Choose one type of business entity that you plan to use for Solar Co., and explain why you would choose this type of entity rather than the others
Assignment 2&3 – You are a sole proprietor presenting
Assignment 2 Scenario: You are a sole proprietor presenting to a group of investors, seeking 20 million dollars to raise capital for your solar panel manufacturing and installation company, Solar Co.
Prepare a 7- to 10-slide Microsoft® PowerPoint®, Microsoft® Sway®, or Prezi® presentation with speaker notes for your potential investors, and address the following items:
Choose one type of business entity that you plan to use for Solar Co., and explain why you would choose this type of entity rather than the others. What risks and issues specific to this industry and Solar Co.’s business influenced your decision?
Assume that at least one investor will question whether Solar Co. should be organized as a corporation. Summarize, for the investors, what legal liabilities could arise for the directors or officers of that corporation. How could those liabilities for the directors and officers be minimized?
Submit your assignment.
Assignment 3 Review the “IRAC Method” section of Ch. 1 of Legal Environment of Business.
Research one legal case or recent event involving a tort and one legal case or recent event related to criminal law. Each case or event should have taken place within the past two years.
Write in-depth briefs explaining your selected cases using the IRAC method. Each case brief should be 350 to 525 words and include an explanation of how the legal concepts in the selected case can be applied within a managerial business setting including considerations such as but not limited to:
Insurance
Internal auditing and reporting procedures
Explaining what could have been done differently in each case to avoid or reduce harm/risk CORE SKILL: entity selection is a TRADE-OFF ANALYSIS across four axes — LIABILITY, TAXATION, MANAGEMENT/CONTROL, and ABILITY TO RAISE CAPITAL. Every recommendation must be defended on all four.
THE ENTITIES:
— SOLE PROPRIETORSHIP: no formation formalities, no separate legal existence. UNLIMITED PERSONAL LIABILITY — the owner’s personal assets are exposed. Pass-through taxation (Schedule C). Cannot raise equity capital, because there is no ownership interest to sell. Terminates on the owner’s death.
— GENERAL PARTNERSHIP: formed by two or more persons carrying on a business as co-owners for profit — AND IT CAN FORM WITHOUT ANY WRITING OR INTENT TO FORM ONE, which is the trap in the Jordan/Dog Gone Good Dogs question. If Jordan makes Jenny a co-owner sharing in profits, the sole proprietorship CEASES TO EXIST and a GENERAL PARTNERSHIP arises by operation of law. Each partner has UNLIMITED PERSONAL LIABILITY, is JOINTLY AND SEVERALLY liable, and — critically — is an AGENT of the partnership with authority to bind it. That agency exposure is why the answer is “General Partnership” and why it is a BAD outcome for Jordan: she has just made a stranger’s business decisions her personal liability. (Note the distinction: sharing PROFITS creates a presumption of partnership; a lender who merely receives interest, or an employee paid a bonus, does not become a partner.)
— LIMITED PARTNERSHIP: general partners (management + unlimited liability) and limited partners (passive investors, liability capped at investment — but they LOSE the shield if they participate in control).
— LLC: THE MODERN DEFAULT for closely held businesses. LIMITED LIABILITY for all members + PASS-THROUGH TAXATION (avoiding the corporation’s double tax) + flexible management (member-managed or manager-managed) + few formalities. Governed by an OPERATING AGREEMENT. Disadvantage for the Solar Co. scenario: institutional and venture investors generally PREFER CORPORATIONS, and an LLC cannot issue stock or go public.
— C CORPORATION: separate legal entity; limited liability; PERPETUAL EXISTENCE; FREE TRANSFERABILITY of shares; the best vehicle for RAISING LARGE CAPITAL (it can issue multiple classes of stock and can go public). Cost: DOUBLE TAXATION (the corporation pays tax on profits; shareholders pay again on dividends) and formalities (board, bylaws, minutes, annual meetings).
— S CORPORATION: pass-through taxation with limited liability, BUT with strict eligibility limits — no more than 100 shareholders, only ONE CLASS OF STOCK, and no corporate or non-resident-alien shareholders. Those restrictions make it unsuitable for venture financing.
FOR THE $20 MILLION RAISE (the Solar Co. scenario): the answer is almost certainly a C CORPORATION, and the reasoning is what’s graded — you need to issue PREFERRED STOCK to investors (which an S corp cannot do, because of the single-class-of-stock rule), you need a governance structure investors recognize, you need transferable shares and an exit path, and you need the ability to grant employee stock options. Acknowledge the double-tax cost honestly and explain why it is worth paying here. A Delaware C corp is the conventional choice and you should say why (well-developed corporate case law, the Court of Chancery, predictability).
ALSO ADDRESS: piercing the corporate veil (commingling funds, undercapitalization, failure to observe formalities, using the entity as an alter ego) — because limited liability is NOT absolute, and the behaviors that forfeit it are exactly the behaviors a new owner is tempted toward. And SECURITIES LAW: raising $20M from investors implicates the Securities Act of 1933 — either register or fit an exemption (Regulation D, Rule 506(b)/(c), accredited investors). Ignoring securities law in a capital-raising answer is a serious omission.
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