Summary of Findings, Coursework Example

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Coursework

The best position forward would be the option of formal incorporation as a C Company.  This offers the most comprehensive solution in order to meet the future needs of the business whilst retaining the minimum risk profile.  The assumptions cover the following key points:-

  • We are changing the organization profile from that of a sole proprietorship to that of a corporate business;
  • Profits are in excess of $600,000 that moves us into the medium business profile;
  • We need to support existing permanent staff with sub-contractors moving us into an expanded employer relationship;
  • We need to expand our Insurance to cover Public Liability and limit our liability such that the assets of the company are protected;
  • We are expanding the business geographically that will move us into the legal jurisdiction of different states;
  • Business continuity is important in terms of protecting ownership and control of the business (based upon the death of the current owner).

The owner maintains control of the business, whilst expanding, by applying longevity measures in order to sustain the future health and growth of the business.  This might be accomplished by increasing capital investment for the business, strengthening the marketing capability of the firm against competitors,  maintain an efficient accounting system that provides for good cash flow whilst managing expenditure against budgets.   Another important factor is continued education and development of the lead management team. Learn how to grow with your business in terms of leadership capability and managerial skills.

The Company will change its Executive profile from that of a Sole Proprietor to that of a Managing Director and subordinate Director(s) in order to run the expanded business portfolio. In addition it may wish to raise additional capital in order to support future growth, acquisition of additional assets, additional employees and establish a new factory location.  This suggests both an expanded shareholder portfolio and financial loans to support the expansion plans. All of this is made much easier through the Incorporation process of a C-Company.  Other business structure types like sole proprietor, partnership arrangements and LLC Companies do not readily lend themselves to this organizational profile.

Having a C Company makes management of geographical dispersion easier to deal with from both a legal and financial viewpoint.  In summary the advantages outweigh the disadvantages and these are illustrated below:-

Key Advantages

  • Limited Liability – the limitation of liability for the directors, shareholders and employees;
  • Business Continuity – Even if the owners happen to leave the company;
  • Enhanced credibility – Both suppliers and lenders prefer dealing with C Companies;
  • Growth Potential – Is unrestricted and is achieved through the sale of stock;
  • Shareholder Structure – virtually no limit; but should be reviewed after $10 million of capital asset value and more than 500 shareholders. Here the business would need to register under  the SEC (Securities Exchange Act)
  • Tax Advantages – C Companies have certain tax advantages that include deductible tax allowances.

Disadvantages

  • Double taxation – profits are taxed based upon earnings and again when distributed via shareholder dividends. Unable to deduct corporate losses. This has led some to consider S Corporations but there are disadvantages to that model too.
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