SUBDOMAIN 310.1 - BUSINESS LAW
Competency 310.1.2: Organizational Forms - The graduate can select the appropriate
form of organization for a business.
310.1.2-01: Differentiate between a sole proprietorship and general partnership.
310.1.2-02: Differentiate between a general partnership and a limited partnership.
310.1.2-03: Identify the distinguishing characteristics of C-corporations.
310.1.2-04: Identify the distinguishing characteristics of S-corporations.
310.1.2-05: Recognize the characteristics of a limited liability company (LLC).
310.1.2-06: Determine the appropriate business form for a given situation.
As you work on this task, ask yourself ...view middle of the document...
The business owner has been operating as a sole proprietorship, but is thinking of changing
to a different type of organization. The company has been quite profitable for its size. Profit
before taxes for the coming year is expected to be just over $600,000.
While considering this change, the owner has thought about the various functions of the
business operation and different types of risks and potential liability that accompany each
function. For instance, trained employees usually install cabinets, but when the company
has a backlog of work, the owner must occasionally hire outside installers on a
subcontractor basis. Although the company has not yet had such a problem, the owner has
wondered what might happen if an installer were to make an installation error and a cabinet
were to fall off the wall and injure someone. Also, all of the delivery drivers possess licenses
required for the trucks they drive. The owner is concerned about a delivery truck becoming
involved in an accident. In addition, the owner is concerned about a shop worker being
injured on a saw or shaper, or a load falling off of a forklift and injuring someone.
The owner is unsure what would happen with bills and other liabilities if the business were
to fail for some reason. Although the company has ample insurance, the owner has heard of
juries awarding judgments that exceed the insurance coverage and wipe out all personal
The owner is planning to expand the business, both by expanding its market geographically
and by adding a second factory in an adjoining state. To accomplish this, the owner will
need to increase the investment in capital assets. One way of obtaining funds would be to
sell a share of the business to a partner, but the owner is not sure how that will impact
potential liability. Another possibility is to sell stock in the company. This way the owner
might be able to retain control of the company by having family members serve as officers
in the corporation.
The owner is also concerned about profit that will be shared with partners or investors, the
amount of income tax each year, and continuation of the business under control of the
officers in the corporation if the owner were to die.
The owner is aware of terms like S-corporation, C-corporation, LLC, and limited and general
partnerships that describe different forms of business organizations...