CATIBOG, MARYNISSA M.

BSA 3203
1. What are the advantages and disadvantages of changing the company organization
from a sole proprietorship to a limited partnership?
A sole proprietorship has drawbacks yet is easy to set up and run. Legally, the proprietor
and the company are one and the same. A sole proprietorship business can only expand so much
and last so long. A limited partner may leave the company without the limited partnership coming
to an end. Sole proprietorships can only access the financial resources that the owner can secure.
Limited partnerships may draw investors that are only responsible for their full investment amount.
Because all partners can combine their cash and credit, limited partnerships have additional
financial resources. For the business, the partners may submit either individual or joint loan
applications. In a limited partnership, the general partner has the option to obtain capital without
losing ownership of the business.
Due to the fact that a sole proprietor is responsible for running the entire business, there
are frequently many obstacles and challenges that do not exist in limited partnerships. Partners
can make use of one other's expertise and resources. Depending on the various state legislation,
they are not need to handle every part of running the business by themselves. Partners may
divide duties including management, bookkeeping, and workload for the company. The partners
now have more time for private things. The firm is directly connected to the owner's assets and
personal fortunes. Only the entire amount of money that the limited partners contributed to the
company is subject to liability. Due to their lack of involvement in the company, limited partners
are likewise exempt from paying self-employment taxes. General partner has unlimited liability is
a drawback. They are fully accountable for managerial control, as well as any indebtedness or
improper administration of commercial affairs. Limited partners may participate in operations, but
only to a limited extent. They are no longer protected from personal capability if their role is
determined to be active. Limited partners are not held accountable individually. Limited partners
gain the advantage of being protected from personal liability in exchange for giving management
authority. This means that a limited partner cannot be compelled to use personal assets to settle
business debts or claims. However, a limited partner may lose the money they invested in the
company. Tax laws for limited partners are a little bit different. Limited partnerships are often taxed
like general partnerships for income tax purposes, with each partner independently declaring and
paying taxes on their share of the earnings each year. Because they are not actively involved in
the business, limited partners typically are not subject to self-employment taxes; consequently,
their share of partnership income is not regarded as "earned income" for the purposes of the self-
employment tax.
2. What are the advantages and disadvantages of changing the company organization
from a sole proprietorship to a corporation?
The advantages of changing from a sole proprietorship to corporation are the benefits that
come from creating a separate legal entity for your business. While most businesses start out as
sole proprietorships, many individuals find a corporate structure is more appropriate as the
enterprise grows.
The advantages of a corporation include, limited liability for owners protects shareholders
and business owners from being held personally liable for the debts or financial losses of their
organization. It applies to both personal and corporate debts and obligations. Separating personal
and corporate assets is important since many new business owners use their personal bank
accounts to receive payments and pay bills. However, once your firm is up and going, it's crucial
to take action to keep your personal and corporate finances distinct. Your personal liability may
be impacted by your business structure. Because a sole proprietorship is not a separate legal
entity, you are still held personally liable for the obligations and debts of the company. The
capacity to be owned by a single person or by a number of people since it is simpler and more
useful to have a second person participating in a business, especially when the demand for cakes
increases. The capacity to create a board of directors, whose members serve as a company's
shareholders' representatives and oversee operations. Therefore, directors are particularly
significant to investors in specific stocks. All publicly listed corporations have boards of directors
for this reason. A board of directors is also present in many non-profit organizations and privately
held businesses. When filing a corporate income tax return, you have the option to deduct
employee compensation costs, including salaries, wages, bonuses, tips, and commissions.
Disadvantages of a corporation includes, it can be a short process to file your articles of
incorporation with your secretary of state, but the incorporation process as a whole is frequently
time-consuming and expensive. To accurately ascertain and record the specifics of the company
and its ownership, you may need to comb through a lot of documentation. Most firms suffer double
taxation, which means that the business revenue is taxed at the entity level as well as the
shareholder level. This could result in a potentially larger tax burden because dividends are taxed
at both the corporate and individual levels.
3. Ultimately, what would you recommend the company undertake? Why?
Based on the case, it is very important to consider what will benefit more to the company
that will also bring success to them. For me, I would recommend the company to undertake a
“partnership” type of business. There’s this saying that, “two heads are better than one” your
business is easy to establish and start-up costs are low, more capital is available for the business.
The opportunity to choose your own working hours, recruit staff, and decide which goods and
services your business will market to customers are just a few advantages that can come with
starting a business. Additionally, it may give you options, such as selecting the legal framework
for your business. The benefit of a partnership is that it enables the owners to utilize the resources
and knowledge of the other partners. Even if it is simpler to run your own business, it may also be
very difficult. Through a partnership, your company may gain access to new products, expand its
market, fend off competitors, or win over more clients. You do not have to pay both personal and
business taxes if you choose to form as a limited partnership. Taxes on the income made by the
partnership's business are not its responsibility. The company must file a tax return, but merely
for record-keeping needs. On the other hand, you are liable for paying personal income taxes on
any profits you make from the company. You and your partners can attract investors if you publicly
trade the company's stock. You, your business partners, and the company's investors may get
bigger returns on their stock if your company's profits increase. That is why I highly recommend
partnership in their business to undertake.