Cleo and James decide to open an organic restaurant, C & J Organies, on Main Str

Question

Cleo and James decide to open an organic restaurant, C & J Organies, on Main Street. They take out a S100,000 small business loan at the bank to get the business started, and they use the money to refurbish the Main Street location with new professional equipment, tables, chairs and restaurant d Unfortunately, in their first year of business, they suffer a $50,000 loss. To make matters worse, Cleo and James also default on their loan payments. ecor 1. IrC & JOrganies is a general partnership with Cleo and James as co-equal partners, how will the business's loss be reported to the IRS? Explain your answer. 2. Assume C & J Organics is a general partnership with Cleo and James as co-equal partners. From whom could the bank seek repayment for the $100,000 small business loan? Explain the options for the bank. What if James is only interested in the partnership if he can be designated as a limited partner? What does this arrangement mean to Cleo and James? If C & JOrganics is a corporation with Cleo and James the sole and equal shareholders, could the bank seek payment of the entire $100,000 small business loan from Cleo individually? Explain your answer. 3. 4. 5. IfC &JOrganics; is a corporation with Cleo and James the sole and equal shareholders, how will the business's loss be reported to the IRS? Explain your answer. 6. Injuries occur in restaurants. Select one form of business organization best suited to limit exposure to lawsuits and explain why you would recommend that form of business organization to Cleo and James.

Explanation / Answer

1.Ans:

The Internal Revenue Service (IRS), Let's say you have a loss in your business for the year. Can you get a tax refund for that loss? Getting some benefit from your business loss depends on the legal type of business you own and whether your investment in the business is "at risk" in whole or in part. It also depends on whether you have other inc how they affect taxes for the business owners.

I will report the business loss through Schedule C (Form 1040), Which includes income, Expenses, cost of goods and other expenses etc.

At-risk rules limit your losses from a business to your amount at risk in the activity. These at-risk limits apply to partners and S corporation shareholders and certain closely-held C corporation owners. At-risk rules also apply to specific types of business This is very complicated. You will need a competent tax expert to sort it out.

2Ans:

A general partnership is an arrangement by which partners conducting a business jointly have unlimited liability, which means their personal assets are liable to the partnership's obligations.

Since all partners have unlimited liability, even innocent partners can be held responsible when another partner commits inappropriate or illegal actions. This fact alone demonstrates how an investor should heed caution when deciding on whether to become a general partner.

3Ans:

General Partnerships

A general partnership involves two or more owners carrying out a business purpose. General partners share equal rights and responsibilities in connection with management of the business, and any individual partner can bind the entire group to a legal obligation. Each individual partner assumes full responsibility for all of the business's debts and obligations. Although such personal liability is daunting, it comes with a tax advantage: partnership profits are not taxed to the business, but pass through to the partners, who include the gains on their individual tax returns at a lower rate.

Limited Partnerships

A limited partnership allows each partner to restrict his or her personal liability to the amount of his or her business investment. Not every partner can benefit from this limitation -- at least one participant must accept general partnership status, exposing himself to full personal liability for the business's debts and obligations. The general partner retains the right to control the business, while the limited partner(s) do(es) not participate in management decisions. Both general and limited partners benefit from business profits.

4Ans:

No, Because they have equal shares and both are responsible to pay the amount. Thought they have equal share if any one of them put more valuable assets for a surety those are responsible to pay.

5Ans:

If C & J Organics is a corporation with cleo and Jems the sole and equal shareholders, the business’s loss to be reported to the IRS - Schedule D, form number 1120 .   

6Ans:

Comply with the Occupational Safety and Health Administration's(OSHA) standards for workplace safety. You can mitigate some hazards inherent in a high risk business by buying the necessary insurance and forming a business structure that limits your personal liability.

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