Tricia and Troy are starting a pharmacy. After meeting with their attorney and a

Question

Tricia and Troy are starting a pharmacy. After meeting with their attorney and accountant, they decide they want to begin using the simplest form of business organization they can. However, their primary concern is personal liability. They don't want to jeopardize their personal assets for business obligations. They'll also hneed to obtain financing to get their business started. A few investors have expressed some interest, but they'll invest their money only if the receive some stake in the business or some possiblity of return for their investment. The investors want to have no part in running the business and want to be sure they have no liability for business debts. What form of business organization would you recommend? Why? Explain why other forms of business organizations wouldn't meet their needs.

Explanation / Answer

I will recommend a partnership type business. The benefit of opening a business as a partnership is that no formal state registrations are required. Partners can handle all matters for their partnership, as they wish, without having to create any partnership agreements, bylaws, or articles. They can also, if they decide to, simply end the business by stopping to makes sales. Corporations, for example, must formally dissolve. Further, partners can begin their business immediately and also do not need to follow any statutory requirements, such as those of meetings or minutes, which corporations must. A partnership also allows partners to file taxes on their personal income taxes for any business profits, meaning that the owners avoid double taxation. In addition, partners are also considered the full owners of the business as a partnership is not a legal entity separate from its owners. This, however, is the biggest risk Tricia and Troy face by starting a partnership. Because partnerships are not considered separate legal entities from their owners it means the owners, partners, do not have limited liability protection. Without limited liability protection owners become personally liable for the debts and obligations of their business. What this means is that both Tricia and Troy may have to use their personal bank accounts, homes, and other assets to pay any business creditors or any court judgments against the business if they are sued. Because the business they are starting is a pharmacy, meaning that the liability for negligence may be great due to any medication errors, this is very risky for Tricia and Troy. Another risk is that partnerships cannot continue to exist past the death of their owners or if one partner resigns. This means that if either Tricia or Troy die or if either one wants to leave the partnership, the other cannot continue under the same name. Where a large amount of goodwill has been built under a business name this may make the use of any new name less profitable.

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