Question

Using the following criteria, select the best business form for your scenario.

Criteria:

· Startup process: automatic vs. filing requirements

· Financing

· Ownership/Management {control}

· Limitations on Liability {still need business insurance}.

· Continuity of life

· Taxes

Your choices are:

a. Sole Proprietorship

b. Joint Venture

c. Partnership

d. Limited Partnership

e. Limited Liability Company

f. Corporation

Freda is a stay-at-home mom whose youngest child just started first grade. Freda would like to earn extra money while her kids are at school. She wants a flexible schedule because she likes being available to volunteer at the school when needed. While searching the Internet, Freda discovers Sugar-Girl, a cosmetic company that will sell her cosmetics at a reduced rate and allow her to resell them to friends and neighbors for a maximum profit of 15%. Any cosmetics Freda does not sell after six months may be returned for a full refund. After doing her due diligence, Freda learns that the company is very respected, the product (which is not tested on animals) has a good reputation, and that 54% of the “sales” people, report an annual profit margin of 12.5%. Freda would like to become a “Sugar-Girl.” What type of business structure would be best for Freda and why?

Answer 1

Based on given information, the best business form for Freda is Sole Proprietorship. The reasons and Criteria as follows........ 1. Freda wants flexible time schedules and it is a Part time work for her. The main activity in the business is reselling products from Sugar Girl Cosmotic Company. If she unable to resell the products, she can return back to the company. Due to the business started is very small in size, it is best to make sure the startup costs at low or without any startup costs. In the present scenario, Freda can starts her part time business without any filing requirements. Automatically and immediately she can start her work. 2. There is very low amount requred for the business which will started by Freda, she needs cash for purchase the cosmotic products to resell at higher price to earn profit. as the investment needs are low, she can finance. Based on size of investment and financing requirements (low finance), Sole Proprietorship is suitable. 3. Ownership and Control over the business is only with Freda (Sole Proprietor), there is no need of even another person to oversee the business activities. 4. There are no limitations on liability (still needs business insurance). She buy products from cosmetic company at low price and sells at high price. Only creditor is the cosmotic company, as there is no external financing requirements, she does not have lenders. She has no limitation on liability. If she fails, her personal property will be used to repay liabilities. 5. As the Business is doing for part time, there is no expectation of continuity of business for long time period. If Freda's dougher grows, she may closes her business. 6. Taxes are to be paid by assessing her Income as individual (married with Child) capacity. As the size of business is low, income from the same also very low. Based on above factors, Option a is Correct Answer.