Minicase – The McGee Cake Company
What are the advantages and disadvantages of changing the company organization from a sole proprietorship to a LLC? The McGee Cake Company, currently operating as a sole proprietorship, may benefit from forming a limited liability company (LLC). An LLC is a comparatively new type of business entity. With an LLC there are reduced legal formalities in comparison to setting up a corporation. In addition, unlike a corporation, the McGees could set up an LLC yet remain the sole owners of the company. Another advantage as the owners of an LLC, the McGees are taxable only for personal income and not for the income of your LLC. Therefore, they would not pay double income tax. An LLC also has a long existence it will exist forever, irrespective of the owner's death or retirement. Some negatives for the McGees to consider are the expense. Although setting up an LLC is less expensive and hectic than setting up a corporation, the cost incurred in setting up an LLC is definitely more than that of a sole proprietary firm or a partnership firm. If they chose to convert their sole proprietorship to an LLC, they may be taxed on appreciated assets. If their LLC exists in multiple states, it may be difficult to handle, as the nature of rules and regulations differs from state to state. 2.
What are the advantages and disadvantages of changing the company organization from a sole proprietorship to a corporation? The other business structure for the McGees to consider is the formation of a corporation. A corporation is defined as a legal entity independent of its owners, shareholders or the management personnel running it. As owners of the corporation the McGees will enjoy limited liability and they are not completely responsible for the profits and losses of the corporation. Instead, their scope of liability remains confined to their investment in the venture. With a corporation, expansion of the business is possible and easier than...
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