Pretend that you are the owner of your own accounting firm. Your firm specializes in the start-up market. You advise clients on how to set up a new business including hiring and payroll. Since many of your clients are start-ups, they generally do not have ready cash to pay your fee. You have to make a living, though, and you have to pay your employees. In order to get paid, you have developed the following strategy. And, since you have a number of years of experience, you can usually tell which clients are going to be successful.

You generally assess the client and do one of the following before starting work:

1. Demand payment up front
2. Accept a written note payable which is due within one year
3. Accept stock in the company in lieu of payment

Here are the client files that are on your desk right now:

1. Two sorority sisters, Amy and Maya, have teamed up to start a specialty bakery. They will bake goods for Greek clubs, schools and school groups, and companies. When they were planning parties, they couldnt get the unique products and designs that they wanted for a reasonable cost, so they created their own. Maya is very artistic and creative. She figured out how to use a laser cutter to create unique templates to decorate baked goods. Amy uses her baking talent to create individualized recipes.

Amy and Maya want to rent a store front that already has some bakery equipment in it. The bakery equipment, particularly a commercial oven, would be their single largest capital investment. The store front does not have to be particularly nice to start with because most of the goods would either be delivered or picked up. Right now, they do not intend to serve food on site; however, if all goes well, they would like to grow into a larger, newer space and create a beautiful bakery like Bird Bakery in San Antonio.

1. (no points) Which payment option are you going to offer Amy and Maya?

2. (10 points) Which entity type would be best this new business? Explain their best options for an entity.

Here are Amy and Mayas concerns:

#1 The entity should offer really good liability protection because the business involves serving food

#2 The entity should keep tax costs as low as possible. Margins are really low in the food business. In order to survive, they must keep costs down and focus on quality products

3. Amy and Maya plan to do most of the work themselves, but they anticipate that they will need help cleaning the facility on a daily and weekly basis. They also anticipate having the need to have their product delivered.

1. (6 points) Amy has found a custodial service that specializes in restaurants and bakeries. For a monthly fee, they will provide daily cleaning overnight for 5 days per week and a deep clean once per week. Would the custodial service be classified as an independent contractor or an employee? Explain.

2. (6 points) Amy has also looked into Uber Eats, DoorDash, and GrubHub. Their bakery can sign up to be a restaurant partner, but will be responsible for a service fee or commission. If the bakery uses a delivery service, would that service be classified as an independent contractor or an employee? Explain.