Question:

Based on the following fact pattern, should Lima operate her business as a sole proprietorship, partnership or incorporation?

Please explain. Include at least 5 decision-making factors in your analysis. Decision-making Factors: Financial Liability | Profit Sharing | Decision-making | Sources of Capital | Taxation | Transferability | Regulations |

Other factors you may wish to consider include succession planning, perpetual existence, joint and several liability, and marketability of business.

Fact Pattern:

Lima has always wanted to start and build a successful business. As a child, she watched her mother and father operate their family-owned restaurant. Now, she is ready to go out on her own. Limaloves thewater and wantsthe beautiful coastline of Nova Scotia to be part of her business.Truthfully, she is more attracted to the idea of owning and sailing a big sailboat all summer than operatingabusiness. Given this, she sets her sights on starting a day-tour and charter boat business that operates from the Halifax waterfront and includes charters to most any coastal destination in Nova Scotia. She wants to have entertainment on the boat and serve food and alcohol.

In order to start the business, she will need a big sailboat, a Halifax waterfront dock space,a fewpeople to help hersail the boat and take care of guests (i.e., maintain boat, inventory levels, prepare food, serve food/drinks). As she explores the idea, it becomes apparent that she and the boat will need, amongst other things, to be coast guard certified, the boat will need to be licensed, and crew trained.

Lima has$5,000 and requires another $5,000,plus an ability to provide the bank with security equal to $25,000, in order to qualify for thegovernment guaranteedsmall businessloanprogram. Thisloan would paystart-upcostsand 6-monthsin operationcosts.

Lima knows a lot about boats but very little about hospitality tourism and business management. Her area of strength aresailboats and sailing. She is unsure how to market a business or set up partnerships with resorts that may want to offer stay and sail packages.

Lima's father always told her not to own or operate a business with a partner. Her friend,Danika,however, has a business degree, wants to start a business, and hasexactly the sameresources available to her as Lima has, namely, $5,000 and ability to provide bank security in the amount of $12,500. If she was part of the business, the business could happen.

Lima has reservations aboutDanikabeing part of the business. Shewants to have total control over the boat and would really like someone else to do the marketing and networking.