Question

(2) Juhaina and Assma are two friends who are considering starting a fashion designer business together. They are unsure as to which business structure would be more appropriate for their business and they have approached you for advice. Write a Memo advising them on which business structure they should implement and why-250 words .

note: mention the advantages and disadvantages to each type of business entity.

Answer 1

Juhaina and Assma should opt for Limited Liability Partnership. LLP is a type of business structure in which two or more partners can form a business structure. This type of business has hybrid features of company and sole proprietors. There are various advantages of LLP:

• Separate Legal Entity - LLP is a separate legal entity separate from its members. LLP can su and be sued in its own name, acquire property in its own name.
• Limited Liability - The liability of members is limited to the extent of their own contribution i.e., personal assets of members are not used in case company is unable tio meet its liabilities, which is not available in other forms such as sole proprietor and partnership.
• Easy to wind-up and form : LLP is not only easy to form but is also easy to wind up as compared to other forms of business structures such as ccompanies.
• Lesser compliance requirements - As compared to limited companies, there are lesser requirements in tersm of compliuances in LLP. This results in lesser legal expenses.

However, LLP has also some demerits that are important consider:

• Rights and powers of partners: An LLP can be structured in such a way that one partner has more rights than another. So it does not have one vote per share system like limited companies. There can be conflicts between partners who may feel compromised for their rights and powers,
• Greater penalties: An LLP’s compliances are less but if those lesser compliances are not met, penalty charges are high.

In the above points, in addition to advantages and disadvantages of LLP, compared points of other business structure are also given., so aas to help the friends decide the best form of business structure.