Selection of Business Organization
As you work on this task ask yourself why one form of business organization would be
selected over another, particularly for a small business. What are the advantages and
disadvantages 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, but personal 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 of federal, 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 forced dissolution of the business organization?
• Control: Who has ultimate control over important decisions? How much control does the owner have to grant to others?
• Profit retention: What portion of the profits does the owner have to give up because they have 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 different state? Will a separate legal entity have to be created or new documents filed in the new state? Are there advantages or disadvantages regarding how state taxes will be
assessed?
• Convenience or burden: What additional requirements or extra workload are placed upon the organization to comply with all reporting, meeting, and other regulatory requirements?
Given Scenario:
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 to a partner, but the owner is not sure how that will impact
potential liability. Another possibility is to sell stock in the company. This way the owner
might be able to retain control of the company by having family members serve as officers
in the corporation.
The owner is also concerned about profit that will be shared with partners or investors, the
amount of income tax each year, and continuation of the business under control of the
officers in the corporation if the owner were to die.
The owner is aware of terms like S-corporation, C-corporation, LLC, and limited and general
partnerships that describe different forms of business organizations but does not fully
understand the business forms.
The owner has hired you to explain the advantages and disadvantages of each type of
organization compared with those for each of the other types, including the type of
organization the company is currently using. In your report to the owner, format your
response so that it is easy to make comparisons among the six forms of organization. You
should use a listing approach rather than discussing several concepts in the same
paragraph.
Task:
A. Write a report (suggested length of 5-7 pages) about the forms of business organizations listed below. Your report should have a subheading for each business form with a brief description of the business form and a brief discussion of the key characteristics, advantages, and disadvantages of that form of organization.
1. Explain how at least six of the seven key characteristics listed in the introduction to this task apply to each of the following organizational forms:
a. Sole proprietorship
b. General partnership
c. Limited partnership
d. C-corporation
e. S-corporation
f. Limited liability company
B. Write a memorandum (suggested length of 1-2 pages) in which you analyze your findings by doing the following:
1. Recommend a specific form of organization that should be used in the given
situation.
2. Justify why that is the best business form for this situation.
Note: Please use standard memorandum format in the form of a business proposal
addressed to the company owner.
C. If you choose to use outside sources, include all in-text citations and references in APA.
USA 
India