Business Law Report: Analysis of Sole Proprietorship and Corporation

This report analyzes the business structures of sole proprietorship and corporation, focusing on their advantages and disadvantages. It begins by outlining the characteristics of a sole proprietorship, including low setup costs and simple operations, but also highlights limitations such as personal liability and limited funding options. The report then recommends a corporation structure for business expansion, emphasizing the benefits of limited liability, easier access to funding, and the ability to transfer ownership. The analysis also considers tax benefits associated with corporations. The report concludes by advising Mrs. Penny Grey to consider a corporation to facilitate the growth of her business, providing a clear comparison of the two structures for informed decision-making.

Running Head: Law 1
Law

Law 2
About the present case:
As stated in the present case, Penny Grey runs business of outdoor fitness as a sole trader, and
she managed this business with the help of young family members. Now, she wants to expand
her business, and for this purpose she needs advice.
Brief outline of the facts:
Sole Proprietorship is the structure in which individual conduct the operations of the business,
and such individual is responsible for all the factors of the business. It is the most simplest and
inexpensive form of structure which can be chosen by the individual at the initial stage of the
business. Sole proprietorship is the business structure which has no separate existence from its
owner. There are number of advantages of sole proprietorship which are stated below:
 Low set up cost
 Control of the business
 Easy to operate
 less regulations
 Simple structure
There are some disadvantages also which must be kept in mind while choosing this business.
Some of these disadvantages are stated below:
 There is no separate legal entity from its members, which means owner of the business is
personally liable for the debts of the business.
 Risk on continuous operations of business. In number of cases business shuts down after
the death of the owner.

Law 3
 Sole trader does not have shares to offer and they are not able to sell the ownership of the
company. Limited ways are available through which sole traders can raise money.
 The other disadvantage of sole proprietorship is less capital, which means that sole trader
is not able to arrange large amount of money.
Therefore, it is clear that sole proprietorship is better for the initial stage of the business. In case,
owner of the business wants to expand their business then they must consider the other options.
It is advisable to Mrs. Penny Grey that she can adopt corporation structure for conducting the
operations of their business, because of the following advantages:
 The biggest benefit provided by corporation is protection against liability, which is not
offered by other forms of business.
 As compared to other form of structures, corporations can easily raise the funds for the
purpose of conducting projects and operations. In corporations, it is easy to transfer the
interest in ownership to the third parties, and it does not affect the continuance operations
of the business. In case of sole proprietorship and partnership it is not easy to sell the
complete business, because it directly affects the operations of the firm. Not only assets
are transferred but licenses and permits are also transferred which makes this task more
difficult.

Law 4
 There are number of tax benefits which are available in case of corporations, but these
benefits are not available to sole proprietorship and partnership. Tax returns of
corporations are not clubbed with the returns of shareholders, both shareholders and
corporations files separate tax returns. Shareholders pay taxes on salaries, dividends, and
bonus earned by them from the corporation.
Therefore, Mrs. Penny Grey can choose corporation for expanding their business.