John Thompson and Richard Allenby wish to enter the camping equipment manufactur

Question

John Thompson and Richard Allenby wish to enter the camping equipment manufacturing business. If the following facts exist, which type of business organization would be most advantageous? (Possible answers: Proprietorship, Franchising, General Partnerships, Joint Venture, Limited Partnership, C-Corperation, S-Corperation, Limited Liability Companies)

A. Thompson is an expert in the field of camping gear production and sales but has no funds. Allen by knows nothing about such production but is willing to contribute all necessary capital.

B. Camping gear production requires large amounts of capital, much more than Thompson and Allenby can raise personally or together; however, they wish to control the business.

C.Some phases of production are rather dangerous, and a relatively large number of tort judgments may be anticipated.

D.Sales will be nationwide.

E. Thompson and Allenby are both sixty-five years old. No profits are expected for at least five years, and interruption of the business before that time would make it a total loss.

F. Several other persons wish to put funds into the business but are unwilling to assume personal liability.

G. The anticipated earnings over cost, at least for the first few years, will be approximately $70,000. Thompson and Allenby wish to draw salaries of $25,000 each; they also want a hospitalization and retirement plan, all to be paid from these earnings.

H. A loss is expected for the first three years, owing to the initial capital outlay and the difficulty in entering the market.

Explanation / Answer

A-General partnership because both of them contribute to the new venture through skills and capital

B-S-corporation, by this they can raise money from different financial instituttion which can provide them because of being a coproration and they don't have to pay corporate tax.

C-Limited partnership, their liability will be limited in this form of organisation.

D-Franchising- They will penetrate the sales in nationwide by giving franchise to different persons in different oarts

E-Proprietorship- The owner will suffer the loss in this initial stage.

F-Limited Liability Companies because liability of the investors will be limited in this form of organisation.

G- C-Corperation-They can choose this to pass through entity.

H-Joint-venture-It will be best to the situation.

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