Question

① What are the advantages and disadvantages of changing the company organization from a sole proprietorship to an LLC?

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

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

Answer 1

Advantages of changing the company from a sole proprietorship to an LLC or corporation are :

1)liability protection-A sole proprietor is personally liable for for its debt and liabilities that is business generates where as a limited liability companies allow an individual to protect his personal assets in case of liquidation.

2)Raising capital easily-LLCs raise a huge amount of money easily rather than sole proprietor.This is because of the scope of expansion.

3)Professional expertise-More people can share more knowledge and contribute to the company as compared to a sole proprietor.

Disadvantages -

1)Taxes- LLC and corporations have to file the return separate from the owner regarding annual income where as a sole proprietor is not required to file any additional documentation apart from income.

2)State filings- filings are required in LLC that requires a small fee the absence of which can incur penalty on the company.

3)Profit sharing- A sole proprietor was responsible for profits and losses but in a LLC ,profits are shared by the partners in the contracted ratio.

The benefits outweigh the disadvantages, so the company can be changed from sole proprietor to LLC or corporation.

Thank you.