Assignment 1 – Legal Entity Selection My advice for this scenario would be to form a Limited Liability Partnership (LLP). I believe it would be the best suited for all future partners and their situations, especially Friend 1 and Friend 3. (All friends will be referred to as Partners 1, 2 & 3). My choice for an LLP revolves around the involvement of Partner 1 & Partner 3. Partner 1 is stated to have a full-time job and will not be able to participate in the daily operations of the newly formed entity. However, it will be their initial investment that earns them an equal stake of ownership as Partners 2 &3 (this reasoning discards the possibility for a Limited Partnership). Partner 3 will only be able to participate partially due to their commitments of another part-time job. This leads the need to ensure proper legal …show more content…
Working only partly with Partner 3 and minimally with Partner 1 means without proper legal protection, any unethical business dealings could have a massive impact on the other partners. An LLP would provide such protection for all partners. Finally, Partner 3 is forward thinking and would like to ensure a transition of their stake in the business to their children. While this is possible, it may result in a dissolution and reestablishment of the partnership for the children to inherit a stake, combined to equal that of their parent. However, while forming the business, I would suggest adding to the partnership agreement a mechanism to transfer the interest of one partner to another, or multiple persons. This would have to be agreed upon during the formation to avoid a dissolution of the partnership in the future. In order to form this entity, the partners must file with the New Mexico Secretary of State and provide/acquire the following (Information taken from the website of the New Mexico Secretary of
The benefits of Partnership Company are that business is anything but difficult to build up and start-up expenses are low. There is more capital accessible for the business. Workers that are of high-bore are made accomplices. The burdens are that the obligation of the accomplices for the obligations of the business is boundless . There is additionally danger of differences and contact among accomplices and administration. Every accomplice is an agent of the partnership and is at risk for activities by different accomplices. This means that it brothers choose this type, they will be responsible for each other’s action irrespective of the fact whether they like it or
When it comes to partnerships Alex, Bill, Carl, and Devon will have two options- a general partnership or a limited partnership. Partnerships are beginning to be a business form of the past. Once upon a time, partnerships were “the default form of business and provided the benefit of pass-through taxation, but lacked the important feature of limited liability” (Chrisman, 2010, p. 465). In a general partnership, each partner associated with the entity will be held liable for their own business decisions as well as
A limited liability company protects each partner from personal liability for certain obligations of the company. An important difference from other partnerships is that each partner is liable for the debts and obligations of the partners. With limited liability Company, each state has its own laws governing partners for these vessels. Some states allow only certain professions, such as lawyers and accountants to form LLP. Some states only provide protection from liability for negligence claims, leaving personally responsible for other types of requests partner. For tax purposes, profits are divided equally between the partners and the partnership is not taxed separately.
It would also be beneficial to set up a limited liability company. (LLC) A LLC limits the partner’s liability to your basis in the company
You are a valued colleague and friend of this threesome, and they have come to you seeking advice as to how to structure their new business. They have
A partnership is the best form of business given Shania’s situation. She has support from all angles that want to help her Christian coffee shop be a success. A limited liability partnership is best suited for Shania because of her possible partnerships with her husband, sister, and neighbor. According to the Limited Partnership (2015) article, this form of business is a “voluntary association where one or more partners contribute capital only, and those partners play no role in management.” Her husband wanted to make a contribution to Shania’s business but not in the lane of management, so by using this partnership he can still contribute his capital and maintain his partnership. The liability is limited to the amount of capital that the partner contributes. As a “silent partner” Marvin can make investments with the company, but not have any voting power or control over day-to-day operations.
The partnership is a form of business that could be possible in Shania’s scenario due to the other individuals showing interest in the business idea. She can create a partnership with one or more persons and sharing of the profits is divided equally, unless an agreement states otherwise (Kubasek, et al., 2015, p. 423). Some of the benefits of a partnership are the ability to raise more capital and to share ownership responsibilities (Block, et al., 2015, p. 9). With committed partners it is possible to have a successful partnership.
Limited liability partnership (LLP): In a LLP no general partners exist, only limited partners exist to create the business as a limited liability under this form of partnership. LLP’s are typically used for any professional type of business where all partners/owners (a minimum of two are required), have a voice in the taxation structure of the business.
Forming an LLP begins with filing articles of partnership with the secretary of state of the state in which the LLP is organized. The LLP laws of the state where the LLP performs business govern the partnership. The partnership must follow the state laws and regulations to continue performing business in that state. Many states require an LLP to carry a minimum of $1,000,000 in liability insurance covering negligence, wrongful acts, or misconduct by partners or employees. Taxation of the LLP is the same as in a general partnership. Each partner is required to file their profits or losses on their personal income tax return. As with a general partnership, an LLP is required to file an information return with the government so the income or losses are traceable to the individual partners.
Another business structure to establish is Limited Partnership, which is similar to the partnership with a slight difference where it formed with at least one general partner and one limited partner. The general partners have the same obligation as partners in a general partnership; however, limited partners have limited liability to the extent of their contribution. The advantage of this business formation is the limited personal liability for individual partners for the acts of another partner within the organization. It has the same tax consequences as a general partnership. One important positive aspect is management and control aspects of the organization could be divided or separated among partners. It’s shortcoming, a general partner is still personally fully liable for the debts of the business. If the limited partner wants to become active in the business, he/she may assume the personal liability obligation.
Every business that is created requires specific roles, with specific people, that have specific strengths and passions. In the case of Shania’s business, she has several friends and family that have voiced a willingness and interest in playing a part of seeing that business come to fruition. First, there is Shania’s husband, Marvin, who has said that he is willing to contribute financially to the business, however he has no intention of operating or managing the business. In the State of Colorado, community property does not apply, however there does exists the concept of marital property (Martin, 2010). I would advise Shania that any property transferred between her as an individual and the LLC might be considered marital
Identity of Partners: - The partners have to be 18 years or older. There has to be a minimum of 2 partners or more to create a partnership. Each partner has to sign a document that represents the establishment of the partnership and the interest to create the partnership. There are different kinds of partnerships, i.e. LLP, Equity Partners, and Non-Equity Partners etc. The partners have to state the nature of their partnership for example each partners contribution to the business, profit sharing tactics and voting entitlement of the partners.
On the downside, each partner is liable for the faults or actions of other partners, profits must be shared and because decisions are shared as well this increases the chances of disagreements. You want to make sure that the person you are in business with sees the same future for the business that you see to avoid any problems down the line. Because you have to remember you have a partner and you can’t make decisions by yourself.
The limited partnership (LP) is where limited partners surrender their option to manage the business in exchange for limited liability for the partnership's debts
To overcome this problem, the partnership may take on as many Sleeping (or Silent) Partners as they wish - these people will provide finance for the business to use, but will not have any input into how the business is run. In other words, they have purely put the money into the business as an investment. These Sleeping Partners face limited liability for the debts of the partnership. A partnership, just like a sole trader, is an unincorporated business. What are the advantages and disadvantages of a Partnership?