continuity of the organization: What features of each form relate to forceddissolution of the business organization?• Control: Who has ultimate control over important decisions? How much control does theowner have to grant to others?• Profit retention: What portion of the profits does the owner have to give up because theyhave to be shared with others? How does this affect return on investment?• Location: What are the implications for moving or expanding the business into a differentstate? Will a separate legal entity have to be created or new documents filed in the newstate? Are there advantages or disadvantages regarding how state taxes will beassessed?• Convenience or burden: What additional requirements or extra workload are placed uponthe organization to comply with all reporting, meeting, and other regulatoryrequirements?Given:A manufacturing business produces a variety of wood moldings, hardwood doors, high-endkitchen cabinets, and specialty cabinets and bookcases for dens, home libraries, offices, etc.The business owner has been operating as a sole proprietorship, but is thinking of changingto a different type of organization. The company has been quite profitable for its size. Profitbefore taxes for the coming year is expected to be just over $600,000.While considering this change, the owner has thought about the various functions of thebusiness operation and different types of risks and potential liability that accompany eachfunction. For instance, trained employees usually install cabinets, but when the companyhas a backlog of work, the owner must occasionally hire outside installers on asubcontractor basis. Although the company has not yet had such a problem, the owner haswondered what might happen if an installer were to make an installation error and a cabinetwere to fall off the wall and injure someone. Also, all of the delivery drivers possess licensesrequired for the trucks they drive. The owner is concerned about a delivery truck becominginvolved in an accident. In addition, the owner is concerned about a shop worker beinginjured on a saw or shaper, or a load falling off of a forklift and injuring someone.The owner is unsure what would happen with bills and other liabilities if the business wereto fail for some reason. Although the company has ample insurance, the owner has heard ofjuries awarding judgments that exceed the insurance coverage and wipe out all personalassets.The owner is planning to expand the business, both by expanding its market geographicallyand by adding a second factory in an adjoining state. To accomplish this, the owner willneed to increase the investment in capital assets. One way of obtaining funds would be tosell a share of the business to a partner, but the owner is not sure how that will impactpotential liability. Another possibility is to sell stock in the company. This way the ownermight be able to retain control of the company by having family members serve as officersin the corporation.The owner is also concerned about profit that will be shared with partners or investors, theamount of income tax each year, and continuation of the business under control of theofficers in the corporation if the owner were to die.The owner is aware of terms like S-corporation, C-corporation, LLC, and limited and generalpartnerships that describe different forms of business organizations but does not fullyunderstand the business forms.The owner has hired you to explain the advantages and disadvantages of each type oforganization compared with those for each of the other types, including the type oforganization the company is currently using. In your report to the owner, format yourresponse so that it is easy to make comparisons among the six forms of organization. Youshould use a listing approach rather than discussing several concepts in the sameparagraph.Task:A. Write a report (suggested length of 5–7 pages) about the forms of businessorganizations listed below. Your report should have a subheading for each business formwith a brief description of the business form and a brief discussion of the keycharacteristics, advantages, and disadvantages of that form of organization.1. Explain how at least six of the seven key characteristics listed in the introduction tothis task apply to each of the following organizational forms:a. Sole proprietorshipb. General partnershipc. Limited partnershipd. C-corporatione. S-corporationf. Limited liability companyB. Write a memorandum (suggested length of 1–2 pages) in which you analyze yourfindings by doing the following:1. Recommend a specific form of organization that should be used in the givensituation.2. Justify why that is the best business form for this situation.

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