Question:

Based on the following fact pattern, should Sophia 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:

Sofia has always wanted to start and build a successful business.As a child, she watched her mother and father operate their family-owned restaurant.She watched each parent do their part and support each other, always.

Now, she is ready to go out and conquer the business world.Her parents offered to pass the restaurant along to her but she refused.I want to start and build my own business to pass along to my children someday.

Sofia loves the water and wants the beautiful coastline of Nova Scotia to be part of her business.Although she has no boating experience, she decides to start a day-tour and charter boat business.

In order to start the business, she knows she will need a 45' sailboat, a dock space somewhere along the Halifax waterfront, a few staff people to sail the boat and take care of guests (i.e., operate and maintain boat, maintain inventory, prepare traditional food, serve the food and drinks).

As she explores the idea, it becomes apparent that the person who sails the boat and captain must be coast guard certified, and the boat must be licensed for alcohol sales. She will also need experienced crew.

Sofie knows a lot about business but nothing about boats.Ironically, Sofie's father always told her not to own or operate a business with a partner.However, her friend, Daniel, has been sailing forever, knows the industry and the people in it.He would be a wonderful resource for her business.She know he just sold his boat and is looking to invest in a business. She has always known him to be reasonable and good at business, assuming so by his big fancy house and beautiful two sports cars.

Sofie wants to have total control over the business but has very little money or boating experience.Her parents gave her a small amount.She needs at least twice this much to obtain a loan to buy a sailboat, get boat ready to charter, and prepare marketing materials.If she does get the loan, she will need immediate cash flow to make the bank payments. if she was able to raise the money by selling shares or taking on a business partner, there would be no risk of default.

Her parents offered to be partners with her but she does not like the idea if them risking anything at this stage of their lives.Sophia wants to make it on her own, not with the financial help of her parents.

Please advise whether Sophia should operate her business as a sole proprietorship, a partnership, or a limited liability company.