Advantages and Disadvantages of Forming Business as a Corporation or Partnership

This article provides an overview of the advantages and disadvantages of forming a business as a corporation or partnership, as well as the differences between equity and debt financing. It also includes a recommendation for the case study of three personal trainers trying to initiate a health club.

Running head: ACCOUNTING PROJECT
Accounting Project
Name of the Student:
Name of the University:
Author Note

1ACCOUNTING PROJECT
Table of Contents
Introduction......................................................................................................................................2
Forming business as a corporation..................................................................................................2
Forming a business as a partnership................................................................................................3
Equity and debt financing................................................................................................................4
Recommendation.............................................................................................................................4
Conclusion.......................................................................................................................................4
References........................................................................................................................................5

2ACCOUNTING PROJECT
Introduction
The issue that has been showcased in the case study is that three personal trainers try to
initiate a health club. The members of the club are Donna Rinaldi, Rich Evans and Tammy
Booth believes in their business idea and believes that such a business will lead to the desired
profits. However, there has been disagreement in regards to the nature of business that they
should conduct. This means that the type of business organizations that they should form
involves disagreements like whether the business entity should be in the nature of partnership or
in the nature of corporation.
This particular study aims to provide an overview into the advantages and disadvantages
of forming business as a corporation or as a partnership. Moreover, the primary differences
between equity and debt financing and the primary ways in which each would have an effect on
the partners’ businesses.
Forming business as a corporation
The business, which has been established as a corporation, has many advantages as well
as disadvantages of its own. The owners of the business that have established the corporation
have limited liability towards the corporation. This means that the owners can enjoy the status of
owning a corporate entity that can enjoy the benefits of being listed. Moreover, a business
corporation has the ability to attract a wide range of investors. The corporation form of business
also has an established management and power structure. The corporate business structures also
provide an opportunity to the employees in terms of stock options. Furthermore, the valuation
process of a corporate entity is easier than the valuation of a non-corporate entity. However, the

3ACCOUNTING PROJECT
disadvantages of forming a corporation are that it takes a lot of time and cost in order to form a
corporation. The formation of a corporation also demands the liability of payment of huge sums
of taxes. This becomes a major reason of concern for the small size businesses that might take up
the formation of a corporation (Blair & Marcum, 2015).
Forming a business as a partnership
The advantages of forming business as a partnership have its own advantages. The
primary advantage of forming business as a partnership is that the partners contribute the to the
startup capital that is required to start the planned business. Moreover, the partnership firm also
facilitates a required degree of flexibility in terms of business that is carried out by the firm.
Moreover, the primary advantage provided by the partnership business is that the partners of the
firm can share the liability in relation to the partnership business. This reduces the degree of risk
as it gets divided between the partners. Decision-making is also a process that can be easily
executed in case of a partnership firm (Florou & Kosi, 2015). This means that the different
partners of a firm can present their suggestions, which will facilitate the determination of a
proper decision. However, the disadvantages of the partnership business revolve around the fact
that the chances of disagreements and conflict of interest among the partners are a common
occurrence, which makes the business vulnerable to threats such as solvency. Moreover, the due
importance is not given to the individual opinions as because the concept of the partnership firm
revolves around teamwork. Furthermore, the fundamental motive behind any business that is
acquiring the desired amount of profits is compromised in case of a partnership firm. This is
because the primary feature of a partnership firm is the sharing the acquired amount of profit
among the partners of the business (Pakroo, 2016).

4ACCOUNTING PROJECT
Equity and debt financing
Equity financing refers to the issuance of shares or common stock to an investor for the
purpose of raising money. Debt financing on the other hand refers to the borrowing of money
from the third party sources. Equity financing involves the selling of ownership of the respective
firm while debt financing does not involve selling of the ownership (Cole & Sokolyk, 2017).
Recommendation
The recommendation in this particular case is that members of the club should consider
forming the business in the nature of partnership. This is because the business being a start up
venture would be much easily established without the hassles and extra cost that is involved in
forming a corporate entity. Moreover, the business being in the nature of service would prosper
more by being a partnership firm. Moreover, the firm may also consider raising additional capital
in terms of debt financing. This is because equity financing cannot be facilitated in case of a
partnership firm.
Conclusion
Therefore, it is recommended that Donna Rinaldi, Rich Evans and Tammy Booth should
in all probabilities, start the spa business as planned in the nature of partnership business and
may also consider raising additional capital by debt financing.

5ACCOUNTING PROJECT
References
Blair, E. S., & Marcum, T. M. (2015). Heed Our Advice: Exploring How Professionals Guide
Small Business Owners in Start‐Up Entity Choice. Journal of Small Business
Management, 53(1), 249-265.
Cole, R. A., & Sokolyk, T. (2017). Debt financing, survival, and growth of start-up firms.
Journal of Corporate Finance.
Florou, A., & Kosi, U. (2015). Does mandatory IFRS adoption facilitate debt financing?. Review
of Accounting Studies, 20(4), 1407-1456.
Huang, R., Ritter, J. R., & Zhang, D. (2016). Private equity firms’ reputational concerns and the
costs of debt financing. Journal of Financial and Quantitative Analysis, 51(1), 29-54.
Pakroo, P. (2016). The small business start-up kit: A step-by-step legal guide. Nolo.
Welch, E. P., Saunders, R. S., Land, A. L., Turezyn, A. J., & Voss, J. C. (2016). Folk on the
Delaware General Corporation Law: Fundamentals. Wolters Kluwer Law & Business.