Business Law Introduction:
To complete this task you will need to complete an attached Business Form and write a memorandum. The purpose of the Business Form is for you to demonstrate your knowledge of the various forms of business organizations as well as their advantages and disadvantages. Please pay particular attention to the five key characteristics listed below while you are writing this report.
The five key characteristics are as follows:
• Liability: What are the limits on liability and protection of not only business assets, but personal assets?
• Income taxes: What are the requirements for each form of business and/or owner with regard to paying federal, state, and local income taxes? Who is responsible for filing a tax return, the business, the owners, or both?
• Continuity of the organization: What would the consequences be if an owner were to die, retire, or withdraw from the business?
• Control: Who has ultimate control over important decisions as well as day to day operations?
• Profit retention: How are the profits distributed between the company and the owners/shareholders?
A manufacturing business produces a variety of wood moldings, hardwood doors, high-end kitchen 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 changing to a different type of organization. The company has been quite profitable for its size. Profit before 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 the business operation and different types of risks and potential liability that accompany each function. For instance, trained employees usually install cabinets, but when the company has a backlog of work, the owner must occasionally hire outside installers on a subcontractor basis. Although the company has not yet had such a problem, the owner has wondered what might happen if an installer were to make an installation error and a cabinet were to fall off the wall and injure someone. Also, all of the delivery drivers possess licenses required for the trucks they drive. The owner is concerned about a delivery truck becoming involved in an accident. In addition, the owner is concerned about a shop worker being injured 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 were to fail for some reason. Although the company has ample insurance, the owner has heard of juries awarding judgments that exceed the insurance coverage and wipe out all personal assets. The owner is planning to expand the business, both by expanding its market geographically and by adding a second factory in an adjoining state. To accomplish this, the owner will need to increase the investment in capital assets. One way of obtaining funds would be to sell a share of the business, but the owner is not sure how that will impact potential liability. Another possibility is to sell.
As you work on this task, ask yourself why one form of business organization would be selected over another. What are the advantages and disadvantages of each form?
1. Include a brief description and list two advantages and two disadvantages for each form of business organization listed below: