1st Prelim Case Analysis

BUSINESS FINANCE

Date Submitted: 8/26/20

Class & Time: FIN 2 (1:30 - 2:30 PM) Name of
Members:
1. 3. 5.

2. 4.
QUESTIONS:
1. What are the advantages and disadvantages of changing the company organization from a sole
proprietorship to an LLC?

Changing the company organization to LLC have its own bene ts as well as demerits. The
bene ts include limited liability. The owners of the company will not have personal liability for
the debts and liabilities. Di erent from a sole proprietorship, an LLC debts and legal obligations
does not put owners’ personal assets in threat. There is also exibility in the division of pro ts. Pro
ts will be divided in accordance with the owners’ capital contribution or the percentage of the
ownership interest. It is also simple for an LLC to heave capital compared to a sole
proprietorship because it has many spots for raising money. There is also simplicity in the
ownership interest transfer unlike from sole proprietorship.

There are also linked demerits of changing a company from sole proprietorship to LLC. The
cost of starting an LLC is greater than starting a sole proprietorship. There is a lot of paperwork
linked with LLC than a sole proprietorship. Lastly, There must be individual records in order to
keep personal a airs from the business operations of the LLC.

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

Corporations have constant life and are not in uenced by death of any shareholder like in the
sole proprietorship. It is also easier for a corporation to heave funds than to a sole proprietorship.
The transfer of ownership grants is also easier than in a sole proprietorship without in uencing
the operations of the business.
 There are demerits of changing a company from sole proprietorship to a corporation. The cost
of launching a corporation is high. The corporation has to pay taxes twice for its income and
dividends given to the stockholder. There are also major o cial procedures in starting a
corporation, which include the ling of legal documents not like in a sole proprietorship which
does not have such.

3. Ultimately, what action would you recommend the company undertake? Why?

We would recommend McGee Cake Company to change the business structure from sole
proprietorship to an LLC. Since the company's growth is very rapid, and in order for them to
manage and direct the market's expansion and its growth they need to change to an LLC
structure. In LLC, there are prospects of growing the business in considerable entities with
external capital. There are also prospects of transferring intangible assets (contracts). There are
also anticipated liabilities and an LLC would be apt in avoiding personal liability of investors.
All in all, having an LLC structure will keep their company simple, secured, and at ease.