Mcgee Cake Company

Running Header CASE STUDY 1 The McGee Cake Company A Case Study Submitter Instructor BUS of course 2012 CASE STUDY 2 Introduction The McGee Cake Company, owned by Doc and Lyn McGee, has been a touch on proprietorship ball club since its inception in 2005 (Ross, Westerfield & Jordan, 2013, p. 18).A sole proprietorship is the least regulated create of organization and has allowed the McGees to run their phoner largely as they see fit and to reap all the financial internet. However, the companys juvenile growth has added additive financial burdens which piddle caused the McGees to revisit the companys actual form of organization (Ross, Westerfield, & Jordan, 2013, p. 5). To that end, the owners have approached me to help manage and direct the company since its fast growth has lead to cash flow and capacity problems (Ross, Westerfield & Jordan, 2013, p. 8). What follows is information on the advantages and disadvantages of ever-changing the companys organization from a sole proprietorship to an limited obligation company as well as the advantages and disadvantages of changing the companys current form of contrast organization to a corporation (Ross, Westerfield & Jordan, 2013, p. 18). In addition, the McGees have asked me for my recommendation as to which form of business organization I believe the company should chthonic grapple and the reasons/rationale behind my recommendation.CASE STUDY 3 Key Issue The one key issue that has led the McGees to consider moving the company from a sole proprietorship to a limited liability company or that of a corporation is the companys recent rapid growth. This growth has presented both opportunities and challenges for the company as a whole.Specifically, sales have exploded since The McGee Cake Company was recently featured in a leading specialty food magazine (Ross, Westerfield & Jordan, 2013, p. 18). while this growth has allowed the McGees to use the companys revenues as their sole source of income, it has increased their need for capital as they have had to hire additional workers to meet the demand (Ross, Westerfield & Jordan, 2013, p. 18). Also, additional capital will be needed to purchase more than assets in an effort to keep up with the companys continuing growth (Ross, Westerfield & Jordan, 2013, p. 8). Under the current business form these two increased expenditurespayroll and assetsare the sole financial responsibility of the McGees which may cause some financial stress since their available justness is limited to the amount of their personal wealthiness (Ross, Westerfield, & Jordan, 2013, p. 5). This growth has also presented the McGees with the opportunity to enter into business with a national supermarket chain that has proposed to put four of the McGees cakes in all of the chains stores (Ross, Westerfield & Jordan, 2013, p. 18).In addition, the McGees have been approached by a national restaurant chain in regards to selling McGee cakes in its restaurants (Ross, Westerf ield & Jordan, 2013, p. 18). Again, under sole proprietorship the company may misplace out on these opportunities because of insufficient capital to expand the business assets (Ross, Westerfield & Jordan, 2013, p. 5). For example, if the McGees do not have the capital to purchase more ovens they may not be able to keep up with the increased demand from the supermarket/restaurant chains, potentially causing both business ventures to fail.In order for the company to capitalize on its current growth the McGees need to be informed of the advantages and disadvantages of other forms of business organizations to determine which will best suit their needs for both the short- and long-term. CASE STUDY 4 Advantages and Disadvantages of changing from a Sole Proprietorship to a Limited Liability Company The goal of a limited liability company is to operate and be assessed like a partnership but retain limited liability for owners (Ross, Westerfield & Jordan, 2013, p. ). Thus the main advanta ge gained by shifting from a sole proprietorship to a more formal organization whether it be a limited liability company or a corporation is liability protection (Cromwell, n. d. , n. p. ). Under sole proprietorship the McGees have unlimited liability for their business debts (Ross, Westerfield & Jordan, 2013, p. 5). This means that if their business owes creditors and the McGees are unable to pay with business assets the creditors commode demand payment via the McGees personal assets (Ross, Westerfield & Jordan, 2013, p. ). In contrast, under a limited liability company the McGees personal assets would be protected from business liability (Cromwell, n. d. , n. p. ). Additionally, the McGees must rely on their own personal wealth in an effort to raise equity whereas a limited liability company affords the business to bring a number of investors and partners on board in an effort to raise capital (Ross, Westerfield & Jordan, 2013, p. 5 Cromwell, n. d. , n. p. ).Hence, the limited li ability company will provide them with the capital they require to increase their business assets in order to keep up with the high demand for their products. In terms of taxes the McGees currently report their personal and business taxes as one. Under a limited liability company they will no longer be able to claim their business income on their personal registers separate tax returns would have to be filed for both their personal income and their business income (Cromwell, n. d. , n. p. ).Moreover, the McGees would have to file documentation with the state prior to their company being able to claim limited liability status. The taxes and state filing issues, in my professional opinion, should not be viewed as detractors. The benefits the company will reap (e. g. , ability to raise capital) certainly outweigh the annual taxation supplying and filing with the state to establish the limited liability company. CASE STUDY 5 Advantages and Disadvantages of Changing from a Sole Proprie torship to a CorporationSome of the advantages of forming a corporation are, in contrast to sole proprietorship, owner-ship of a corporation can be readily transferred (Ross, Westerfield & Jordan, 2013, pp. 5-6). Also, like a limited liability company, a corporation has limited liability for the companys debts and stockholders can only lose what they have invested (Ross, Westerfield & Jordan, 2013, p. 6). In addition, unlike sole proprietorship, a corporation an unlimited business life (Ross, Westerfield & Jordan, 2013, p. ). For these reasons, a corporation is a superior form of business organization for raising capital (Ross, Westerfield & Jordan, 2013, p. 6). Along with the advantages of forming a corporation comes the main disadvantage taxation. Corporations must deal with double taxation meaning that profits are taxed at both the corporate level when earned and again at the personal level when they are paid out (Ross, Westerfield & Jordan, 2013, p. 6).While a corporation provid es many advantages the tax disadvantage that comes with it currently outweighs those advantages. CASE STUDY 6RecommendationWith The McGee Cake Companys rapid growth it is in need of changing its form of business organization. In particular, the McGees need enhance protection for their personal assets from business obligations and liabilities as well as a better vehicle to attract investors (Cromwell, n. . , n. d. ). Therefore, after carefully weighing the advantages and disadvantages of changing from a sole proprietorship to a limited liability company or that of a corporation my recommendation is for the former. Becoming a limited liability company will benefit them greatly since it provides limited liability in that their personal assets will be separate from their business assets, thus protecting their personal assets from creditors want payment if such a situation should ever arise.Becoming a limited liability company will also allow the McGees to raise equity by means of par tners and investors. Since the McGees are in need of additional capital to purchase new business assets in an effort for them to keep up with the current demand for their products a limited liability company would allow them this advantage. Since this rapid growth may continue the McGees may want to revisit becoming a corporation. However, my recommendation is for them to take the next logical and less daunting step and become a limited liability company for the reasons stated above.CASE STUDY 7 References Cromwell, J. (n. d. ). Demand Media The Advantages and Disadvantages of Changing the Company Organization from a Sole Proprietorship. Retrieved from http//smallbusiness. chron. com/advantages-disadvantages-changing-company-organization-sole-proprietorship-24632. html Ross, S. , Westerfield, R. , & Jordan, B. (2013). Fundamentals of Corporate Finance (10th ed. ). McGraw-Hill/Irwin New York, NY