Question

Sarah and Rolfe are excited about starting a business together! They want to start manufacturing unique pieces of furniture and selling them locally and then expand nationwide. Sarah is single and plans on working on growing the business 24/7. She currently rents an apartment, drives a used car and only has about $1,000 in her bank account. Rolfe is married and works full-time for Amazon in customer service and his partner works as an emergency room nurse. Rolfe can only devote about 10 hours a week to the business. He and his partner make about $180,000 per year combined, own a home and have about $50,000 saved in their bank account. Currently, they are planning on having children in the near future.  

Based on the above facts, if Sarah and Rolfe want to create a formal business entity, what type should it be? Explain why, based on what you've learned from your reading and the facts listed above. You can include any assumptions as some facts may be missing that you would want to know, but please state what assumptions you've made in your answer.

Answer 1

Based on the above facts, If Sarah and Rolfe want to create a formal business entity. They can go for ' Limited Liability Partnership' .

Limited liability partnership is a partnership in which some or all partners have limited liability. It therefore can exhibit elements of partnership. In Limited liability partnership, each partner is not responsible or liable for another partner's misconduct or negligence.

  Based on the above information we can see that Rolfe is more financially capable as his partners is also working and they make $180,000 per year and have $50,000 saved in their bank account on the other hand Sarah she is single and as about $1,000 in her bank account.

But Sarah plans to work 24/7 for growing the business on the other hand Rolfe who is already working for Amazon he can devote about 10 hours a week.

Being on limited liability partnership there are certain benefits for both the parties:-

(a) Minimum 2 partners required.

(b) Low formation cost.

(c) Limited liability.

(d) Tax benefits.

(e) No compulsory audit required.

(f) No limit on owners of business.

(g) Savings from lower compliance burden.