Strayer University Differences Between Equity and Debt Financing Homework

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Three (3) personal trainers at an upscale health spa / resort in Sedona, Arizona, want to start a health club that specializes in health plans for people in the 50+ age range. The trainers — Donna Rinaldi, Rich Evans, and Tammy Booth — are convinced that they can operate their own club profitably. They believe that the growing population in this age range, combined with strong consumer interest in the health benefits of physical activity, would support the new venture. In addition to many other decisions, they need to determine the type of business organization that they want to form. Should they incorporate as a corporation or form a partnership? Rich believes there are more advantages to the corporate form than a partnership, but he has not convinced Donna and Tammy of this. The three (3) trainers have come to you, a small business consulting specialist, seeking information and advice regarding the appropriate choice of formation for their business. They are considering both the partnership and corporation formation options.


Assume the trainers determine that forming a corporation is the best option. Next, Donna, Rich, and Tammy need to decide on strategies geared toward obtaining financing for renovation and equipment. They have a grasp of the difference between equity securities and debt securities, but do not understand the tax, net income, and earnings per share consequences of equity versus debt financing on the future of their business. They have asked you, the CPA, for your opinion.

Write a two to three (2-3) page paper in which you:

  • Provide a summary to the partners, outlining the advantages and disadvantages of forming the business as a partnership and the advantages and disadvantages of forming as a corporation. Recommend which option they should pursue. Justify your response.
  • Explain the major differences between equity and debt financing and discuss the primary ways in which each would affect the future of the partners’ business.
  • Use at least two (2) quality academic resources in this assignment. Note: Wikipedia and similar websites do not qualify as academic resources

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Explanation & Answer

Attached.

Running Head: BUSINESS FORMATION

1

Business Formation
Student’s Name
Institution Affiliation
Date

BUSINESS FORMATION

2
Business Formation
Answer One

A partnership and corporation are different forms of business entities. The first thing
Donny, Rich, and Tammy need to know is that a partnership is not a legal entity while a
corporation is a legal entity. A legal entity has legal rights and obligations to adhere to while a
non-legal entity has no legal rights and obligations. For instance, a partnership does not have
to comply with the right to make a contract or responsibility to pay debts according to business
law. Still, a corporation does because it is a legal entity. Both types of business entities have
their advantages and disadvantages. First, the partnership is informal and involves fewer
obligations while starting up (Franklin, 2016). Accounting of a partnership is simple, and the
partners do not need to return the corporation tax return, but they must keep a good record of
their expenses and revenues. Next, a partnership is easy to start because the partners can either
agree about the partnership either in writing or verbally.
Starting a partnership does not involve lengthy procedures before starting, such as
regi...

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