Heidi Birmingham and James T. Roberts have decided to create a business. They ha

Question

Heidi Birmingham and James T. Roberts have decided to create a business. They have financing available and have a well-developed business plan. However, they have not yet decided which type of legal business structure would be best for them Prepare a memo to the two individuals based on the facts of the case. You will need to decide on whether you will take the approach. In your memo, you will need to provide information about the type of company they are starting and why the structure you have decided upon is the best based on that type of business. In your memo, you will need to provide information about the type of company they are starting and why the structure you have decided upon is the best based on that type of business. Use your readings from the text and at least one additional academic resource to provide support for your response.

Explanation / Answer

Answer:-

The situation in which partnership from of legal structure would be the best choice are outline as follows:-

1) The profits and losses are to be distributed in the proportion of capital/investment made by the owners at the time of incorporating the firm or in any other ratio in which the owners want the profit/loss to be shared has been mutually agreed.

2) If owners wish to avoid the cost associated with incorporating a company. Cost of forming a partnership in comparatively less as compared to a Corporation.

3) The owners want the firm to have a legal status but want to avoid the legal complexities associated with the formation and operation of a company/corporate organization. In other words, the easy with which a partnership firm can be opened/operated can be the motivating factor for considering a partnership from of business. This is particularly true in case of start-up companies.

4) The owners wish to treat the income generated from the business as their personal income rather than business income in order to reduce overall tax liabilities.

5) Irrespective of the situation in which a partnership business can be formed or should be preferred, it is important to consider the fact that a partnership business has many disadvantage, the most important of which is unlimited liability of the partner. Therefore, it is advisable to open a limited liability partnership (LLP) rather than forming an unregistered partnership.

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.