Reference no: EM133022141

To the owners of a business, the form of business organization is of great importance. Whether a business is organized as a sole proprietorship, a partnership, or a corporation, the form will have a real impact on taxes, the distribution of profits, the ownership and control of the business, as well as the liabilities of the business owners. Making the right decision about how to organize is crucial to the long-term profitability of most organizations.

Minicase

Margaret Stern and Janet Seglin have decided to fulfill a life-long dream of opening their own retail store. They live in a town with a population of less than 50,000, and they are interested in opening a gourmet coffee and tea store. Margaret and Janet plan to call their business The Gourmet Coffee Store.

The Gourmet Coffee Store will serve fresh-roasted gourmet coffee and tea to generate traffic. They are also considering serving pastries and desserts to encourage people to come to the store and look at the gourmet coffee products that they plan to sell. Some of the gourmet coffees the store will offer include Hawaiian Kona, Kenya AA, Sumatra Mandheling, and JamaicanBlueMountain. Margaret and Janet plan to buy roasted coffee beans from wholesalers and make them available in the store through displays. They will grind coffee beans for use in coffee makers for customers who want ground coffee.

The women believe that their initial investment will be around $25,000. They have leased a small store area in a neighborhood shopping center for only $1,000 per month.

They are trying to decide whether to organize as a partnership or as a corporation. One reason for considering a partnership is that a partnership requires little more than drawing up articles of partnership. No legal charters have to be granted, although the name of the business should be registered with the state. They have pooled their financial resources and have a better credit rating than they might have if they were operating independently. A partnership would allow them to use their diverse skills in running the store and to share decision making to achieve the most effective management of the store.

On the other hand, they have read some information about corporations and are interested in some of the advantages of incorporation, such as limited liability and possible tax advantages. However, incorporating sounds complex, and Margaret and Janet are unsure of what to do.

-How do you think The Gourmet Coffee Store should be organized? Should it be organized as a partnership or as a corporation? Explain your reasoning in full detail and support your thoughts with information from the text book.

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