Reference no: EM13466820

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.