PROBLEMS P11 Presented below are five independent situations

PROBLEMS P1-1 Presented below are five independent situations. (a) Three physics professors at MIT have formed a business to improve the speed of infor- Determine forms of business organization. mation transfer over the Internet for stock exchange transactions. Each has contrib- (LO 1), c uted an equal amount of cash and knowledge to the venture. Although their approach looks promising, they are concerned about the legal liabilities that their business might confront. (b) Bob Colt, a college student looking for summer employment, opened a bait shop in a (c) Alma Ortiz and Jaime Falco each owned separate shoe manufacturing businesses. small shed at a local marina. They have decided to combine their businesses. They expect that within the coming year they will need significant funds to expand their operations. (d) Alice, Donna, and Sam recently graduated with marketing degrees. They have been friends since childhood. They have decided to start a consulting business focused on marketing sporting goods over the Internet. (e) Don Rolls has developed a low-cost GPS device that can be implanted into pets so that they can be easily located when lost. He would like to build a small manufac- turing facility to make the devices and then sell them to veterinarians across the country. Don has no savings or personal assets. He wants to maintain control over the business. Instructions In each case, explain what form of organization the business is likely to take-sole propri- etorship, partnership, or corporation. Give reasons for your choice.

Solution

(a). Corporation

Explanation;

As per information of the question it is clear that all 3 members are concerned about legal liabilities of the business and we know that partnership form of business has unlimited liability thus corporation will be most suitable form of business.

Sole Propietorship can not be here because here are 3 members in the business and in case of partnership liability of each member will be unlimited that is why corporation is the best choice for this question.

(b). Sole Propietorship

Explanation;

We know that under sole propietorship, an individual will operate its’ business on his own and will be responsible for all types of business risk. And as per question it is clear that Bob Colt has opened a shop that means Bob Colt will operate this shop on own risks.

(c). Corporation

Explanation;

We know that corporation form of business organization will be very helpful in raising funds from market thus corporation form of business organization will be suitable. It is given in the question that they are combining their business and corporation is best option because it will generate economy of scale.

(d). Partnership

Explanation;

It is clear that all members have same expertise and want to start consultancy business hence partnership form of business will be much suitable because 3 members can form partnership legally and it is also true that consultancy business does not required high amount of investment like corporation.

(e). Corporation

Explanation;

As per information of the question, it is clear that Don has no personal savings and assets that is why Don will have to raise required funds from market hence corporation will be most suitable form of business because Don can hold maximum share of the corporation to control the business.