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    type of business organization

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    Bob and Jane are husband and wife. Bob enjoys woodworking as a hobby and he has made several windmills and other pieces for decorating his yard. Jane is an excellent seamstress and enjoys making crafts, holiday decorations, and household decorations.

    They are both tired of working for someone else and want to start their own business. They are not sure what they want to name their business, but would like the name to let their future customers know what it is their company manufactures. They also do not know what form or organization their business should take, and they are not sure of how long they want their business to last. They do know that they want to be the only people who have ownership in the business.

    Assume you are an attorney, and that Bob and Jane schedule an appointment with you to discuss their new business and the form it should take.

    Write an essay answer and include the following:

    ? If you were an attorney, which type of business organization would you suggest for your clients (in the fact situation presented above)? Explain why you believe the type of business organization you have chosen is best for the couple. Explain the steps required for getting the business started. Explain the disadvantages of the business structure you have chosen.
    ? Discuss one or two forms of business organization you do not believe would work for the couple. Explain why.

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    Solution Preview

    If I were an attorney, I will suggest sole proprietorship for this couple as it is the simplest, least expensive form of business organization and perfectly suited for Bob and Jane as they just started this business as a hobby and do not want to be bothered by formalities, complexities and costs associated with business incorporation. Therefore, sole proprietorship will work in their favor in terms of ensuring simplicity and complete control over their small business.

    The Sole Proprietorship is the most common form of business structure. A Sole Proprietorship is a business controlled and owned by one individual, and is limited to the life of its owner; when the owner dies, the business ends. The owner receives the profits and takes the losses from the business. This individual alone is responsible for the debts and obligations of the business. Income and expenses of the business are reported on the proprietor's individual income tax return, and profits are taxed at the proprietor's individual income tax rate.

    The main advantages and disadvantages of this type of ownership are:


    Few formalities and low organizational costs
    Decision making is made by the owner
    Ability to do business in almost any state without elaborate formalities
    Fewer reporting requirements to government agencies
    Avoidance of corporate "double tax."
    Business losses may be taken as a personal income tax ...

    Solution Summary

    If you were an attorney, which type of business organization would you suggest for your clients