Running head: ACCT 511- RESEARCH PAPER 2 1
Choosing a Business Organization: Research Paper 2
Liberty University- ACCT 511
ACCT 511- RESEARCH PAPER 2
Abstract
In the case study at hand, brothers Alex, Bill, Carl, and Devon have inherited an organic,
functioning, family farm business from their father in New State. The brothers would like to
form a business entity to own the farm, but they have several objectives that they are trying to
reach. They do not want to have any part in the day to day operations of the farm, they want to
avoid any personal liability from the farming operations, and they want to minimize their taxes
on the farm all while keeping it remaining in the family and honoring their Christian mindset.
This research will look at the advantages and disadvantages of the five popular business entities
Alex, Bill, Carl, and Devon can choose from as well as the tax implications and how each
business entity will relate to the organic family farm. Based on the research, a limited liability
corporation is the best route the brothers can take. This entity will allow them to keep the farm in
the family, give them the ability to hire someone else to manage the day to day operations, and
help them avoid personal liability as well as reduce their tax burdens. Lastly, the brother’s
situation will be examined from a Christian and biblical perspective.
ACCT 511- RESEARCH PAPER 2
Choosing a Business Organization: Research Paper 2
One of the most important decisions to make when starting a new business venture is
deciding how to set up the new business. Since there are several different business entities, there
are different aspects of how you would like your business to function and be organized before
you can choose. Typically, factors that might influence ones decision might include things like
profit maximization through use of effective tax rates, full utilization of losses generated by the
organization, investor liability limitation from the debts and obligations of the entity, ability of
the entity to raise financial capital, and ease of investment liquidity and exit strategy (Gesiko,
2008). For Alex, Bill, Carl, and Devon, these are some of the questions they are pondering as
they are seeking advice to determine which business entity is right for setting up their family
organic farm.
Addressing the issues in the case study the four brothers, Alex, Bill, Carl, and Devon are
seeking to form a business entity to take ownership over their father’s organic farm. Previously,
the father ran the business as a sole proprietorship and was involved in the day to day operations
and workings of life and business on the farm. The children however, have never had an interest
in the farm life and none of them wish to begin to do so, so they are looking at choosing a
business entity that will cover these three objectives: avoidance of personal liability, minimize
their tax burden, and keep the business within the family. The brothers would also like to make
sure that whatever they decided, they want the business to be operated in accordance with a
Christian worldview. This research will present the five different business entities, their
advantages and disadvantages, as well taxation benefits and how they will relate to the four
brothers and their family farm.
ACCT 511- RESEARCH PAPER 2
Business Organizations
There are multiple different ways to set up a business organization and generally one will
chose to organize the business as either a sole proprietorship, general partnership, limited
partnership, corporation, or as a limited liability corporation (Langvardt, Barnes, Prenkert,
McCrory, & Perry, 2019). The following paragraphs will define and research the different
business organizations and how their advantages, disadvantages, tax implications, and liability
will help determine which business organization is best for the four brothers in this case study.
Sole Proprietorship
Before Alex, Bill, Carl, and Devon became inheritors of the family farm, their father was running
the business as a sole proprietorship. A sole proprietorship is a business organization that has
only one owner and is considered an extension of that one owner (Langvardt, et al). This is the
easiest form of business to create (Johnson, 2015) and as the sole owner, they maintain the rights
to make all the management decisions of the business. Since there is only one single owner, they
must hold 100% equity in the business. According to a case study by Leigh Redd Johnson at
Murray State University, “the owner retains control over the business and receives all business
profits but has unlimited liability for business losses” (p. 161) Interpreted as the owners assets
are at risk for any liabilities that the business may incur, but profits and losses are reported on the
individual tax return and taxed at the individual level.
Advantages.
There are several advantages to a sole proprietorship. Two big advantages and general
reasons for its popularity is the fact that there are no formalities necessary to set up the business
as a legal entity and second, few people consider the business form decision and just begin a
business and set up a sole proprietorship by default (Langvardt et al.). Another reason why this
formation of business is so popular is that the owner remains in control of all management
decisions and they can run the business the way they see fit. (within reason of obeying the law)
Disadvantages.
There are three major disadvantages to the sole proprietor business entity. An owner in a
sole proprietorship is only himself and he/she is limited in their ability to raise capital for their
ACCT 511- RESEARCH PAPER 2
business. As the sole owner, they do not have the ability to sell shares of the equity and must rely
on personal finances or securing loans through a bank (Johnson, 2015). The second major
disadvantage is that all the debts, including debts on contract signed only in the name of the
business, are the sole proprietors’ own debts. If the business becomes insolvent, the owner could
lose everything (Langvardt, et al.). The third disadvantage is because the sole proprietorship is
not a legal entity (there is no formal formation required) the business cannot be sued, but the
individual owner can.
Taxation.
Income and losses made through business transactions and through business dealings are
reported on a schedule C of an individual’s personal tax return and therefore taxed at the
individual level. Since there can only be one owner in a sole proprietorship, the Internal Revenue
Service (IRS) has declared that one spouse can be listed as the owner and the other can be
deemed an employee of the business (Johnson, 2015).
New State Family Organic Farm.
It would not be beneficial for Alex, Bill, Carl, and Devon to set up the family farm in
New State as a sole proprietorship. The first reason would be because the four brothers wish to
share ownership of the business equally, they immediately do not qualify for this type of business
entity. With further research, even if they did qualify, a sole proprietorship would not give them
the liability protection nor the tax advantages that they are seeking when setting up their
organization.
ACCT 511- RESEARCH PAPER 2
[Heading 4].
[When using headings, don’t skip levels. If you need a heading 3, 4, or 5 with no text
following it before the next heading, just add a period at the end of the heading and then start a
new paragraph for the subheading and its text.] (Last Name, Year)
[Heading 5].
[Like all sections of your paper, references start on their own page. The references page
that follows is created using the Citations & Bibliography feature, available on the References
tab. This feature includes a style option that formats your references for APA 6th Edition. You
can also use this feature to add in-text citations that are linked to your source, such as those
shown at the end of this paragraph and the preceding paragraph. To customize a citation, right-
click it and then click Edit Citation.] (Last Name, Year)
ACCT 511- RESEARCH PAPER 2
References
Last Name, F. M. (Year). Article Title. Journal Title, Pages From - To.
Last Name, F. M. (Year). Book Title. City Name: Publisher Name
ACCT 511- RESEARCH PAPER 2
Footnotes
1[Add footnotes, if any, on their own page following references. For APA formatting
requirements, it’s easy to just type your own footnote references and notes. To format a footnote
reference, select the number and then, on the Home tab, in the Styles gallery, click Footnote
Reference. The body of a footnote, such as this example, uses the Normal text style. (Note: If
you delete this sample footnote, don’t forget to delete its in-text reference as well. That’s at the
end of the sample Heading 2 paragraph on the first page of body content in this template.)]
ACCT 511- RESEARCH PAPER 2
Tables
Table 1
[Table Title]
Column Head
Column Head
Column Head
Column Head
Column Head
Row Head
123
123
123
123
Row Head
456
456
456
456
Row Head
789
789
789
789
Row Head
123
123
123
123
Row Head
456
456
456
456
Row Head
789
789
789
789
Note: [Place all tables for your paper in a tables section, following references (and, if applicable,
footnotes). Start a new page for each table, include a table number and table title for each, as
shown on this page. All explanatory text appears in a table note that follows the table, such as
this one. Use the Table/Figure style, available on the Home tab, in the Styles gallery, to get the
spacing between table and note. Tables in APA format can use single or 1.5 line spacing.
Include a heading for every row and column, even if the content seems obvious. A default table
style has been setup for this template that fits APA guidelines. To insert a table, on the Insert tab,
click Table.]
ACCT 511- RESEARCH PAPER 2
Figures title:
Figure 1. [Include all figures in their own section, following references (and footnotes and tables,
if applicable). Include a numbered caption for each figure. Use the Table/Figure style for easy
spacing between figure and caption.]
For more information about all elements of APA formatting, please consult the APA Style
Manual, 6th Edition.
6
5
4
3
2
1
0
Category 1
Category 2
Series 1
Category 3
Series 3
Category 4
Series 2
ACCT 511- RESEARCH PAPER 2
Gesiko, A. (2008). Structure Counts! The Tax Implications Arising From the Formation, Operation and
Liquidation of C Corporations, S Corporations, Partnerships and Limited Liability Companies. Corporate
Bus
ine
ss
T
a
x
a
t
ion
M
onthly
,
10
(
2
)
,
39
-
50
.
ht
t
p
:
//
e
z
p
r
o
xy
.
lib
e
r
t
y
.
ed
u/
lo
g
in?
q
url=
ht
t
p
s
%
3
A
%
2
F
%2Fwww.proquest.com%2Fdocview%2F222336676%3Faccountid%3D12085
Riles, J., & Whitlock, B. (2003). The ABCs of LLCs. The National Public Accountant, , 35-36+.
ht
t
p
:
//
e
z
p
r
o
xy
.
lib
e
r
t
y
.
ed
u/
lo
g
in?
q
url=
ht
t
p
s
%
3
A
%
2
F
%
2
Fwww
.
p
r
oque
s
t
.
c
om
%
2
F
doc
v
i
e
w
%2F232335790%3Faccountid%3D12085
HOW TO: CHOOSE THE RIGHT LEGAL STRUCTURE. (2009, Jan). Inc, 31, 49-52.
ht
t
p
:
//
e
z
p
r
o
xy
.
lib
e
r
t
y
.
ed
u/
lo
g
in?
q
url=
ht
t
p
s
%
3
A
%
2
F
%
2
Fwww
.
p
r
oque
s
t
.
c
om
%
2
F
doc
v
i
e
w
%2F214508971%3Faccountid%3D12085
