Sam Smith has invented and patented a new solar panel. His panels are cheaper to

Question

Sam Smith has invented and patented a new solar panel. His panels are cheaper to produce and more efficient than most solar panels currently on the market. He would like to manufacture and sell his solar panels to residential contractors for professional installation on commercial and residential buildings. There is a small chance that his solar panels might cause fires, if they are not installed correctly. To limit his liability, he plans to offer training videos of panel installation for all contractors who purchase his panels. Manufacturing these panels will require that he acquire several existing businesses that manufacture and package similar products. He has calculated that he will need to raise an additional $10 million in capital to start the business. He would also like to keep his personal taxes and personal liability as low as possible. Using the IRAC method explain what type of business entity would be the best choice for Sam’s solar panel business. Discuss the various factors relevant to this decision and explain why these factors support your choice of legal entity.

Explanation / Answer

IRAC method- What type of business entity would be the best choice for Sam’s solar panel business.

Issue- Money is the issue here as Sam Smith has invented and patented a new solar panel but the manufacturing cost is $10 million and it is needed for establishment of his business.

Rule- Manufacturing the cheapest panels is what needed.

Analysis- Profit is sure as the panels are unique, cheap and a patent of Sam.

Solution- Cost cutting and raising a fund is the solution.

A sole proprietorship is the solution as this form is the simplest of business ownership. There are no organizational rules to follow, and there is virtually nothing that an owner needs to do to begin operating as a sole proprietor. The sole proprietor has total control and decision making authority, and all of the business income will flow through and be reported on the sole proprietor’s personal tax return.

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