TO: Manager of the Manufacturing Organization
FROM: Michelle Dent
SUBJ: Recommendation of findings for business organization
DATE: October 17, 2011
After careful review of your current business organization, it is recommended that your sole proprietorship be changed to an S-corporation.
An S-corporation is a corporation allowed by the Internal Revenue Service for companies with 100 or less shareholders. It has a pass-through tax entity, where the income of the company is passed through to the owners and reported on their individual tax return. The shareholders are able to enjoy the benefits of being incorporated and not facing a double taxation as found in a C-corporation. As a sole proprietor I understand you have the luxury of making your own decisions, and have full responsibility of the business. An S-corporation has a structure of officers, directors, and managers that are appointed by the shareholders. This structure could assist you with the management of your business, and making financial decisions to keep your business running smoothly.
In your current situation you are financially liable for all business transactions, losses, and obligations that occur, as well as all debts. An advantage to the S-corporation is it has limited liability protection. The personal assets of the shareholders are protected from business debts and losses. A sole proprietorship can risk losing their personal assets due to business obligations.
Currently as a sole proprietor your business comes to an end with death. S corporations have a continuous life. It can continue in existence long after a shareholder passes away, or withdraws from the business. This is another advantage over a sole proprietorship.
Ownership in a sole proprietorship consists of a single owner. An S-corporation is limited to 100 shareholders, who can only be U.S. citizens, and cannot be other corporations or limited liability companies. It...