Which type of business arrangement would be best for them?
August 14, 2010 
4 Comments
AnnaR asked:
Mrs. Carroll and her sister, Mrs. Howard, plan to operate a small day care center in a remodeled building. They're licensed and staffed to handle up to 24 children. Ms. Howard doesn't plan to work at the center and hasn't incurred as many debts or responsibilities as Mrs. Carroll. She originally invested $8,000 in the business and Mrs. Carroll invested $24,000. Mrs. Carroll and her sister want to keep their taxes low and keep Ms. Howard's liability to the amount of her original investment. Which type of business would be best for them?
A. Sole Propietorship
B. General Proprietorship
C. Limited partnership
D. Corporation
Mrs. Carroll and her sister, Mrs. Howard, plan to operate a small day care center in a remodeled building. They're licensed and staffed to handle up to 24 children. Ms. Howard doesn't plan to work at the center and hasn't incurred as many debts or responsibilities as Mrs. Carroll. She originally invested $8,000 in the business and Mrs. Carroll invested $24,000. Mrs. Carroll and her sister want to keep their taxes low and keep Ms. Howard's liability to the amount of her original investment. Which type of business would be best for them?
A. Sole Propietorship
B. General Proprietorship
C. Limited partnership
D. Corporation
There are many questions that are not answered in your request. We do not know how much money the day care center will be making, nor the financial positions of the 2 principals. Without that information, it is quite difficult to even begin to answer.
Please keep in mind that depending on the state where the company will be registered, taxes (or minimum business fees) will be set, based on the type of organization that is created. For instance in NJ, there is a minimum CBT (Corporate Business Tax & fee) of $575, regardless of the amount of earnings (or losses) a business has. Unless I knew that my company was going to be earning $20,000 or more per year (Gross), I would not register as a corporation – I would rather go as a sole proprietor.
So, based on your unique state's situation, that will have to be the particular item to dictate how to organize.
I hope this helps!
Good luck.
In the uk the first 2 listed would be pursued for losses in the event of bakrupcy eg your car and house would be at risk.
The others would involve the use of an accountant which would cost but a good one would save you money as well.
If any one was to fiddle they could bankrupt the other parties unless you go for limited liability, by doing this you will need to have detailed accounts and declare as per your law.
You are in the us but I imagine there are similaritys across the law.
I'd suggest that they need a business plan and all of these details will haver to be addressed in the plan. I'd strongly recommend that you talk to a business counselor before you do anything especially spend money. I'd call the local office of SCORE (go to and input your zip code to find the chapter nearest you), the advice is FREE.
The counselor at SCORE will help you to write a business plan because it will force you to dig out all of the start up details and the costs of starting a small day care center and force you to also understand all of the aspects of this business including the customers you'll concentrate on (your market ) and how you'll go after them.
You'll need to register the business with your state controller's office and make sure that you have any city and county licenses if any are needed where you live. All of this will come out in a business plan.
Try this link : and read some of the articles especially the ones about a business plan and starting a business.
Good Luck
id say you should stop trying to get test answers from your penn foster daycare mamagement degree answered on line!