What Are The Advantages And Disadvantages Of Changing The Company Organization From A Sole Proprietorship To An LLC?
The McGee Cake Company, as a sole proprietorship, limits both Doc and Lyn as they are solely responsible for any liability the company will incur, which may be legal or financial. So changing the company to a limited liability company would transfer all that obligation to the business, which can sue or be sued. Unlike a sole proprietorship, LLC enjoys tax benefits as they will have the option not to be taxed at the corporate level and file returns separate from the owners' income. The LLC is assured business continuity even without the other partner during the eventuality of death or separation unless they partakers decide to dissolve the venture.
Delegate your assignment to our experts and they will do the rest.
However, the LLC has its limitation; due to its flexible nature, investors are likely to be hesitant to loan the business as its operational requirements are tailored to suit the partner needs. The other demerit is that the distribution of profits is according to the members' contribution no matter what effort individuals put on the business.
What Are The Advantages And Disadvantages Of Changing The Company Organization From A Sole Proprietorship To A Corporation?
With changing the business into a corporation, the McGee Cake Company stands to benefit as it will enjoy limited liability as the members will be shielded from the company's debt. The owners will have increased credibility as investors, and venture capitalists would readily invest in their business. Similar to LLC, the proprietors are also assured of business continuity, as the company will be a separate entity from the owners. When one at some point individuals would want to dissolve the business, they can transfer ownership to other interested parties.
The disadvantages of changing into a corporation are largely associated with the initial starting finances, which is extremely high compared to LLC or sole proprietorship. Another demerit is the complex paperwork and formalities. Also, corporation taxation is massive as the owners will have to pay double, individually, and corporate wise.
Ultimately, What Action Would You Recommend The Company Undertake: Why?
With both comparisons of the LLC and corporation, I would recommend for the McGee Cake Company to shift to a corporation. The reason behind this is that the McGee Cake Company has prospects of expanding globally and business growth; therefore, it would need investors for the financial boost.
Reference
Mancuso, A. (2016). LLC Or Corporation? Choose the Right Form for Your Business. Nolo.
