Assignment Week 3 Situation Exercise

Assignment Week 3 Situation Exercise

Jack Wilson began his business in 1991 to provide continuing education seminars for funeral homes and their directors. He initially organized his business as a sole proprietorship. Until 2001 he did most of his work on a contract basis for various different funeral directors associations. Under the terms of his contract, Wilson was responsible for teaching 2 and 3 hour courses to members of the association. He was compensated according to a negotiated hourly rate, and expenses incurred during his seminars (hotels, meals, transportation, etc.) were reimbursed by the associations. Although some expenses were not reimbursed by the association (such as those for computers and office supplies), Wilson’s expenses usually amounted to less than 1 percent of his revenue.

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In 2001, Wilson increasingly found himself working directly with a corporate consolidator rather than contracting with trade associations. Over the years, he had considered incorporating but had assumed the costs and inconveniences of this option would outweigh the benefits. However, his new large client said that they would prefer not to contract with a sole proprietorship, for whatever reason; and Wilson sometimes wondered about potential liability problems. On the one hand, he didn’t have the same liability issues as some other businesses – he worked out of his home, clients never visited his home office, all courses were conducted in hotels or corporate facilities, and his business involved only services. But he wasn’t sure what would happen if a client were dissatisfied with the content and outcomes of his instruction. Finally, he wondered whether there would be tax advantages to incorporating.

Note: Mr. Wilson chooses to work alone and not interested in looking for employees or partners.


Read the exercise scenario above then answer the following questions. Keep your answers brief, up to a few paragraphs for each question.

1. What are the advantages and disadvantages of running the business as a sole proprietorship? As a C Corp?

2. If Wilson decided to structure his business, which types of business formations could he form? Which type would you recommend? Why?

Note: There are two possible business formations he can choose to limit his liability. You need to name one of them and explain why you chose your answer.

Also, do not confuse the three basic forms of business organization with all business formations. A business formation can be a one of three basic forms of business organization, but it can also be another type of business formation or a subcategory form of business organization.

****The key issue here is limiting liability. The assignment indicated he would lose his largest client if he remained a sole proprietor. It also indicated he did not want a partnership/work with others. A partnership retains all liability amongst the partners, as does a sole proprietorship for the individual proprietor. A C Corp would create a double taxation expense for Mr. Wilson. Please review S Corporations and LLC’s (Limited Liability Company) as they have limited liability for its shareholders and members, and both put a wall between the company and the personal assets of the shareholders and members, so they cannot be taken by creditors.

You mentioned a Corporation – but which one and why? There are two referenced in the lecture for Week 3.

All I ask is that you to suggest one of the two possible business formations he can choose to limit his liability. Name one and explain why and post to the assignment or email me your answer.

**** this is from my teacher on my first submission on this, i didn’t do it proper. i have submitted my first essay aswell. You may use it all if you have too just fix what hes asking for :):):):)

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