The company should operate as a C corporation. There are a few reasons for this choice of business structure. As a sole proprietorship, Bob faces a number of challenges, including the reality that his legal downside includes his personal property. Maintaining his business as a sole proprietorship will also have tax and timing implications for when he wants to pass the business on to his daughter. Therefore, the sole proprietorship should be a non-starter. He has the option of S and C corporations, and there are specific implications for each of these. An S corporation elects to “pass corporate income, losses, deductions and credits through to their shareholders for federal tax purposes” (IRS.gov, 2020). The company is eligible to be an S corporation, as it meets the criteria that the IRS has laid out. One of the risks, however, is in the transfer of ownership to Mandy, in particular if she would be expected to cover any losses. While the business might be stable and profitable for many years, one never knows when a pandemic will render the business unprofitable. Losses in the event of legal action would be worse, but an S corporation...

However, she would have to pay taxes on her share of the profits of the dealership, even if she herself earned no cash and the dealership reinvested those profits back into the business. Thus, Mandy would find herself with a tax bill that she might not be able to pay.
According to the IRS, a C corporation is a separate tax-paying entity. This structure would mean that the company pays taxes directly to the IRS, meaning that Mandy would not have a tax burden based on her ownership of the dealership. The tax rate might also be lower. Bob could also transfer the business to Mandy at a time that brings about the lowest combined tax burden on the transfer – Bob would face a capital gain on an S corporation and so there could be significant timing implications for the transfer. Bob definitely wants to have a succession plan for his retirement, and if Mandy is part of that, this is fine, but he should also be aware that the succession plan is a holistic thing, not just a transfer of ownership to the next generation, especially at an age when the daughter’s interest in running that business…