Question

Connor, Ali, Madison, and Sam recognize an important early step in creating GC is to agree on a business organizational form and clarify their roles because each has different priorities and interests about what they expect and want from the business. Businesses are created in one of several organizational structures, or forms. Choosing a business structure involves several factors, including which structure is most favorable for the business and its owners. The goal for GC is to minimize legal risks and liabilities, as well as tax liabilities, for the owners and the business. The owners understand a business organizational structure can achieve this goal, and can define their managerial roles and responsibilities clearly to satisfy their interests and maximize their areas of expertise. Connor, Ali, Madison, and Sam agree that weighing and balancing advantages and disadvantages for the company and its owners is the heart of the process of choosing a business structure. The owners have met privately to discuss their decision. They are now ready to meet with TLG for further analysis, negotiation, and a decision regarding the Green Clean business structure. Instructions:

To assist in this process, Winnie and Ralph asked you to assess several business structures and their characteristics, advantages and disadvantages for Green Clean. Those structures are: General Partnership

Limited Partnership

Limited Liability Partnertship

General Corporation

Limited Liability Company

Evaluate and synthesize this information, and do the following. ( Label all parts.)

A. Create a comparison matrix that shows the 5 types of business structures and compares and contrasts type of structure. You may use the chart format in the hyperlink above, or create a similar chart, or create an excel chart.

B. Write a memo to Winnie and Ralph to be discussed with GC owners:

1. recommending a business structure for GC that best minimizes tax and personal liability for the new business and its owners

2. explaining and justifying your recommendation, specifically and in detail.

Format: Memorandum TO: Winnie James, Ralph Anders

FROM: (your name)

RE: Green Clean Business Structure

DATE: 1. 2.

Answer 1

Assessment of Business structures, characteristics, advantage and disadvantage:

1. General Partnership - A General Partnership (GP) is an agreement between partners to establish and run a business together. It is one of the most common legal entities that do business. All partners in a general partnership are responsible for the business and are subject to unlimited liability for business debts.

Advantages of a General Partnership

• A general partnership is easy to establish

• A general partnership faces simplified taxes

• A general partnership is easy to dissolve

Dis-advantages of a General Partnership

• Partners in a general partnership face unlimited liability

• Partners are liable for each other’s action

2. Limited partnership (LP) - In a limited partnership, at least one partner possesses unlimited liability (the general partner) while the other partners are subject to limited liability (limited partners). Limited partners are not involved in the active management of the business and cannot lose more than the money that they have contributed to the partnership.

3. Limited liability partnership (LLP) - In a limited liability partnership, there is no general partner. All partners are allowed to be involved in the management of the company and all partners enjoy limited liabilities. Limited liability partnerships are preferred by professional service businesses because the partners in an LLP are not liable for negligence claims made against other partners.

4. General Corporation - This is the most common corporate structure. The corporation is a separate legal entity that is owned by stockholders. A general corporation may have an unlimited number of stockholders that, due to the separate legal nature of the corporation, are protected from the creditors of the business. A stockholder’s personal liability is usually limited to the amount of investment in the corporation and no more.

Advantage of General Corporation

• Owners’ personal assets are protected from business debt and liability
• Corporations have unlimited life extending beyond the illness or death of the owners
• Transfer of ownership facilitated by sale of stock
• Change of ownership need not affect management
• Easier to raise capital through sale of stocks and bonds

Disadvantage of General Corporation

• More expensive to form than proprietorship or partnerships
• More legal formality
• More state and federal rules and regulations

5. Limited Liability Company -

LLCs have long been a traditional form of business structure in Europe and Latin America. LLCs were first introduced in the United States by the state of Wyoming in 1977 and authorized for pass- through taxation (similar to partnerships and S Corporations) by the IRS in 1988. With the recent inclusion of Hawaii, all 50 states and Washington, D.C. have now adopted some form of LLC legislation for both domestic and foreign (out of state) limited liability companies.

Many business professionals believe LLCs present a superior alternative to corporations and partnerships because LLCs combine many of the advantages of both. With an LLC, the owners can have the corporate liability protection for their personal assets from business debt as well as the tax advantages of partnerships or S Corporations. It is similar to an S Corporation without the IRS’ restrictions.

Advantage of Limited Liability Company

• Protection of personal assets from business debt
• Profits/losses pass through to personal income tax returns of the owners
• Great flexibility in management and organisation of the business

Disadvantage of Limited Liability Company

LLCs often have a limited life (not to exceed 30 years in many states) Some states require at least 2 members to form an LLC, and LLCs are not corporations and therefore do not have stock — and the benefits of stock ownership and sales.

As with the S Corporation listing, these lists are not inclusive. For more detailed information, please be sure to speak with a qualified legal and/or financial advisor.