Essay by jjuho2-cA-, April 2014

download word file, 8 pages 0.0

1a.)In this case, I have been asked to advise the owner of a coffee shop named Mr. Smith about the advantages and disadvantages of incorporation. First, an incorporated company is a legal entity which separates from its shareholders and has an independent legal existence or status and it is completely different from sole proprietorship. There are some main advantages that Mr. Smith can enjoy if he decides to go for incorporation. First, members of the company like Mr. Smith will enjoy limited liability while the liability of the company is unlimited. Therefore, Mr. Smith will not be personally liable for all the debts and obligations if the company gets into liquidation. Second, since an incorporated company is a separate legal entity from its members, the company can enjoy perpetual succession as the existence of the company is not affected by the death, bankruptcy from its members. Third, the incorporated company also has the capacity to enter into contracts with other parties with the normal rights and liabilities of a contracting party and take legal proceedings under its own name.

However, there are also disadvantages when it comes to incorporation. First, the assets and property owned by the incorporated company belongs to the company itself instead of its members and creditors as the company has the legal capacity to hold property. Therefore, Mr. Smith will have no rights to own the assets of his coffee business after incorporation. Second, once the company is incorporated, the company can only be closed by liquidation and it will not be up to Mr. Smith to decide to close down the company, making it less flexible. Third, the costs of going for incorporation and maintaining the company can be quite high and expensive compared to sole proprietorship and partnership as it usually involves considerable documentation...