Question

1. Question: Alan Dershowitz, a law professor famous for his wealthy clients (O. J. Simpson, among others), joined with other lawyers to open a kosher delicatessen, Maven's Court. Dershowitz met with greater success at the bar than in the kitchen--the deli failed after barely a year in business. One supplier sued for overdue bills. What form of organization would have been the best choice for Maven's Court? Strategy: A sole proprietorship would not have worked because there was more than one owner. A partnership would have been a disaster because of unlimited liability. They could have met all the requirements of an S corporation or an LLC. (See the this section.)

Answer 1

As already mentioned in the strategy, the sole-proprietorship and Partnership forms would both be not suitable in the above case. With reference to owners’ liability purposes, in case of Limited Partnership (LP), it is managed by one or more general partners in order to control the regular activities of the business however the liabilities of these partners are unlimited and therefore the personal assets of these partners could also be attached when discharging any dues incurred by the firm as the partners are obliged and liable for repaying any debts due by the firm while in case of a limited partner who is part of this Limited Partnership firm, the liability is limited as the partner does not participate in the regular affairs of the firm. However, even this could not have worked because none of the lawyers would be willing to do so.

However, S Corporation could certainly be a possibility because here the advantage the owners would have got would have been that in spite of continuing to enjoy the benefits of limited liability, they could reduce their losses by setting it off against income from other sources towards their investments. On the other side, to therefore overcome the limitations of the personal liability, LLC could be fruitful since it would offer more elasticity by serving as the general partner of a limited partnership by providing the protection in the lines of what is available to the Corporate in terms of limited liability approaches. Accordingly, when a participant is undertaking the firm’s activities, he is not personally liable for the debts of the entity.

Therefore, Maven’s Court could be an LLC which is better than the other forms of business as the personal assets cannot be attached to compensate for the firm’s obligations.