1-AJ has been a successful used car dealer for 35 years. His business, AJ's Used Cars, has always operated in as a sole proprietorship. Over the years, he has expanded his business to become the largest independent car dealer in the city. Last year the business revenue reached an all-time high of $1,575,000. His business reputation in the area is impeccable. As AJ notes, "I've always done business in a fair and honest fashion, and I've tried to give my customers an honest deal."

However, AJ's Used Cars has grown, so have AJ's liabilities. On many days, the cars in AJ's inventory will have a combined value between $400,000 to $650,000. AJ notes, "Today business is different. Thirty years ago, if I had asked the bank for a $100,000 line of credit, they would have tossed me out the door."

AJ's only child recently married an auto mechanic who has worked in the area for the past five years. Though AJ thinks his new son-in-law is nice enough, he does not believe he is very smart. AJ observes, "The kid sure knows how to fix a car, but that's about it."

On AJ's last visit to his accountant, the accountant suggested that AJ consider incorporating, or at least change away from the sole proprietorship. AJ has asked your advice. "That's all you hear today - 'you gotta be a corporation.' I guess he's right, but to tell you the truth, I just don't know."

What advice do you have for AJ regarding the form of business ownership for AJ's Used Cars? Why should he consider changing the form of ownership? What are the options? Which do you recommend and why? Be clear on the "why" for your recommendation, noting advantages and disadvantages over the current state. Or why he should not change if that is your recommendation.

2-Joe Puff is ready for a career change and recently discovered an opportunity to open a tobacco, cigar, and pipe shop in the newly-renovated and popular downtown business area. He is trying to decide between opening his own business or a franchise.

Smoke Dreams is a successful franchisor of smoke shops founded twelve years ago in Seattle. The concept for Smoke Dreams is simple yet sophisticated. It sells only tobacco-related products, but the breadth and quality of its inventory is large and significant. Each franchise, depending on size, is stocked with inventory selected by Smoke Dream's founder. The franchisor finances the shop's initial inventory. The franchisee is expected to make a decor within predetermined standards that Smoke Dreams established. Each franchisee must attend a three-day workshop, outlining the fundamentals of tobacco blending, the merchandising of pipes and cigars, and the techniques of successful business operation.

The franchise contract requires the franchisee to contribute 1.25 percent of gross revenue to a national advertising campaign. According to the contract, Smoke Dreams will finance the required fixtures for the store for ten years. In addition, the franchisor supplies all inventory at very favorable prices because it purchases in large quantities. Smoke Dreams franchisees have had a high success rate in the past.

Joe knows he can buy tobacco products from a variety of wholesalers. He also has some ideas on what would make a tobacco shop successful in this town. He has never owned a business, but he has taken several business courses at the local college.

Given the information provided above, help Joe make a decision by identifying advantages and disadvantages of each of the two options (opening his own business or a franchise) and a recommendation on which option to pursue.