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Choosing the Appropriate Business Ownership Structure

Case Study 2

Ralphael and Mitch have general commitments from several people to invest in their exotic animal park. Mitch wants to form a limited partnership, but realizes that every limited partnership must have at least one general partner who manages the business and is subject to unlimited liability for the business and its debts. Mitch thinks this is no problem because the general partner can be a "shell" corporation with Mitch and Ralphael at its helm. Ralphael thinks an LLC might be the best approach because the investors are relatives that have opinions on the business, and some are professionals who could offer valuable expertise. Compare the advantages and disadvantages of a limited partnership with an LLC and determine the most appropriate form of business for this venture.

Case Study 3

James, Annette, Vanessa and Andrea are undergraduate students studying business administration. James came up with an idea for a new product that he believes will make the four of them very rich. His idea is to manufacture cappuccino machines for the average business organization. The company would also supply a variety of specially blended coffee. James's personal experience qualifies him to be a general manager of the new firm. Annette is a natural salesperson. Vanessa is an excellent cook and enjoys experimenting with different flavors in coffee. Andrea has little interest in sales or management, but she would like to invest a large sum of money that she inherited from her uncle. The group of students decided to name their business "JAVA." Thoroughly discuss the factors that James, Annette, Vanessa and Andrea should consider in deciding which form of business organization to adopt.

Solution Preview

Case Study Two: One of the advantages of a limited partnership is the fact that the partners within the partnership have liability that is directly in proportion to their degree of responsibility in the management of the business organization. This means that those individuals that have the least power in the organization in respect to managing the organization also have the lease liability within the organization, which serves to protect those individuals from consequences that may arise that they did not contribute to developing in any great measure. Another advantage of limited partnerships is the fact that this type of partnership to general partner or manager of the organization has the most liability within the organization, but this individual is usually the most experienced and capable of managing an organization. An obvious disadvantage of a limited partnership is the fact that those limited partners that are not involved in the management of the organization also read limited benefits from the profitability of the organization in many respects. An advantage of an LLC is the fact that the level of liability for the partners within this type of partnership is variable and can be incrementally decreased or increased for those individuals based upon who is actually instrumental in controlling the operations of the organization. This means that if an LLC partnership is actually ...