Question

Question #2(a) Sansa is an entrepreneur and is looking to start her own business. Her sister, Arya, is interested in investing in the business with Sansa, but Sansa’s sister is concerned about being personally liable if the business does not do well. Sansa also would like to limit Arya’s personal liability. Which business form should Sansa and her sister consider if Sansa wants to retain sole control over the management of the company? (5 points) Question #2(b) Which business forms should Sansa and her sister consider to limit both of their personal liability? (5 points) Question #2(c) Discuss one disadvantage of each of the business forms you are suggesting for Sansa and her sister. (5 pts)

Answer 1

#2 (a) SANSA AND ARYA SHOULD ADOPT PARTNERSHIP FORM OF BUSUINESS AS THEY CAN GET REGISTER THEMSELVES UNDER PARTNERSHIP ACT OF U.S. THIS ACT WILL PROVIDE SANSA SOLE CNTROL OVER THE MANAGEMENT OF COMPANY AND HER SISTER ARYA WILL NOT BE PERSONALLY LIABLE.

THE DISADVANTAGE OF THIS FORM OF BUSINESS IS THAT THEY CAN NOT RAISE FUNDS FROM PUBLIC BUT THEIR BUSINESS WILL BE FINANCED BY THEIR OWN CAPITAL AND MAXIMUM THEY CAN REACH TO BORROWED FUNDS BUT CANNOT RAISE MONEY FROM CAPITAL MARKET AS THIS MAY LEAD TO DILUTION OF CONTROL OVER MANAGEMENT BY SANSA.

#2 (b) BOTH THE SISTERS SHOULD ADOPT LIMITED LIABILITY PARTNERSHIP AS THIS WILL LIMITED PERSONLA LIABILITY OF BOTH SISTERS.

THE MAIN DISTADVANTAGE OF THIS FORM F BUSINESS IS THAT THERE WILL BE DILUTION OF CONTROL AS THIS FORM INCLUDES THE CONCEPT OF RAISING MONEY FROM PUBLIC. ALSO TAX LAIBILITY IS MORE AND THEY BOTH WILL BE HELD MORE RESPONSBLE FOR BUSINESS ACTIVITIS TO ALL STAKEHOLDERS.