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Advantages and Disadvantages of Sole Proprietorship

See the attached case study. Use the questions at the end of the case for guidance, but please add to your explanations.

Please help me prepare 2-3 page response including synthesis of applications to corporate organizational structure. Please cite and list any references used.

The McGee Cake Comapny
In Early 2005, Doc and Lyn McGee formed the McGee Cake Company. The company produced a full line of cakes and its specialties included chess cake, lemon pound cake and double-iced, double chocolate cake. The couple formed the company as an outside interest, and both continued to work at their current jobs. Doc did all the baking, and Lyn handled the marketing and distribution. With good product quality and a sound marketing plan, the company grew rapidly. In early 2010 the company was featured in a widely distributed entrepreneurial magazine..... (see attachment for more case study details)

1. What are the advantages an disadvantages of changing the company organization from sole proprietorship to an LLC?
2. What are the advantages and disadvantages of changing the company organization from a sole proprietorship to a corporation?
3. Ultimately, what action would you recommend the company undertake, why?


Solution Preview

1) There are various advantages of changing the company organization from the sole proprietorship to an LLC. In an LLC owners are not personally liable for company debts that is, in case the company is not able to pay its debts then the personal assets of owners are not liable be attached to cover the difference. On the other hand, in the case of sole proprietorship, the liability of the owners are unlimited that is, the owners would be held personally responsible for business debts.
Every business requires capital investment in order to meet its growing needs. In case of sole proprietorship all the funds have to be managed solely by the owners and it is also a great challenge to raise funds where as in case of LLC various members can pool together the resources and can arrange for the growing needs of the organization.
The various advantages of sole proprietorship firm over LLC are as follows:
A sole proprietorship is very easy to form. It requires least formalities and paperwork and it is most cost effective form of business organization where as to form an LLC various legal formalities have to be done. It must be registered to the applicable state agency and its cost of ...

Solution Summary

This solution of 760 words discusses advantages and disadvantages of sole proprietorship, LLC and Corporation. All references used are included.