| Course | MGT 401 Small Business: Structure, Planning, Funding (MGT/401) |
|---|---|
| Week | 3 |
| Paper type | Forms of ownership comparison |
| Length | about 1,197 words, 4 double-spaced pages plus title page and references |
| Format | APA 7 student paper |
| School | University of Phoenix |
| Program | BS in Business |
| Updated | October 2026 |
Free sample paper for MGT 401 Week 3
Sole Proprietorship, Partnership, LLC or Corporation? Choosing a Legal Structure for Copper Kettle Roasters
[Student Name]
University of Phoenix
MGT/401: Small Business: Structure, Planning, Funding
Week 3 Assignment
[Instructor Name]
[Date]
Copper Kettle Roasters, its owners and figures are composites written for a model paper; legal and tax points are general and should be confirmed with an attorney and tax adviser.
Since Dana Whitfield began roasting, the composite company Copper Kettle has run as a sole proprietorship. Its Week 2 business model leads with wholesale and subscriptions and adds a café with limited hours. The next steps raise legal exposure: a five-year lease, an equipment loan and a line of credit totaling about $250,000, six to eight employees and a co-owner, Jordan Price, who keeps the books and would invest $20,000 for a minority share. The legal form of a business decides who is responsible when something goes wrong and who pays tax on profits, two questions a founder should answer before signing a lease. This paper compares the options and recommends a structure.
Why the Choice Matters
Each form of ownership makes different trade-offs between personal protection, tax, control and administrative cost (Scarborough & Cornwall, 2019). The right form depends on the business's risks, profit level, number of owners and plans for raising money.
Sole Proprietorship
A sole proprietorship is the default when one person runs a business without forming an entity. It costs almost nothing to start, and Dana reports the earnings on a schedule attached to her own Form 1040. The catch is that the law treats her and the business as one person, so creditors of the business can reach her house, car and savings. With a lease, loans and employees, Dana's home and savings would be exposed.
General Partnership
If Dana and Jordan simply operate together, they form a general partnership, which can exist without any filing. Profits pass through to the partners' personal returns. Each partner can be held responsible for the whole of the partnership's obligations, even ones the other partner signed. Without a written agreement, state default rules decide ownership shares and decisions.
Limited Partnership
A limited partnership has at least one general partner with unlimited liability and limited partners whose liability is limited to their investment, provided they do not manage the business. It suits passive investors but adds filing requirements and leaves the general partner exposed.
Limited Liability Company
An LLC is formed by filing with the state. Owners, called members, generally are not personally liable for the company's debts. Unless it elects otherwise, an LLC with two or more members files a partnership return, and each member reports a share of the profit. An operating agreement sets ownership, decisions and what happens if a member leaves.
S Corporation Taxation
A corporation or an eligible LLC can elect S corporation tax status if it has no more than 100 shareholders, only one class of stock and eligible shareholders. Profits still pass through, but owners who work in the business must take a reasonable salary subject to payroll taxes, while remaining profit is not subject to self-employment tax.
C Corporation
A C corporation is taxed on its profits at the corporate rate of 21 percent, and shareholders pay tax again on dividends. It can issue different classes of stock, which venture investors often require. For an owner-run coffee business that does not plan to raise venture capital, double taxation is a disadvantage.
Does Legal Form Signal Ambition?
Legal form also says something about the kind of business an owner is building. Levine and Rubinstein (2017) found that incorporated business owners in the United States tend to earn more than comparable salaried workers, while unincorporated self-employed people tend to earn less, and that the incorporated group differs in skills and traits. The finding does not mean incorporating raises income by itself, but it suggests that lenders and partners may read a formal structure as a sign of a growth-oriented business, which matters as Copper Kettle seeks wholesale accounts and credit.
The Comparison
On liability, the sole proprietorship and general partnership offer no protection, while the LLC and corporations protect owners from most business debts. On taxes, all except the C corporation pass profits through. On control, an LLC's operating agreement offers flexible terms. On paperwork, the sole proprietorship is simplest and corporations the most demanding. The LLC balances protection, flexibility and cost.
The Limits of Liability Protection
Liability protection has limits. Banks and landlords usually require small business owners to personally guarantee loans and leases, so Dana would remain responsible for those debts even with an LLC. Protection also does not cover an owner's own negligence. It does protect against many other claims, such as a customer injury beyond insurance limits or unpaid supplier bills.
A Tax Example
If Copper Kettle earns about $90,000 in profit after the café opens and Dana owns 85 percent, her share is about $76,500. As an LLC taxed as a partnership, nearly all of it would be subject to self-employment tax of about 15.3 percent, roughly $10,800 after the standard adjustment. With an S election and a reasonable salary of $50,000, payroll taxes would apply only to the salary, about $7,650, saving roughly $3,000 before added payroll and accounting costs of about $1,500 to $2,500.
The Qualified Business Income Deduction
Dana and Jordan may also qualify for the federal deduction on qualified business income, worth as much as a fifth of that income, which Congress extended in 2025. Its effect differs between LLC and S corporation structures because salary is not qualified income, which a tax adviser should model.
The Co-Owner Question
Jordan's $20,000 investment for a minority share raises questions of control and exit. Robb and Robinson (2014) used the Kauffman Firm Survey to show that startups lean on owners' own money and bank loans far more than on outside investors, which makes the terms of an early co-owner's stake important. An operating agreement should set ownership percentages, voting rights, Jordan's role, how profits are distributed and what happens if either owner wants to leave.
Recommendation
Copper Kettle should form a multi-member LLC with a written operating agreement, giving Dana 85 percent and Jordan 15 percent, with Dana as manager. It should carry general liability and property insurance, since an LLC does not replace insurance. The S corporation election should be revisited after a year of café results, when profit is clearer.
Insurance and Contracts Alongside the Entity
An LLC is only one layer of protection. Copper Kettle also needs general liability insurance for customer injuries, product liability coverage for wholesale beans, property insurance for the roaster and workers' compensation once it hires. Wholesale agreements should be signed in the LLC's name, not Dana's, and the business must keep separate bank accounts and records, since mixing personal and business money can lead a court to disregard the LLC's protection.
Steps to Implement
Dana will file articles of organization with New Mexico, obtain a federal employer identification number, open a business bank account, sign the operating agreement with an attorney's review, transfer equipment and accounts to the LLC and update permits and licenses.
Conclusion
As a sole proprietor, Dana would be personally exposed to all the risks the café and wholesale business create. An LLC protects her from many of them, offers pass-through taxation and flexible terms for Jordan and keeps paperwork manageable. Personal guarantees remain, insurance is still needed and the S election should be revisited as profits grow.
References
Levine, R., & Rubinstein, Y. (2017). Smart and illicit: Who becomes an entrepreneur and do they earn more? The Quarterly Journal of Economics, 132(2), 963-1018. https://doi.org/10.1093/qje/qjw044
Robb, A. M., & Robinson, D. T. (2014). The capital structure decisions of new firms. The Review of Financial Studies, 27(1), 153-179. https://doi.org/10.1093/rfs/hhs072
Scarborough, N. M., & Cornwall, J. R. (2019). Essentials of entrepreneurship and small business management (9th ed.). Pearson.
What the MGT 401 Week 3 instructions ask
The MGT 401 Week 3 paper typically asks students to compare forms of business ownership and recommend one for a business. Common requirements include explaining sole proprietorships, general and limited partnerships, limited liability companies, S corporations and C corporations; comparing them on liability, taxation, management and control, ability to raise capital, continuity and cost and complexity; and justifying a recommendation for a specific situation. Some prompts ask students to address ownership agreements. Apply each form to the business's facts, explain tax effects with a simple example, note what liability protection does and does not cover and cite sources in APA format.
How this MGT 401 Week 3 example is built
A roaster who is about to sign a five-year lease, borrow $250,000, hire employees and bring in a co-owner can no longer operate safely as a sole proprietor, and the paper explains the options. It compares five forms on liability, taxes, control, capital and paperwork. It shows that an LLC protects personal assets from most business debts but not from personal guarantees. It estimates that, at about $90,000 in profit, electing S corporation taxation could save several thousand dollars in self-employment tax, though it adds payroll costs. It recommends an LLC with a written operating agreement, adequate insurance and separate accounts, and revisiting the S election once profits stabilize.
MGT 401 Week 3 grading rubric: where the points go
Strong ownership papers explain each legal form accurately and then apply the comparison to the business's specific situation. Instructors credit a clear comparison table, a correct description of liability protection and its limits, a simple tax example and attention to control and ownership agreements when there are several owners. A recommendation that weighs tradeoffs, such as tax savings against added cost and complexity, shows judgment. Noting that legal and tax advice should be confirmed with professionals is appropriate. Clear writing and correct APA citations finish a strong paper. Instructors also notice when a writer plans for change, such as revisiting the tax election once profits are known or converting to a corporation if outside investors appear, since structure decisions are rarely permanent.
MGT 401 Week 3 help: mistakes to avoid
Students often describe each form without applying it to the business. Use the business's facts in every comparison. Another frequent gap is overstating liability protection; personal guarantees and personal wrongdoing are not covered. Explain the limits. Students also confuse LLCs and S corporations, which are a legal form and a tax election. Keep them distinct. Avoid recommending a C corporation for a small owner-run business without explaining double taxation. Include a simple tax example. Address agreements among owners. Finally, note when the choice should be revisited, since the right form can change as a business grows. A short checklist of filing steps shows the recommendation can be carried out.
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MGT 401 Week 3 questions, answered
What does MGT 401 Week 3 usually cover?
It usually covers forms of business ownership, sole proprietorships, partnerships, LLCs, S corporations and C corporations, compared on liability, taxes, control, capital raising and complexity.
Where can I find a free MGT 401 Week 3 sample paper?
This page contains a complete comparison of ownership forms for a coffee roaster, with a tax example and notes. A free draft comparing structures for your own business is available on request.
Is an LLC the same as an S corporation?
No. An LLC is a legal form of business created under state law. An S corporation is a federal tax status that a corporation or an eligible LLC can elect, which affects how profits are taxed.
Does an LLC protect the owner from all business debts?
It generally protects personal assets from business debts and claims, but not from debts the owner personally guarantees, such as many bank loans and leases, or from the owner's own wrongful acts.
Why do small businesses rarely choose C corporations?
A C corporation pays its own income tax, and owners pay a second tax on any dividends they receive. Owner-run small businesses often prefer pass-through forms, though C corporations can suit companies seeking venture capital.
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