| Course | AC502 Business Law for Accountants |
|---|---|
| Unit | Unit 7 |
| Paper type | Entity comparison memo |
| Length | About 820 words, 5 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | MS in Accounting |
| Updated | October 2026 |
Free sample paper for AC502 Unit 7
Whose House Answers for a Partner's Mistake? A Unit 7 Entity Comparison Memo for a New Accounting Practice
[Student Name]
Purdue University Global
AC502: Business Law for Accountants
Unit 7 Entity Comparison Memo
[Instructor Name]
[Date]
The founders, the practice and every figure are composite; the uniform acts, regulation and textbook cited are real; state rules vary, and this is coursework analysis, not legal advice.
Memorandum
To: The four founders From: Business law analyst Date: September 8, 2026 Re: Choice of entity for the new practice
Recommendation: form a professional limited liability company in which the three licensed accountants hold at least 75 percent of the ownership and voting rights, carry professional liability insurance from the first day, and accept that personal guarantees will expose each of you on the bank line regardless of form.
Facts
The practice will have three licensed CPAs and one unlicensed systems consultant as owners, a ten-year office lease, a bank line of credit the bank expects you to guarantee personally, and a staff of six. Each founder will supervise engagements, sometimes for clients brought in by another founder.
How the Four Forms Compare
General partnership. Formed without filing. Every partner is jointly and severally liable for all partnership obligations, including a colleague's malpractice and the lease. Taxed as a partnership.
Limited liability partnership. Formed by filing a statement of qualification. Under the revised uniform act, a partner is not personally liable for partnership obligations solely by reason of being a partner, which covers both a colleague's malpractice and contract debts in states that adopted the full shield (Revised Uniform Partnership Act § 306, 1997). Each partner stays liable for her own malpractice. Taxed as a partnership.
Professional corporation. Formed under a professional corporation statute that, in many states, allows only licensed professionals to own shares. Shareholders are shielded from colleagues' malpractice and corporate debts, but not their own. Taxed as a C corporation unless it elects S status.
Professional limited liability company. Formed by filing articles. Members are shielded from colleagues' malpractice and company debts, but not their own. Unless the members elect otherwise, a company with two or more members files as a partnership for tax purposes (Treas. Reg. § 301.7701-3, 2024).
Four Scenarios
1. A founder's own error on a client return. Under every form, that founder is personally liable. No entity shields a professional from her own negligence.
2. A staff member's error on an engagement another founder supervised. The supervising founder is exposed; the other three are exposed only under a general partnership.
3. The ten-year lease. Under a general partnership, all four founders are personally liable. Under the other three forms, only the entity is, unless the landlord demands personal guarantees.
4. The bank line. Personally guaranteed, so every founder is exposed regardless of form.
No form protects a founder from her own mistake or from a debt she personally guaranteed, so the real choice is about the other partners' mistakes, and on that question the general partnership is the only form that leaves every founder's house exposed.
Who May Own
The consultant cannot hold shares in a professional corporation in states that limit ownership to licensees. Under the Uniform Accountancy Act, which most states follow in some form, a CPA firm may have owners who are not CPAs if CPAs hold a simple majority of the ownership and voting rights and every non-CPA owner actively participates in the firm (American Institute of Certified Public Accountants & National Association of State Boards of Accountancy, 2018). A PLLC or LLP can accommodate the consultant; a PC may not.
Costs and Formalities
Each form carries different running costs. A general partnership needs no filing but leaves everyone exposed. An LLP and a PLLC both require a state filing and, in many states, an annual report and fee, and some states require an LLP or PLLC providing professional services to carry a minimum amount of malpractice insurance. A professional corporation must hold shareholder and director meetings and keep minutes, and if it stays a C corporation, the practice pays income tax on its earnings and the owners pay tax again on whatever is paid out to them. For a four-owner practice expecting to distribute most of its profit each year, that second layer of tax is a real cost. The founders should also sign an operating agreement covering buyouts, a founder's death or disability, and what happens to clients if one of you leaves, because the default rules in the statutes rarely fit a professional practice.
Why a PLLC
The PLLC and the LLP give similar liability protection. The PLLC is preferred because its shield for contract debts does not depend on whether your state adopted the full LLP shield, and because its default partnership taxation matches what you expect. The three conditions are licensed majority ownership, insurance from day one and acceptance of the guarantees (Clarkson et al., 2021).
References
American Institute of Certified Public Accountants & National Association of State Boards of Accountancy. (2018). Uniform accountancy act (8th ed.). AICPA & NASBA.
Clarkson, K. W., Miller, R. L., & Cross, F. B. (2021). Business law: Text and cases (15th ed.). Cengage.
Revised Uniform Partnership Act § 306 (Unif. L. Comm'n 1997).
Treas. Reg. § 301.7701-3 (2024).
The Purdue Global AC502 Unit 7 instructions
The seventh AC502 unit asks you to compare business entity forms for a specific client and recommend one. Open with the recommendation. State the facts that matter: the owners, any licensing limits, major obligations and how work will be supervised. Describe each candidate form on formation, ownership limits, liability for one's own acts, liability for colleagues' acts, liability for contract debts and taxation. Run the same concrete scenarios through every form so differences become visible. Address who may legally own a professional firm. Cover running costs and formalities. Explain your recommendation and its conditions. Cite the partnership act, professional accountancy rules, tax classification regulations and the course text in APA 7.
How the AC 502 Unit 7 example is put together
The sample opens with a recommendation: a PLLC with CPAs holding at least 75 percent, insurance from day one and acceptance of the guarantees. Facts list the owners, the lease, the bank line and six staff. Each form is described in a short paragraph covering formation, shields and tax. Four scenarios follow: a founder's own error, a supervised staff error, the lease and the bank line. The highlighted sentence reduces the choice to colleagues' mistakes. An ownership section applies the Uniform Accountancy Act's majority rule to the consultant, a costs section compares filings, insurance minimums and double tax, and the final section explains why the PLLC edges out the LLP.
Reading the AC502 Unit 7 grading rubric
Entity memos in AC502 earn points for accurate descriptions of each form and for scenario analysis that shows real differences. Graders check that no form is credited with protecting a professional from her own negligence or from a personal guarantee. The rubric rewards memos that address professional ownership limits, since they can rule out a form entirely. Tax treatment should be correct by default and by election. A recommendation with conditions shows judgment. Memos that describe forms abstractly without scenarios, or that recommend a form the facts make unavailable, lose substantial credit. Memo format and APA 7 citations to statutes and regulations are expected. Credit also goes to memos that flag where a given state's statute could alter the answer, since professional entity rules vary.
Common AC502 Unit 7 mistakes, and how to avoid them
Weak Unit 7 memos list the features of each form like a textbook table and never apply them. Students claim that an LLC or LLP protects a professional from her own malpractice. Personal guarantees are forgotten, so the memo promises protection on the bank line. Ownership rules for accounting firms are skipped, and a professional corporation is recommended despite an unlicensed owner. Double taxation of a C corporation is ignored. The recommendation comes at the end without conditions. If your section's founders or profession differ, our writers can run the comparison with your facts and state rules. Some memos also forget that the choice can be revisited: a practice can convert later, but the costs of conversion and the liability already incurred under the first form stay with it, so the first choice matters.
Get an AC502 Unit 7 example written to your instructions
Name the business your Unit 7 scenario describes, its owners and any licensing facts, then list the forms to compare and attach the rubric. Ownership rules come first, then scenarios run form by form ahead of a conditional recommendation, delivered within 24-48h. The opening sample is free and remains an academic comparison; forming an actual firm calls for counsel in that state. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
More AC502 papers and MS in Accounting samples
- AC502 Unit 1: Holder in Due Course Discussion
- AC502 Unit 2: UCC Contract Formation Analysis
- AC502 Unit 3: Ultramares Case Brief
- AC502 Unit 4: Agency and Respondeat Superior Problem
- AC502 Unit 5: Risk of Loss Sales Analysis
- AC502 Unit 6: Article 9 Priority Problem
- AC502 Unit 8: Seminar Reflection
- AC502 Unit 9: Accountant Liability Case Study
- AC502 Unit 10: Legal Risk Memorandum
- AC501 Unit 7: Revenue Arrangement Analysis
AC502 Unit 7 questions, answered
Can an unlicensed consultant own part of an accounting firm?
Often, within limits. Many states follow the Uniform Accountancy Act model, which allows owners without a license so long as licensees hold a majority of the ownership and the firm meets other conditions. Rules differ by state and by form. The example states the general pattern, flags that professional corporation statutes may be stricter, and treats the answer as the first gate.
Does a limited liability partnership protect a partner from her own mistakes?
No. Every professional entity shield leaves individuals liable for their own negligence, and many statutes extend that to people they directly supervise. What the shield protects against is liability for a colleague's error and, in full-shield states, for the firm's contract debts. The example makes that distinction the center of the whole comparison.
Where can I find a free AC502 Unit 7 sample paper?
This page holds a full AC502 Unit 7 entity comparison memo for four founders of an accounting practice, comparing a general partnership, LLP, professional corporation and PLLC across four scenarios, with ownership rules and APA 7 references.
Why does the memo prefer a PLLC over an LLP?
Both shield founders from colleagues' malpractice. The PLLC is preferred because its protection against contract debts does not depend on whether the state adopted the full LLP shield, and its default partnership taxation matches the founders' plans.
Does any form protect the founders on the bank line?
No. The bank requires personal guarantees, and a guarantee is a personal promise, so each founder is exposed on the line whatever form the practice takes. The memo states this as a condition of its recommendation.