Question

Case scenario: Which Form Is Best?
Watoma Kinsey and her daughter Katrina are about to launch a business that specializes in children’s parties. Their target audience is upscale families who want to throw unique, memorable parties to celebrate special occasions for their children between the ages of 5 and 15. The Kinseys have leased a large building and have renovated it to include many features designed to appeal to kids, include many features designed to appeal to kids, including special gym equipment, a skating rink, an obstacle course, a mockup of a pirate ship, a ball crawl, and even a moveable haunted house. They can offer simple birthday parties (cake and ice cream included) or special theme parties as elaborate as the customer wants. Their company will provide magicians, clowns, comedians, jugglers, tumblers and a variety of other entertainers.

Watoma and Katrina each have invested $45,000 to get the business ready to launch. Based on the quality of their business plan and their preparation, the Kinseys have negotiated a $40,000 bank loan. Because they both have families and own their own homes, the Kinseys want to minimise their exposure to potential legal and financial problems. A significant portion of their start-up costs went to purchase a liability insurance policy to cover the Kinsey in case a child is injured at a party. If their business plan is accurate, the Kinseys will earn a small profit in their first year (about $1,500), and a more attractive profit of $16,000 in their second year of operation. Within five years, they expect their company to generate as much as 50,000 in profits. The Kinseys have agreed to split the profits and the workload equally.

If the business is as successful as they think it will be, the Kinseys eventually want to franchise their company. That, however, is part of their long range plan. For now, they want to perfect their business system and prove that it can be profitable before they try to duplicate it in the form of franchises. As they move closer to the launch date for their business, the Kinseys are reviewing the different forms of ownership. They know that their decision has long term implications for themselves and for their business, but they aren’t sure which form of ownership is best for them.

Answer all questions.
1. Which form(s) of ownership would you recommend to the Kinseys? Explain.

2. Which form(s) of ownership would you recommend the Kinsyes avoid? Explain.

3. Examine the factors that the Kinsyes should consider as they evaluate the various forms of ownership.

Please write all your answers in essay format. Do not answer in point-form unless the questions mention “List” or “State”. It is not necessary to precede each answer with an introduction and end with a summary. Proceed directly with the answer

Answer 1

1. The form of ownership I would propose to Kinseys would be a limited liability company or partnership.

In partnership, it would be reasonably more convenient for the business to retain its management and the earnings dispersion in the means they want to. The company would be simpler to organize and to govern and control.

Moreover, they can also formulate sound decisions while restricting the control in the hands of a limited. They can also get on for the private corporation or the professional limited liability company.

2. The forms of ownership I would suggest the Kinseys to avoid would be sole proprietorship and business corporation.

Nonetheless, Wautoma and Katrina are mother and daughter. Still, the advice would not go for sole proprietorship because they like to distribute the profits in equal fraction, and both are individually capitalizing the organization. So, they cannot move for a sole proprietorship.

The business corporation would be expensive to regulate and establish. It would not be visible, and there are odds that they would not preserve their profit shares and equity ratio. Hence, it would not be useful for them to get on for these configurations of the organization.

3. factors they should consider while determining and evaluating the various forms of partnership would be their scale of procedures and capital injunction. They would also bring into believing the extent of control and administration they want. Asunder from that, they should evaluate their choice of business organizations established on the level of risks and liabilities.