Question

George Wright and Sal King are thinking about opening a new restaurant. Wright has extensive marketing experience but does not know that much about food preparation. However, King is an excellent chef. Both will work in the business, but Wright will provide most of the funds necessary to start the business. At this time, they cannot decide whether to operate the business as a partnership, corporation or LLC.

Prepare a written memo to Wright and King describing the advantages and disadvantages of each organizational form. Also, from the limited information provided, recommend the organizational form you think they should use.

Answer 1

TO: Mr. George wright and Sal King

FROM: Mr. A

Date: xx/xx/xxxx

Subject: Analysis of forms of business and suggestion on best suited alternative for your business.

I'm writing you to inform that following are the points representing the pros and cons of each form of organisations you can choose to continue with your business.

PARTNERSHIP

1. It is less formal and legal obligations are low

2. It is easy to get started because there's no need of registering with any authority.

3. But it has no independent legal status.

4. Liability is unlimited.

5. A limited company has better tax benefit when compared to a partnership firm.

CORPORATION

1. Here there is limited liability.

2. It is a seperate legal entity.

3. It is easier to raise capital.

4. Seperation of ownership and management.

5. Double taxation of dividends.

6. It also requires extensive record keeping.

LLC ( LIMITED LIABILITY CORPORATION )

1. Liability protection in LLC is similar to corporation.

2. Very few restrictions on ownership.

3. No annual shareholder's meeting is required.

4. Transfer of ownership is difficult.

5. High fees for formation and annual maintainance and compliances for formation make it difficult

ANALYSIS AND CONCLUSION:

Hence, considering the initial costs and compliances to be performed, partnership is the best alternative for you to proceed with the business. Although corporation and LLC have limited liability, the nature of your business is suited to partnership form since it is managed by two and only one of you is a working person and the legal compliances are low in partnership when compared to others.