General Information about “Salty Pawz “
The business was established in 2010 as a sole proprietorship. Wanda has been claiming all of the income and expenses for her business on a Schedule C of her personal income tax return. She uses a CPA to prepare her taxes, but maintains the day-to-day bookkeeping herself. Salty Pawz has shown a profit since 2011.
Salty Pawz currently operates out of Wanda’s home in North Carolina, and has had her kitchen certified by the local health department as a commercial kitchen.
She does not currently need a business license because all of her product is shipped and she has no customers coming to her home.
Salty Pawz does have a Federal Employer Identification number for tax withholding purposes, a NC Sales Tax identification number and is registered with the NC Employment Security Commission for the purposes of reporting NC Unemployment Insurance Tax.
Two of Wanda’s friends help her on a part-time basis, primarily at night and on weekends after their regular jobs. She pays them in dog treats and is not currently paying salaries or wages.
Wanda’s brother-in-law manages her website, posting information about her products and keeping the information on the company current. He doesn’t charge her anything, but she feels badly asking him to do too much work for “free.”
Wanda spends most nights answering emails and inquiries through Etsy and her website while her friends bake and package the treats. She is working 15-hour days, 7 days a week and knows she can’t keep this pace up much longer. She is very reluctant to change how she is doing business because she doesn’t want to give up on the success she has built.
She is using the local “Pack & Ship” to get her dog treats to her customers, but sometimes she finds herself running to Pack & Ship more than once a day. She is trying to figure out a better way to handle shipping but hasn’t made any decisions about what would be best.
Wanda is concerned that if she grows the business, she may take on more financial and personal responsibility than she is comfortable with.
1. Prepare a chart showing Wanda the legal forms of ownership she could adopt for Salty Pawz as she expands the business. For each form of ownership, you need to provide the advantages and disadvantages of each legal ownership option specific to Wanda’s businesses.
2. After having explored the advantages and disadvantages of each form of ownership, which form of ownership would you recommend for Wanda and Salty Pawz, and why?
3. Lastly, if Wanda decides she wants the two friends she works with to become more formally involved in ownership of the business, does that change the advice you gave her in part (b) above and if so, how? If it does not affect your advice to her, then why not?