Question

Ryan and Robin met at Rockhurst university and after graduation in 2020; they decided to form a business to market American flags, “buy American” bumper stickers, and other similar merchandise. The merchandise would be manufactured in China and sold initially only in Missouri. Ryan wants to operate the business as a partnership; while Robin wants to organize the business as a regular C corporation. Limit your answers for the first two question to these two business forms (3 points each)

a) Explain Ryan’s position. Be specific.

b) Explain Robin’s position

They have decided initially to do business only in Missouri. Their medium range plan (in the next 5 years) is to do business in 30 American states. Their long-term plan (in the next 20 years) is to be a multinational public firm with shareholders all over the world.

1. What business form do you recommend for the short term? Why?

2. What business form do you recommend for the medium term? Why?

Answer 1

(a): Ryan’s position is to operate the business as a partnership. Ryan wants to do this to avail the advantages and benefits of partnership during the initial years of operations of their business. Operating a business as a partnership will allow Ryan and Robin to start their business easily without too many legal formalities. Start-up costs will also be low. Ownership and control are combined and this will also lead to better decision making.

(b): Robin’s position is to start the business as a C corporation. Robin is taking this position in a bid to ensure that there is limited liability exposure for both Ryan and Robin. Secondly there will be unlimited growth potential as access to capital becomes easier for a C corporation as they can issue shares if the need arises. They can also easily get loans from banks and financial institutions provided their financial numbers indicate sound financial health of the company.

(a): For the short term I will recommend them to use partnership as their business form. This is because initially, in the short term, they will be doing business only in Missouri and hence the scale and size of their business will not be very large. Partnership form of business will enable them to start off their business at low costs and get moving easily.

(b): For the medium term I will recommend them to operate as LLC (limited liability corporation). In the medium term they will be doing business in 30 American States and hence their scale and size would have expanded. Hence there will be need for incremental capital. Additional funds can easily be raised by LLC. Moreover there will be the advantage of personal liability protection.