Entity Selection Exercise

For each of the hypotheticals, you should prepare an analysis for each situation explaining what business organization form the business should use. You should define and explain key terms and concepts.

You should study Chapters $18$ & $19$ before working on this assignment and rely on specific information from the text to support your analysis. Also, you should consider Agency law from Chapter $16.$ Detailed analysis is required for this assignment.

Business Situation No$\mathrm{.}1$

Joe operates a local gardening and tree trimming business. Joe also does some light landscaping work for a few of his commercial accounts. Joe is very successful and has enough clients to keep him busy, along with at least three workers, working six days a week. Occasionally, a client rents a piece of equipment from Joe$$s business. Clients sometime take their time paying for Joe$$s services and, therefore, Joe is sometimes late paying his bills.

Joe$$s capital is only about $$25,000,$ most of which consists of his new $$20,000$ truck and his assortment of lawnmowers, chainsaws, edgers, and gardening equipment. Joe$$s wife handles the books, yet is not involved in actual business operations. Should Joe continue to operate his gardening and tree trimming business as a sole proprietorship? Explain.

Business Situation No$.2$

As a part of a course assignment, a group of graduate students from JSU have developed a prototype for a new microchip to power the next generation of personal computers. The students have received assurances from venture capitalists to provide whatever financing the students will need to manufacture the chip, provided they receive $51\%$ of the equity. The venture capitalists do not want to interfere in the business operations and have agreed to allow the students to control the operations, provided certain financial objective are achieved. The students and the venture capitalists expect to begin manufacturing of the chip within two years. Based on outside evaluations, the chip should be a success. The students$/$venture capitalists expect to go public within five years.

What type of business entity should be formed by these graduate students to manufacture and develop the chip $($and to conduct further research and development$)?$ Consider whether more than one company should be formed. Explain.