Dr. Sweet purchased 1,000 shares of Acme Dental Associates in 2008 for $10,000. This represented a...

Dr. Sweet purchased 1,000 shares of Acme Dental Associates in 2008 for $10,000. This represented a 20% equity interest in Acme, which is an S corporation. This year, Acme defaulted on a $90,000 bank loan.

1.) To what extent can the bank demand that Dr. Sweet repay the loan?

2.) What if Acme were a partnership in which Dr. Sweet was a 20% partner?

3.) Would your answer change if Dr. Sweet were a 20% limited partner in Acme?

4.) What if Acme were a LLC?

Expert Solution

Solution-

1. An S Corporation has an Advantage of Limited liability protection i.e. owners are typically not personally responsible for business debts and liabilities.Therefore Dr. Sweet would not be personally liable to pay any default.

2.In case Acme was a partnership firm then Dr. Sweet would have been liable to pay 20% of Defaulted Bank Loan i.e. $90,000*20% = $18,000 which he was personally responsible.

3.Yes because a limited partner is one who does not have total responsibility for the debts of the partnership. The extent a limited partner can lose is his investment in the business.In that Case Dr. Sweet Liability would have been to the extent of $10,000 only i.e amount invested in the business.

4. A LLP also has an Advantage of Limited liability protection i.e. owners are typically not personally responsible for business debts and liabilities.Therefore he would not be personally liable to pay any default.

ekkarill92 answered 1 year ago

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