Question

Please do not copy from other post or the copy from the web

Creating Sunburst: Legal and Organizational Considerations

Ravi, who has a degree from State University in mechanical engineering, was previously employed by a start-up firm in New York City. He worked long hours for little pay, but when the business sold, his stock options paid off. As a result, he now has some time and $100,000 to invest in Sunburst. More importantly, Ravi has the knowledge and know-how to setup and manage production. Tanya, a friend you met through your alumni association, has a degree in marketing and has a few years of experience working in marketing roles. The three of you agree to form the start-up team for Sunburst.

The team estimates that it will take approximately two years to develop Sunburst into a marketable product, but that once the product is on the market, there is excellent growth potential. You know that you will need additional investors and expertise to get the business off the ground. You need to develop a plan for a business form that will be attractive to potential investors and partners, and will address their concerns.

Finance and politics are not your strong suits, and you aren't very interested in the day-to-day business operations of Sunburst—you'd rather spend most of your time inventing new products. The start-up team believes that the business will need someone with finance skills. You also need a visionary CEO. Ideally, this person should have connections and experience in the solar industry. You have asked Elon Helios, a forward-thinking figure in the solar energy field, who is known for being a rainmaker. Helios has expressed some interest, but it will take significant incentives to get him on board.

Although Tanya has little money to invest, she has excellent networking skills, and she has found a potential investor, Carmen Santiago, who thinks that the product may have potential. Santiago does not want to be involved in running the business.

Ravi has identified a good candidate with finance experience. This individual does not want to invest in the company, but he would expect a good salary and benefits.

The team has created a tentative business plan, which has two target stages: The first stage involves local (geographical region) manufacturing with a focus on local solar energy providers; the second stage will begin five years from start-up, at which point the business will expand nationally (or possibly internationally) targeting the market of all potential solar energy customers. The potential investors and participants want to know what legal form the business will take before they agree to participate.

What are the different legal forms of business that you might consider? You remember that there are at least six factors that will influence your choice:

creation and maintenance

continuity

ownership and control

personal liability

compensation and division of profits

taxation

What is your proposed choice for the legal form of business? Include your reasoning based on the preceding six factors and any other relevant factors.

Answer 1

Proposed Choice for legal form of business: Partnership Firm

Creation and maintenance:

Partnership is a contractual agreement between the partners to run an enterprise. Hence, it is relatively ease to form. Legal formalities associated with formation are minimal. Though, the registration of a partnership is desirable, but not obligatory.The partnership firm may be carried on by all partners or any of them acting for all. While dealing with firm’s transactions, each partner is entitled to represent the firm and other partners.For Finance Activities We can appoint Accountant to carry out accounts work.

Continuity: Firm can be continued for forseeable future untill mutual relationship exists between the partners

Ownership and Control:

Entire Ownersip and control vests with the partners who are entilted to carry on business since they have invested capital they will have personal ease of doing business for more profits as if it is their own and they are only entitled for Profits.

Personal Liability: The liability of Partners in the firm is Joint and several that means liability is unlimited

Compensation and benefits: Every partner is entitled for Compensation as fixed in the Partnership deed and Share in Profits fixed.

Taxation: Since the firm is Starting stage the profits generated will have some tax benefits for initial years and once taxable in the hands of Firm the Share of Profits received by partners from Firm is Exempt