Monica Porter loves photography and wants to start her own company. She is singl

Question

Monica Porter loves photography and wants to start her own company. She is single, 26 years old, and lives in an apartment in Nicetown.   She has a job as a clerk in a grocery store that currently pays her living expenses.   Her dream is to be a portrait photographer specializing in events such as Weddings, Birthdays, Graduations, etc.   She has saved $10,000 to start this endeavor. She knows nothing about accounting and has hired you to provide her with accounting services as well as guidance in starting this business.

This first task is to determine what business organization entity she should choose. Please explain the different business formats and which one you would suggest for her business which will be named “Portraits by Porter” (PBP).  

Explanation / Answer

Monica Porter has got two basic options :

(i) Start a proprietorship firm with the name "Portraits by Porter" (PBP). She will be the sole owner of the organisation, and the entire onus of all the assets and liabilities of the firm will rest with her. The capital which she invests should earn regular interest or returns, based on the profitability of the firm. Also, depending on the financial position thereof, she can apply for bank or other loans, and develop the business in a more dynamic fashion.

(ii) Start a Limited Liability Company (LLC) with the name "Portraits by Porter LLC". The main issue in this case is she needs to arrange for shareholders to invest capital in the Company. Also, dividends need to be paid to them on a regular basis. However, Monica's liability is limited to the extent of her capital.

After analysis of both the entities, it would be preferable for Monica Porter to go for the proprietorship form of business only, given its various advantages as listed above.

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