Question

John leases an office and buys computer equipment. Initially, to pay for the lease and the equipment, he goes into the business of designing applications for smartphones. He also has an idea for a new software product that he hopes will be more profitable than designing apps. Whenever he has time, he works on the software.

Selecting a Business Organization. After six months, Mary and Paul come to work in the office to help develop John’s idea. John continues to pay the rent and other expenses, including salaries for Mary and Paul. John does not expect to make a profit until the software is developed, which could take months. Even then, there may be very little profit unless the product is marketed successfully. If the software is successful, though, John believes that the firm will be able to follow up with other products. In choosing a form of business organization for this firm, what are the important considerations? What are the advantages and disadvantages of each basic option?

Answer 1

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EXPLANATION:

John is the sole proprietor of a business that designs web pages. He leases an office and buys computer

One important consideration for John choosing an LLC would be that he could raise enough capital for business and also limit his personal liability to the extent of his capital contribution .

Since ownership and control are differently placed John will be able to reward Mary and Paul by giving then some revenue sharing points .

The form of organization called the limited liability corporation has features of a corporation which will enable it to raise capital and be structured in a way like that of all corporations and at the same time allow John to secure his liabilities to the extent of his capital .

The owners are members, and the duration of the LLC is usually determined when the organization papers are filed. The time limit can be continued if desired by a vote of the members at the time of expiration. The advantages are that the limited liability to the extent of assets; continuity of life; centralization of management; and free transferability of ownership interests.