Question

agree or not?

What are the advantages and disadvantages of changing the company organization from a sole proprietorship to an LLC?

A sole proprietorship is a company that is own by one person and is the simplest form of business to start (Ross, Westerfield & Jordan, 2020). Since there is only one owner for the organization, the sole proprietor retains all the profits from the business. On the other hand, a sole proprietor is also responsible for any debts, liabilities or legal issues that may arise (Cromwell, 2020). A single owner may enjoy the profits from the company but also take the risk of putting their own assets in jeopardy. In this case, a sole proprietor may take advantage or changing their company to a Limited Liability Corporation (LLC) and not risk their own personal assets being in jeopardy if any issues arise (Cromwell, 2020). An LLC is a mixture of a partnership and a corporation and requires taxation of a corporation but retain limited liability for the owners like a partnership (Ross, Westerfield & Jordan, 2020). A disadvantage of transitioning to an LLC would be the additional documentation that needs to be filed with the state, additional taxes that need to be filed, and the requirement of the LLC to meet all state regulations (Cromwell, 2020).

What are the advantages and disadvantages of changing the company organization from a sole proprietorship to a corporation?

A corporation can be owned by more than one person; however, it is a legal entity that can be own by a single person (Ross, Westerfield & Jordan, 2020). A corporation, like an LLC doesn’t put the owner’s assets at risk. The corporation acts on its own and can take out loans, own property, borrow money or be sued (Ross, Westerfield & Jordan, 2020). Setting up a corporation is much more complex than a sole proprietorship since articles of incorporation and a set of bylaws must be prepared and filed with the state, whereas a sole proprietorship will never require this (Ross, Westerfield & Jordan, 2020). In the event of financial issues, a corporation will lose the debt and not the owners.

3.)   Ultimately, what action(s) do you recommend Danh and Linh take regarding company and why?

If Danh and Linh were to transition to an LLC, they could invest in larger production area and retain the needed funding as an LLC instead of a sole proprietorship. Danh and Linh left their previous occupations to start this business, therefore as a sole proprietor they are only able to obtain funding based on their own personal wealth and not that of a corporation (Ross, Westerfield & Jordan, 2020). Danh and Linh have also hired additional employees to help them meet demands, meaning if anything were to happen to their employees, they would be personally liable and are putting their personal assets in jeopardy. Danh and Linh would be wise to protect their personal assets from liabilities as they expand and hire additional employees.

Answer 1

Question 1:

Answer: I agree with the statements that have been made for the sole proprietorship and limited liability company (LLC). However, in my opinion, I would prefer to start a company with a sole proprietorship so that complications and issues are always occurring at a smaller degree and it is manageable by a single. There are fewer complications in a sole proprietorship business and it is easy to comply with laws and regulations. However, there is always an option to expand the company to the LLC when liability increases and there is a need to reduces chances of risk.

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