Question

Bill, Dave, Courtney, and Kyle all plan to become owners of a business called Bob's Burgers: The percentages are broken out below how the company is going to be broken up.

 Bill, 50%  Dave, 20%  Courtney, 5%  Kyle, 25%

Dave has mapped out a business plan calling for modest sales and no or little profit in the first year, but once things catch on, he projects considerable growth and profit potential as follows:

Year	sales	Net Income
1	$1 million	$0.00
2	$5 million	$500,000
3	$15 million	$2 Million
4	$30 million	$5 million
5	$50 million	$10 Million

1. Question what should they form and why ? Should they form a partnership, an S corporation, a C corporation, or some other type of business entity. Please explain why.

2. How does each business form addresses owner concerns related to personal liability, return on investment, and tax costs related to compensation. Please explain as well for this such small bussiness starting off. Thanks

Answer 1

Answer

Part 1.

As we can see in this rate of profit volume is increasing every year but not as much in the ratio of sales .If they agree to take risk on there own then they can form this business as a partnership firm.

If they are not sure profit & sales relation they can go for other form of business entity such as Limited liability Partnership firm, or A,B,C,D corporation.

Reasons of above category of business firm to go for partner ship firm is best alternative because firm has more legal and tax relaxation than other forms of businesses.

Part 2.

In partnership firm all the business liability falls on all the partners in their profit sharing ratios so in the event of loss all the partners has to bear the loss so this is more risky choice of business also they have to pay tax only if they made the profit above basic margin of tax.

In corporation liability is limited to share in the corporation and up-to unpaid share , so this is good form of business from the point of view of liability ,But they have to pay minimum tax even they do not earn profit.

one of trending form of business entity is Limited Liability Partnership firm they can enjoy all the benefits of corporations as well as partnership firm .

Suggestion . they can go for partnership firm because easy to do business less legal formalities and more benefits distribution among partners.