Question

Sam has worked for Smith & Jones CPA as a tax accountant for 20 years. Fed-up with his current working conditions during the tax season, Sam decides to resign from Smith & Jones CPA and start a new tax accountant firm.   Over his 20-year career, Sam has built a substantial personal retirement account, nearly paid-off the mortgage on his personal residence and has been contributing to college savings plans for his children. He does not want to jeopardize those assets in the event his new business fails or if he faces a lawsuit.

1. Which type of business entity should Sam choose for his new business and why? Explain.
2. Once the business is formed, what advice would you give Sam on how to operate the business consistently with the chosen business structure and why? Explain.

Answer 1

Sam should choose to set up a limited liability company. This is because it has the advantage of limited liability as enjoyed by corporations as well as tax benefits which sole proprietorship have. It is the most feasible option because his personal savings are safe as the liability extends only till the business assets.

Sam should set up a limited liability company and hire management who have the required expertise. He can choose if he wants to run it alone or acquire partners. He has many years of work experience and would know many in the line of business. He could use the contacts to acquire clients.