Case Study 1 Memo
Case Study 1 Memo
Patria Gonzalez
Southern New Hampshire University
9/16/2022
Case Study 1 Memo
2
To: Fred and Sally From: Patria Gonzalez Re: Fred's Miracle Cough Syrup In correspondence to our earlier conversation about creating a new business by selling Fred's Miracle Cough Syrup locally and abroad. You want to sell to local pharmacies, grocers and several national chains. You plan to manufacture your cough syrup on the family farm and plan to employ your son, Sam, as an employee who can potentially become a co-owner. During our conversation, you brought up several issues that I will address in this memo. There are four major business entities: Sole proprietorships, Partnerships, Corporations and Limited Liability Company. Sole Proprietor is someone who owns am unincorporated business by themselves [ CITATION IRS22 \l 1033 ]. Being a sole proprietor has its advantages and disadvantages. Creating a business under this entity is easy and laws are simple. The proprietor controls everything and can keep all the profits, but funding for the business is limited due to personal funds being used and loans that are needed. When it comes to any losses in the business, liability falls on the sole proprietor alone [ CITATION Kub20 \l 1033 ]. Partnership is a voluntary association between two or more people who co-own a business for profit without a formal contract [ CITATION Kub20 \I 1033 ]. This is an easy setup as well. Just as in sole proprietorship, the IRS taxes the business income as individual income for each partner because it is not considered a separate legal entity. If there are any business losses, partners are allowed to deduct it from their taxable income [ CITATION Kub20 \l 1033 ]. A disadvantage is that both partners are liable for any losses even if caused by the other partner. Under the umbrella of partnership, there are five different types of partnerships: general partnership, limited partnership, limited liability partnership, cooperative, and joint venture [ CITATION Kub20 \I 1033 ]. Being that you want to potentially, in the future, partner with Sam, the best partnership would be general partnership. General partnership is where partners split the profits, responsibilities, and liability equally. Limited Liability Company (LLC) is a business structure that protects its owners from personal responsibility for its debts or liabilities [ CITATION Fer22 \I 1033 ]. In this entity, each member collaborates to set up management for the company. A disadvantage is that many states do not allow LLCs to be created due to many illegal activities that occur through them. Lastly is a corporation. Corporation is a legal entity that sells share of stocks to people who become shareholders and owners of the company [ CITATION Kub20 \l 1033 ]. Unlike the other entities, state law must be followed to create a corporation. Due to corporations being a separate legal entity, debts and liabilities fall on the corporation which opens them to lawsuits. Unlike an LLC, a corporation does not end if