Question

Answer the following question in a minimum of two paragraphs.

Bob wants to form a company with Bill but is concern about expenses and taxes. Bill is known to be careless with money and seems to always have debt issues. If you were to advise Bob, what you recommend regarding his options in forming a business (partnership, corporation, Limited Liability Company)? Explain the consequences of your options.

Answer 1

The most suitable form of business that Bob can choose for his company is an LLC. It is a form suitable for new small businesses that involved more people but require limited liability of each. A partnership firm will not provide limited liability and thus all expenses, liabilities will have to be shared along with the profits and decisions. This will make it difficult to run the business with Bill's careless money spending behaviours. A corporation will provide limited liability advantage but has double taxation involved which will increase the taxation and expenses issue for Bob.

An LLC will get him the advantage of limited liability of a corporation and operational flexibility of a partnership which is required in a small newly established business. The taxation in this form will also be like a sole proprietorship and hence can save from double taxation. In this form, Bob will not be liable for Bill's liabilities as the members are not liable for each other's decisions and actions in the company. The profits and losses are moved to the LLC members from the business which is then filed in their tax return report. Bob can act as the managing member in this form and take care of the operational part of the business.