Jimmy Joe Thudpucker and his sister, Linda-Lou Thudpucker are starting a carpet
ID: 385002 • Letter: J
Question
Jimmy Joe Thudpucker and his sister, Linda-Lou Thudpucker are starting a carpet and flooring business here in Winchester. Jimmy will do the installations work and Linda-Lou is great with customer service. Jimmy-Joe Finds out that you are taking BA-303 and wants you to explain the advantages and disadvantages of using either a
(1) Written Partnership Agreement;
(2) LLC;
(3) Limited Partnership, or
(4) Traditional Corporation.
Explain the advantages and disadvantages of these types of business models. Don’t forget to recommend which specific type you think is the best choice for the Thudpuckers’ new business.
Explanation / Answer
(1) Written Partnership Agreement between two or more parties who join as partners to form and carry on a for profit-oriented business. It includes nature of the business, capital contributed by each partner and their rights and accountabilities.
Advantages: It decreases the possible chances of disagreements or disputes, Prevents unnecessary suspension, Capability to reconstitute, partnership, Suppleness in partner’s income
Disadvantages: Court Proceedings in case of dispute, Partnerships can also break up if one of the partners dies and there are no conditions on how to proceed, A formal affiliation contract enable partners to set their own guidelines, which is likely to be different from what the local state law which may differ from what state law prescribes for a company without such an agreement
(2) The LLC is limited liability company (LLC) which is the United States specific form of a private limited company. It is a business model that merges the pass-through dues of a partnership with the limited liability of a corporation.
Advantages: Pass-through taxation, Limitless ownership, Allocation flexibility, Freedom in management
Disadvantages: Higher fees, Government regulation, Lack of case law, Taxation, Confusion across states
(3) Limited Partnerships (LP) possess several advantages, especially for limited partners. The major advantage for limited partners is the personal liability for business debts is limited. A limited partner can only be held personally responsible up to the amount he or she has invested.
Advantages: Boundless Shareholders, Tax Advantages, Utilization of Financial Strengths of Partners, Unlimited Cap on Capital Acquisition and liability Protection for Limited Partners
Disadvantages: Extensive Documentation, Lack of Legal dissimilarity for General Partners, no protection of the personal assets, each partner are liable for their actions, less or no protection from excess tax, contract terminates upon the death of one of the partner.
(4) A traditional Corporation is an incorporated business model that forms a new, identical, legal entity that is unique from its owners.
Advantages: A traditional corporation differs from a typical for-profit corporation by allowing the entity to consider how it can be an advantage for the general public or societal freedom as there is no single goal of maximizing the profit.
Disadvantages: Long Decision-Making Time, Message Distortion, Lack of Individual Authority, Inability to Adapt, Globally, Over-specialization
Conclusion: The written partnership agreement is the type that I think is the best choice for the Thudpuckers’ new business.
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