WRITING REQUIREMENT
You have been hired by a "big four" accounting firm. A senior manager in your firm learns that you graduated from the University of Kentucky and naturally assumes that you are very bright and received excellent instruction (particularly in the area of business law). She comes to you for assistance. She sends an e-mail to you about a firm client, as follows:
Our client, Jim Dandy, owns a very successful tree cutting business. The business has both commercial and residential accounts. The business is currently operated as a sole proprietorship. Jim runs the business on a day-to-day basis. However, the business has roughly twenty employees. Two of the employees work in the office full time. The other employees handle the cutting, hauling, splitting and chipping. The business has several trucks that are used to haul the splitting and chipping equipment to the worksites. Jim consistently makes $250,000 to $300,000 net income per year from the business.
Recently, Jim'sfriend told Jim that his cousin's sister-in-law's hair stylist has a niece that is in her second year of law school and had one time uttered the phrase, "limit your liability." While the friend was not exactly sure what that meant, he was confident that it would apply to Jim's situation. That made Jim think about the manner in which he is conducting his business. Consequently, he contacted your senior manager to make a recommendation for the legal structure of his business because he is sure that taxes will come into play, and Jim despises paying taxes.
Required: Prepare a well-reasoned, well-written memorandum to your senior manager addressing the appropriate issues for consideration and then make a recommendation for the best legal structure for Jim's business. Your recommendation should consider all relevant legal and tax ramifications. The memorandum should be double-spaced, in 12 point font, and as long as it needs to be to address the issues.