Question

Question 3 (30 Marks) 30 MARKS A. Read the case and answer the questions given below. DB Bikes David recently opened a small bike shop after completing a course in small business management at a local community college. At first he needed no assistance as business was slow and he had all the skills needed to run the business. As the business began to flourish, however, he could no longer do everything himself. Also, he was frequently in a financial bind. To solve both problems--but especially to gain more capital-David asked Becky to join him in the venture. They formed DB Bikes as a general partnership. They each had an equal share in the business and drew the same amount of salary. They used the profits from operations to expand the business. They also shared liabilities equally as they arose. As the business continued to expand, however, they realized they could not manage it alone, as they did not have enough funds to meet the growing customer demand. So they decided to incorporate and sell shares to the public. Because there were only 15 stockholders, David and Becky decided to become an S corporation. The business became DB Bikes Inc. Questions 1. What form of business was DB Bikes when David owned it alone? [4 MARKS] . 2. What kind of business did it become when Becky joined the business? [4 MARKS] 3. What kind of partnership did David and Becky have? Explain the difference between this and other kinds of partnership. (10 MARKS] 4. What kind of business did it become when they sold shares and became an S corporation? Do you think they made the proper decision? Why or why not? [12 MARKS]

Answer 1

1. DB Bikes Business was sole proprietorship when David owned it alone.

2. When Becky joined in business, It was changed to General Partnership Firm from Sole proprietorship.

3. General Partnership.

There is 2 types of partnership like Limited liability Partnership and General Partnership.

Both having difference are as follows..

Limited liability Partnership (LLP) :- Liability of partners when it was over liability than assets than liability of partners will be limited to the share/capital amount they invested. Where as

General Partnership :- Liability of partners will be extended to personal asset when the due.

4. When they sold share to public and became "S Corporation", It will be Public Limited Company. They can get fund through issue of shares.

Yes decision is proper.