You now understand Sally’s ambition, how she thinks, her quest for perfection, and her focused vision for future success. From your perspective, (1) what form of business do you believe is most suited for the immediate formation of the company, and if applicable, (2) do you perceive the need to change the original form you chose in your business plan to another form now or overtime? (3) Why, or why not? You have reviewed all aspects of becoming a legally recognized business. You understand the tax issues, the management structure options, raising operating capital, the various types of insurance coverage required, and the necessity of having the peace of mind in the event of a catastrophic moment. As a manager-owner, the concept of “piercing the corporate veil” gives you a sinking feeling when confronted with a questionable operating decision. (4) What steps can you take to avoid facing a situation that would cause a court to pierce the corporate veil of your business? You have a lot to debate in deciding the governance form Sally would prefer. (5) Would she prefer an LLC, S-Corp, or C-Corp, and why? (6) Discuss why you believe Sally would prefer one form of a company organization over another.
We know Sally successfully operated her own multimillion-dollar business, with sufficient business expertise without the benefit of a corporate board or shareholders. We know she fully funded her business and carries no debt that would impede this new venture. We know she has worked well with you as a team in the drive to start this enterprise. Carefully consider what form works best between the two of you in building this empire and why. What about the future? How do all the pieces fit looking forward? What topics must be included in the discussion before any expansion of the business takes place? Explain.
Helpful Documents
Sally has found several documents to help with picking which type of corporation to form for the business you are building with her. Feel free to use this information. She has shared them here:
Choosing an Entity Comparison Chart (PDF). download
Business Selection Worksheet (PDF). download
Forming a Corporation Checklist (PDF). download
Forming and Organizing a Corporation (PDF). download
Forming and Organizing an LLC (PDF). download
Business Structures (IRS). (Links to an external site.)
Choose a Business Structure (SBA). (Links to an external site.)
Your Assignment
Create a matrix charting the pro and cons and advantages and disadvantages for the following forms of company organizations:
LLC
S-Corporation
C-Corporation
Cost: what are the comparative costs of setting up?
Ease: what are the relative costs for setting up each?
Termination: what is the state requirement for continuity?
Public Information: how important is it that your personal information is shared or not shared with the public
Risk: what level of liability exists in the operation of the business based on the type of business itself what is the best form to insulate owners from personal liability
Operation: what form best supports the intentions of the owners what is the best control risk balance form of operation
Capitalization: is there a risk of undercapitalization what would be the impact will there be a need to raise capital to avoid increased liability is there a form that makes it easier to raise capital
Selling: if owners wish to sell what form best accommodates that situation
State Taxes: what are the tax liabilities from the state in setting up the business
Expansion: which form provides the greatest flexibility in the event of expansion
