Question

Scenario

Sheila is an engineering student at the Great University in Gainesville. She has developed an idea for a cellphone camera that takes photos of the user and then allows them to be placed in any scene they wish for posting to social media. Sheila believes this product will be highly successful, but she needs to determine how to start her business. She believes that she will start small, but will need to raise money for her projects at some point. If the product is as successful as she believes, then the company may need to sell shares of stock to raise capital for expansion.

Directions

What forms of business should Sheila consider and why?

Which form of business is the least likely to meet Sheila’s needs?

What are the tax consequences of the entity you are recommending?

Answer 1

1) In United States, the four main types of business structures are: sole proprietorship, partnership, corporation, and limited liability. In my opinion Sheila should opt for the sole proprietorship. The reason is that it is the least expensive and simplest business to operate and start. In sole proprietorship the business will be owned by a single individual, a person who collects all the revenue from the business, and maintains all liability for the debt.

2) The partnership will be the least likely to meet the requirements of Sheila's. There is a high possibility of the contradiction of the ideas and consequently partners may become deadlocked and unable to cooperate in the running of the business

3) Since in sole proprietorship the business and the owner would be the same, thus entire income and expenses go straight to the owner which they must report it on their personal income tax forms. Since the sole proprietorship is not taxable; and tax rate is also not high thus will be a good choice to minimize on the taxes and yielding higher profits.