You are the sole proprietor of a video rental shop. Sales have been climbing and customers are beginning to complain that they have a hard time finding copies of the really popular titles. You would like to address these complaints by buying more

videos, but unfortunately, you don't have any extra cash lying around to sink into the business. Your cousin Ned offers to put $30,00 . into the business, if you make him a partner. If you do, you will no longer have a sole proprietorship, but will have to change your firm to a partnership or a corporation. What should you consider when deciding how to reorganize your firm?

If you reorganize as a partnership, decision making will have to be shared with Ned. You will also be
completely liable for all debts incurred by the business, even if they were Ned's fault. If you reorganize as a
corporation, your liability will be limited by the amount of money you have invested in the corporation's
stocks. Unfortunately, your corporate income will be subject to both the income tax and the corporate
income tax.