1. Sue wants to open a dress shop with her friend Betty. Together they will rent
ID: 461420 • Letter: 1
Question
1. Sue wants to open a dress shop with her friend Betty. Together they will rent space in a small shopping center next to a major highway. Each will contribute one half of the money necessary to start the business and both will be active managers. They will not require a vehicle for operation of the store. The store will have two part-time employees. Their equipment will consist of display racks, counters, computers, televisions, and office equipment. Sue lives in an apartment near the store. Betty lives in a house that she inherited from her grandmother. Sue's personal wealth is $8,000. Betty's personal wealth is $230,000.
Based upon Sue and Betty's business plans, which form of ownership would be best?
A) Sole Proprietorship
B) Corporation
C) Professional Association
1b. Would a corporation be a better choice for Sue and Betty?
A) Yes, because corporations must have at least two owners
B) Yes, because their personal liability would be limited.
C) No, ecause partnerships are specifically designed for two-person situations like theirs.
1c. Sue and Betty have heard about "LLC" as a form of ownership and ask you if they should form as an LLC. Which of the following responses would be correct?
A) An LLC would ot work for you, becasuse you do not have enough "members".
B) An LLC would be acceptable as long as Betty does not play an active role in management of the company.
C) An LLC would be great, because both Sue and Betty would benefit from limited personal liability.
Explanation / Answer
Based upon Sue and Betty's business plans, which form of ownership would be best?
B) Corporation
Based upon Sue and Betty's business plans, corporation form of ownership would be best because owners are Shareholders in a corporation and they have limited liability for the corporation’s debts and obligations. A corporation is a separate entity from its owners. In a corporation shareholders can only be held accountable for their investment in stock of the company and their personal wealth is safe.
1b. Would a corporation be a better choice for Sue and Betty?
B) Yes, because their personal liability would be limited.
Shareholders in a corporation have limited liability for the corporation’s debts and obligations and can only be held accountable for their investment in the company.
1c. Sue and Betty have heard about "LLC" as a form of ownership and ask you if they should form as an LLC. Which of the following responses would be correct?
C) An LLC would be great, because both Sue and Betty would benefit from limited personal liability.
The Limited Liability company (LLC) provides the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership form of ownership therefore it is best suited to Sue and Betty.
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