1. Sue wants to open a dress shop with her friend Betty. Together they will rent
ID: 461497 • 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
Corporation will be ideal for them as in this form of ownership, business will have a separate identity and none of the owner will be personally laible for any of the business debts as business has its own identity.
1b. B) Yes, because their personal liability would be limited.
1c. A) An LLC would ot work for you, becasuse you do not have enough "members".
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