Question

You and your best friend, whom you have known since the 5^th grade, have decided to make your childhood dreams a reality by starting a business together. You graduated business school with an MBA while your best friend recently earned an advanced degree in engineering. The company will design and manufacture revolutionary tailgating furniture that is made from a new composite material that has been recently patented by your best friend. With this new material, the furniture will fold and condense into a very small package. This will enable the average family sedan to hold a five-piece lounging set. You plan to handle business matters, while your friend handles design and manufacturing. As part of the business matters, you have located a financing and credit card company to contract to help your customers purchase your goods. You have also located a real estate agent to help you locate office space. You have decided to rent your space and authorized the agent to enter negotiations for you if he finds a space meeting your price point and retail space needs. Your friend has also located a manufacturing third party that will produce your goods.

Instructions

1. Decide the best entity type to which to start your business. Carefully speak to why this suits the business.

Answer 1

Answer:

Which businesss structure should be selected is depend upon the tax cosequences,statutory compliance requirement and liablity of enterpreneurs.

From the given fact,Limited Liablity Corporation(LLC) is best suitable form of business structure.

LLC is a hybrid of a corporation(with an ability to limit the persoanl liablity) and a partnership(with an ability to assess profits and losses to individuals),this type of organisation provides a flexible structure to achieve these ends.Essentially the advantages of partnership and corporations are combined in an LLC,mitigating some of the disadvantages of each.

Advantages of LLC are as follows:

i)A LLC functions as a limited liablity corporation but taxed and operated in a way that is most cosistent with a Partnership.

ii)Limits liablity to the company owners for debts and losses.

iii)The profits of the LLC are shared by the owners without double taxation.

However,there are some disadvantages of LLC which are as follows:

i)Ownership is limited by certain state laws.

ii)Agreements must be comprehensive and complex

iii)Has high cost due to legal and filling fee.

but cosider the business prospective,all the above disadvantages will not outweigh the advantages that will accrue from LLC.