Question

The Facts: Enzo and Marie have come to your office for some business organization advice. They plan to set up a flower shop. Enzo will work in the store. Marie will invest the original operating capital of $100,000. They want to share management authority, profits and losses equally. They plan to distribute all of the profits from the business to themselves as they are earned.

(1) List TWO benefits a member-managed Limited Liability Company (LLC) would provide Enzo and Marie based on the fit between the basic business planning characteristics of such an LLC and their expressed business objectives. (Worth 5 points)

(2) Assuming they elect to do business as an LLC, what advice would you give Enzo and Marie about signing any agreements with third parties before the LLC is formed? (Covered this problem in class and made a statement about it) (Worth 5 points)

(3) When does the LLC's existence begin? (Worth 2 points) (

4) Gerard is an incredible candy maker and would like to go into business for himself, but he needs some money to get started. His parents want to help him get his feet on the ground and start his career. They agree to invest in his business; however, they don’t want to be involved in any part of the business, they are just trying to help him out. Gerard asks your supervising attorney for advice on how to organize his business. The task is assigned to you. What business form would suit the needs of Gerard? Why? What are the advantages of this business form?

5) Gerard may have two different business forms that could be used. Name each and provide a brief description of the benefits and detriments of each one. Then which of those two would you recommend and why? (Worth 10 points)

Answer 1

Answer 1- The two benefits of LLC are stated below=

The partners will be treated as separate from the partnership entity

The partners will be having limited liability equal to their contribution to the partnership

Answer 2= If before making as LLC, an agreement has to be made by the third party, it is important for the proposed members of LLC to have the well-documented terms and conditions related to the liabilities and benefits from the partnership as the partnership will be termed as a general partnership and the partners may have unlimited liability in case of any lawsuit or losses.

Answer 3- LLC will come into existence when the partners apply and file for the registration of the LLP with the registration of partnership and they get the certification for the same.

Answer 4= The two possible form of business can be sole proprietorship in which the person has to manage the entire operation of the business along with the management of the funds While the second option is to look for the other person and to form a partnership firm with the help of the other individual.

Benefits of partnership firm= The partnership firm has limited liability up to the extent of the contribution of the different partners. This type of business has better management and effective decision making Funds are easily available and better management of the business is predicted.

Disadvantages of partnership= There is less freedom of operations and decision making, There are some regulations and reporting compliances to follow

Advantages of sole proprietorship= The entire business is run and governed by a single person so the freedom of business operation is there. The decision is made quickly, There are no added registration requirements.

Disadvantages of sole proprietorship- Limited availability of the fund and other resources. Unlimited liability and management become difficult with the increased size of the business