Darnia Delaware Has Been Making Pottery as a Hobby and Selling

question 58

Essay

Darnia Delaware has been making pottery as a hobby and selling it from her home to friends for several years.She has decided to open a store to sell her work and the work of others to the public.She is
hoping that if the store is successful she could expand to a second location in a year's time.She has come to you for advice about how she should organize the business.A friend recommended to her that she become incorporated (operate as a corporation) but she laughed, "I am not going to get so big that I take-over the
world!"
Required:
Compare and contrast for Darnia the advantages and disadvantages of operating as a proprietorship versus a corporation.What would you recommend to her?

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Definitions:

Transferable

The quality of an asset that allows it to be passed or conveyed from one entity to another.

Forfeiture

The loss of any right, property, or money, usually because of a breach of legal obligation or failure to fulfill some condition.

Financial Covenant

A clause in a loan agreement that requires the borrower to fulfill certain financial conditions, aiming to protect the lender’s interests by monitoring the financial performance and health of the borrower.

GAAP

Generally Accepted Accounting Principles, a collection of commonly followed accounting rules and standards for financial reporting in the United States.