Bates Boatyard Case Study Solution
Questions:
- How should Ms. Bates organize her boatyard business? Choices are Corporation, LLC (Limited Liability Company) or Sole proprietorship. Explain each type of business organization and why would you choose one over the others?
- How many business activities are conducted at the boatyard? List and explain each business activity?
- For each business activity, what accounting information will be needed to assists Ms. Bates in managing it and to determine if it’s a profit center?
Facts
Sarah Bates returns to her civilian life after spending several years in the navy. After returning she intends to incorporate a small business with her savings. She intends to buy a small boatyard in the town of Coat Maine, the proprietor of the yard wishes to retire therefore, Bates bought the boatyard.
The main operation which Bates intends to conduct in her business is the rendering of boats, and providing suitable buildings for the storage of boats in winter. Along with this, she also intends to provide paintings and repair works of the boat in the spring season as the demand of this work is high in that season.Furthermore, she also intends to conduct boat construction work in her business.
Bates realized that managing accounting records is essential for the success of the company.Although she has good accounting knowledge but is not able to initiate a suitable accounting system. Therefore, she asked for help so that she can manage the financial information which enables her to charge properly for her services.
Furthermore, at the time of purchasing, Bates realized that she solely couldn’t finance the business therefore, she obtained additional funds from her friend by mortgaging her property.
Choices
Ms. Bates can organize her boatyard business in mainly three forms;corporation,limited liability company (LLC) or sole proprietorship. Each of these are discussed below:
Corporation
It is the most common form of the business.In this form the owner and business are considered as separate entities. Due to this separation corporation can enter into contracts on its own behalf and can sue or be sued by others. Corporation has to be listed on the stock exchange, they normally list themselves either as public company or as private company. By listing as a public entity, organizations can obtain finance from general public by selling their shares. After listing, companies have to follow many rules and organizations to conduct and report their operations like requirements of SEC and company law. (Inc.Plus, 1999)
Limited Liability Company (LLC)
LLC structure is considered as a hybrid organization structure because it has the qualities of both corporation and partnership structures. The partners of this structure are called members and like corporation they have limited liability.Limited liability means that at the time of failure of the organization members personal assets will be saved. Furthermore, members of this structure can participate directly in the management of the organization. (Humphreys, 2017)
The rules and regulations over LLC are very similar with those of corporation. But the rules regarding thetax have similarity with the partnership rules.Along with this, the LLC will also be dissolved when any member dies or leaves the organization.Like the partnership these features make the LLC a hybrid structure. (Beth Laurence)
Sole Proprietorship
Sole proprietorship also known as sole trader is a structure where there is only one owner of the company who manages all the issues of the company. There is no sever laws and regulations over this structure. Furthermore, as there is no separate legal entity concept in this structure therefore, the owner will personally be liable for the obligations of the entities. (Sitarz, 2011)
Recommendation
Sarah Bates has a thrifty personality and does not want to depend over others. Furthermore, she maintains some savings to start a new business but the proposed business needs more finance than the savings. Along with this, she does not have expertise in accounting which is essential in any business moreover, she should have a good understanding of regulations because there are many regulations which are applicable in the boatyard business.
Due to the above circumstances we recommend that Sarah Bates should choose LLC structure for her new business because this will reduce her liability. Furthermore, the needed expertise and finance can be obtained by other members.............
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