Question

Case Study Three: Jeb and Josh are lifelong friends. Jeb is a wealthy wind-power tycoon, and Josh is an active outdoor enthusiast. They have decided to open a sporting goods store, Arcadia Sports, using Jeb’s considerable financial resources and Josh’s extensive knowledge of all things outdoors. In addition to selling sporting goods, the store will provide whitewater rafting, rock-climbing, and camping excursions. Jeb will not participate in the day-to-day operations of the store or in the excursions. Both Jeb and Josh have agreed to split the profits down the middle. On the first whitewater rafting excursion, a customer named Jane falls off the raft and suffers a severe concussion and permanent damage to her spine. Meanwhile, Jeb’s wind farms are shut down by government regulators, and he goes bankrupt, leaving extensive personal creditors looking to collect. Specifically, the following critical element must be addressed:  Identify the main types of business entities and discuss the advantages and disadvantages of each

Answer 1

1. Proprietorship-

Advantages

1. Easy to create and maintain

2. Business and owner are the same entity.

3. No double taxation- Business profits are included in proprietor's personal income taxes

Disadvantages

1. Owner is peronally liable for debts and other liabilities of the business.

2. Difficult to raise capital due to single ownership.

General Partnership

Advantages

1. Easy to create and maintain

2. No double taxation.

Disadvantages

1. All owners are jointly and personally liable for debts and other liabilities of the business.

2. A partner cannot transfer his shares without unanimous consent of all partners.

Limited Partnership

Advantages

1. Limited partners enjoy limited liability of the business.

2. Limitied partners can leave without dissolving partnership.

Disadvantages

1. Expensive to create then a general partnership.

2. General partners are jointly and personally liable for debts and other liabilities of the business.

Corporation

Advantages

1. Limited liaiblity of the owners of busines.

2. Easy to attract money.

Disadvantages

1. More expensive to create and maintain.

2. Complicated paperwork to be filed.

3. Double taxation