Accounting, Finance & Corporate Taxes

Workshop One – 1.2 Dropbox

Accounting, Finance, and Corporate Taxes

Darnise Jordan

Indiana Wesleyan University

Author Note

This paper is being submitted on December 14, 2015 for, Larry Chamberlain’s MHRO22 Accounting/Finance for Manager Class.

Minicase – The McGee Cake Company

What are the advantages and disadvantages of changing the company organization from a sole proprietorship to an LLC?

As a business grows it may become necessary to change the type of business it is. Sole proprietorships are businesses that are owned by a single person and require no registration with the state to form. The main advantage gained by shifting from a sole proprietorship to a more formal organization type is liability protection. Business organizations such as Limited Liability Companies (LLCs) and corporations allow an individual to protect his personal assets from business liability using a corporate liability shield (Cromwell, J., 2015). Becoming an LLC will offer the business the option of bringing on more investors.

A disadvantage to changing would be state filings. LLCs need to file documentation with the state in which they are headquartered before they can exist and there are usually fees associated with the filings. Failure to do this will bring about penalties. Another disadvantage is that LLCs have to file returns separate from their owners regarding annual income and will have to pay tax on the income it generates during the year.

What are the advantages and disadvantages of changing the company organization from a sole proprietorship to a corporation?

A corporation is a separate business entity that gives its shareholders several tax and legal advantages (Russ, J., 2015). With a corporation the shareholders' personal assets are protected from the business debts of the company and a corporation can raise capital by selling stock. A corporation, however, is somewhat more complicated than starting the other forms of business organization...