The Forms of Corporations
In this assignment, you are going to use the appropriate legal terminology and applicable legal principles to analyze the key characteristics of and strategic differences between corporations and S corporations. Last week, you were introduced to a resource provided by the United States Small Business Administration, http://www.sba.gov/category/navigation-structure/starting-managing-business/starting-business/choose-your-business-stru. On that website under the tab “Choose Your Business Structure,” there are explanations of the advantages and disadvantages of each kind of business structure. Read sections: Corporation and S Corporation. Based on what you’ve read, what advice would you give John and Phil in the following case study?
Submit this to the Dropbox following your facilitator’s instructions.
John Edwards and Phil Steele want to start a business selling Chicago-style hotdogs at all public parks in their hometowns on Saturdays out of kid-friendly travelling stands. They know somewhere between 300 and 400 families attend games every Saturday, and, currently, no food concessions are available. John and Phil know each other from a prior job but aren’t necessarily friends. John has a young child and a house, which is almost paid in full. Phil is single, has no family, and rents a condo. They are placing $100,000 into the business to start it ($50,000 each). John is concerned with being taxed twice for corporate profits; Phil is concerned only with making a profit. Draft a two-page memorandum recommending they form their business either as a corporation or an S corporation and justify your recommendation based on the advantages and disadvantages of each.
The collapse of major corporations because of poor business strategy and execution is nothing new. However, during the past two decades, major corporations have failed not because of poor strategy or execution but because of greed and lack of ethics. This week, you will focus on corporations and the intended and unintended consequences of those structures and the impact of those structural decisions on the personal liability of corporate leaders. Corporations have additional stakeholders as compared to other businesses. Along with directors, officers, and employees, corporations have shareholders who have certain legal rights and obligations.
(Note: Learner Outcome #1 below is a follow up to last week’s Learner Outcome where you focused on non-corporate structures.)
Upon completion of this week, you should be able to:
- Use the language and principles of law to analyze the key characteristics and strategic differences between organizing and forming a business as a corporation or S corporation.
- Assess the factors that might lead a court to “pierce the corporate veil” of a business entity.
- Discuss the legal rights of corporate shareholders when in dispute with a corporation.
- Use the appropriate legal terminology and applicable legal principles to analyze the key characteristics of and strategic differences between corporations and S corporations.