Muhammad Asef Khademi

Class: Finance 200

ID: 33283

For a startup, it is good to go for sole proprietorship. It is not too expensive nor having much

liabilities. But, when a sole proprietor plans to Change his/her company from sole proprietorship

to a Limited Liability Company, there are some advantages and disadvantages that need to be

considered or taken into account.

The advantages of an LLC form of Organization can be:

1. Limitless ownership (an LLC can have hundreds of members)

2. Freedom in Management (LLCs are not required to have a Board of Directors or

monthly/annual meetings. This way you can have less stress and more time to run your

business on your own terms and conditions)

3. Limited Liability (members’ liabilities for the debts and obligations of the LLC are limited

to their own investments, which is a key advantage of an LLC)

4. Allocation flexibility

The disadvantages, on the other hand, can be:

1. Building capital (to an LLC, it is much more difficult to find investors and sources of

capital due to the huge legal obligations to add a new member)

2. Higher fees (LLC requires to pay more fees to be called LLC in compared with Sole

Proprietorship or other businesses)

3. Paying higher taxes

Similar to a Limited Liability Company, a corporation also has some advantages and disadvantages

that a sole proprietor should consider when planning to go for a corporation form of business.

Some advantages of forming a corporation can be:

1. Stockholder’s liability to a limited fixed amount

2. Transferability of ownership
3. Separate legal existence

4. Stability of existence: if the principle or the owner dies, the corporation continues to exist

and do business

5. Delegation of authority: to delegate authority to hire managers

In addition to advantages, the disadvantages of a corporation can be:

1. Limitability of activities by the various laws

2. Expense of forming a corporation

3. Double tax: corporate tax and individual salary & dividends

4. Manipulation: some stockholders are sometimes exploited

5. Less incentives for managers, if they don’t make profits

6. Strict and expensive government regulations

Considering the advantages and disadvantages of the above forms of businesses, and based on

what I observed about the rapid growth ‘THE McGEE CAKE COMPNAY’ has experienced, they

should expand their business even more by changing to a form of corporation, I suppose. To do

this so, the company can sell shares and bonds and make it much bigger than it is as it’s demanded

by so many worldwide, according to the case study. The company should make bigger factories

and even offer franchises to others in order to expand their products access. There can be their
franchisees in other countries selling their products in their company’s name. This way they can

grow worldwide.