Business Formation Advantages of Partnerships (Essay Sample)
Three (3) personal trainers at an upscale health spa / resort in Sedona, Arizona, want to start a health club that specializes in health plans for people in the 50+ age range. The trainers Donna Rinaldi, Rich Evans, and Tammy Booth are convinced that they can profitably operate their own club. They believe that the growing population in this age range, combined with strong consumer interest in the health benefits of physical activity, would support the new venture. In addition to many other decisions, they need to determine the type of business organization that they want to form: incorporate as a corporation or form a partnership. Rich believes there are more advantages to the corporate form than a partnership, but he has not convinced Donna and Tammy of this. The three (3) have come to you, a small-business consulting specialist, seeking information and advice regarding the appropriate choice of formation for their business. They are considering both the partnership and corporation formation options.
Assume the trainers determine that forming a corporation is the best option. Next, Donna, Rich, and Tammy need to decide on strategies geared toward obtaining financing for renovation and equipment. They have a grasp of the difference between equity securities and debt securities, but do not understand the tax, net income, and earnings per share consequences of equity versus debt financing on the future of their business. They have asked you, the CPA, for your opinion.
Write a two to three (2-3) page paper in which you:
Provide a summary to the partners, outlining the advantages and disadvantages of forming the business as a partnership and the advantages and disadvantages of forming as a corporation. Recommend which option they should pursue. Justify your response.
Explain the major differences between equity and debt financing, and discuss the primary ways in which each would affect the future of the partners' business.
Use at least two (2) quality academic resources in this assignment. Note: Wikipedia and other Websites do not qualify as academic resources.
Your assignment must follow these formatting requirements:
Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.
Include a cover page containing the title of the assignment, the student's name, the professor's name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.
The specific course learning outcomes associated with this assignment are:
Prepare transactions related to partnerships and corporations' stockholder equity, and issue the related financial statements.
Determine the concepts for investments and the related accounting transactions.
Use technology and information resources to research issues in financial accounting.
Write clearly and concisely about financial accounting using proper writing mechanics.
Choosing the suitable form of business is critical to the future success or failure of the business enterprise (Hillman & Loewenstein 2015). The main ones are partnerships and corporations. A partnership is an unincorporated organization consisting of multiple individuals known as general partners who manage and share the liabilities equally while the limited partners have no direct involvement in the management and bear burdens depending on the extent of the investments they make. On the other hand, a corporation is a chartered organization with several legal rights as a separate entity from the proprietors. This article will determine the suitable form to undertake and its source of financing.
Advantages and Disadvantages of Partnerships
Partnerships are simple to form because they involve fewer formalities and expenses. They can operate different lines of businesses making them very flexible. Besides that, partners are careful in managing the business operations because they are aware that they will bear the risks as they are unlimited. There is close supervision and promptness in decision making because they meet frequently. Partnerships have low management cost, high secrecy and offer exceptional protection to minorities. All the same, they face the risk of instability and conflicts. Hillman & Loewenstein (2015) add that partnerships in most cases lack enough capital as the unlimited partners try to play safe. Lastly, this form lacks public confidence and transferability of interests.
Advantages and Disadvantages of Corporations
However, for the corporations, the proprietors have...
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