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I am trying to understand the pros and cons of choosing a different type of entity (Limited liability, Corporation Partnership, franchises or sole proprietorship) which best suits each situation below...justifying why you have chosen the specific type of entity to do business in a particular form, or, in the case of an existing business, to change to a different business form.
Joe operates a local gardening and tree trimming business. Joe also does some light landscaping work for a few of his commercial accounts. Joe is very successful and has enough clients to keep him busy, along with at least three workers, working six days a week. Occasionally, a client rents a piece of equipment from Joe's business. Clients sometime take their time paying for Joe's services and, therefore, Joe is sometimes late paying his bills.
Joe's capital is only about $25,000, most of which consists of his new $20,000 truck and his assortment of lawnmowers, chainsaws, edgers, and gardening equipment. Joe's wife handles the books, yet is not involved in actual business operations. Should Joe continue to operate his gardening and tree trimming business as a sole proprietorship?
Maury and Sons is an oilfield-drilling contractor. Maury has been dead for years and Monty and Max, two of Maury's grandsons, now operate the business. Monty and Max each own 25% of the business (they acquired their interests from their deceased fathers, Fred and Barney). Two aunts, Wilma and Betty, own the remaining 50%. Wilma and Betty, each in their early 80s, have no children.
The business was originally a sole proprietorship. Maury brought Fred and Barney into the business, yet there is no formal partnership agreement. Wilma and Betty have never been actively involved in the business, yet were given their interests after Maury's wife Mable passed away.
Monty and Max want to continue to expand the business and, eventually, sell the business to a "consolidator" (a company that buys local businesses, usually in exchange for a combination of stock, cash, and debt). Should Maury & Sons continue as a general partnership?
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The posting addresses the pros (benefits) and cons (disadvantages) of the different types of business entities that exist. The three entities are: Limited Liability, Corporate Partnership and Sole Proprietorship.
Bear in mind, a corporation is the safest and most concrete form of business. Despite the well known Stock market, an over whelming majority of corporations are not publicly owned (stock based).
Corporations are only liable for the assets of the corporation. This personal protection is called Indemnification. Should there ever be a problem where a consumer or distributor needs to collect monies from the business, a corporation can only be sued or taxed for the assets that it owns (monies, properties, etc.) The individuals that work on the board are not personally liable. Decisions made in a corporation are made by the board of directors. If the board isn't in agreement about an issue, it doesn't happen. The board must agree on actions in order for them to take place. Small fees exist each year to be a corporation (usually ...
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