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The Mcgee Cake Company

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

Changing from a sole proprietorship to a limited liability company has a several advantages. In an LLC there are reduced legal formalities, only personal income can be taxed not income of the LLC, you are not limited to personal wealth to grow the company allowing for increased ability to generate capital, the limited partner’s interest can be sold without dissolving the partnership.

Disadvantages of changing McGee from a sole proprietorship to an LLC are unlimited liability of becoming deeply involved in business decisions, unless you are willing to assume the obligations of general partner. If the business decisions turn out bad you may be deemed a general partner with heavy involvement, and the disadvantage of transferring ownership or finding a buyer when one partner dies or wishes to sell.

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

Changing from a sole proprietorship to a corporation has several advantages. Ownership can be readily transferred, and the life of the corporation is unlimited. The corporation borrows money in its own name; therefore the stockholders in a corporation have limited liability for corporate debts. If a company needs new equity it can sell new share of stock and attract new investors, potentially creating unlimited life of the business.

However there is risk with the reward, significant disadvantages of changing from a sole proprietorship to a corporation is double taxation, meaning corporate profits are taxed twice; at the corporate level when they are earned and again at the personal level when the dividends are paid out. Other risks are agency problems, the separation or conflict of interest between stockholders

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