The Management Of The Business Essay

The Management Of The Business Essay

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George is not to contribute anything and will provide his services and will get profit share 15%. For him General Partnership will be appropriate as he will be a general partner and therefore will be actively involved in the management of the business. This is because he is offering personal services to the business and hence he can properly manage the business. There are no filings that need to be made there is also no paperwork that is required during formation. Hence the formation is easy.
Kim will contribute $150,000 cash and will get 25% share. In this case S-Corporation will be better for her as Kim will be entitled to vote for the board of directors using her 25% ownership. This will ensure that she vote for a responsible board since himself he won’t be actively involved in the daily to daily management of the business.
She will have limited liability to seize only the corporate assets and therefore cannot reach out to her personal property. There is free transferability of ownership interest without attracting adverse consequences of taxation for her.
Martha will contribute $60,000 cash and will get 10% share. The requirements during formation are less than those of a corporate firm. She can have limited liability against the obligations and debts. This means the creditor can only seize the assets of the company and not her personal assets.
The LLC can choose to be treated taxed like an S corporation. This will help her to lower the tax bill by awarding a reasonable salary in order to be able to treat the rest of her unearned distributions as therefore reducing the overall tax obligation. There is no transferability of shares though this can be avoided through a restricting agreement or statutorily. Havin...

... middle of paper ...

...edures of the business. Taking these factors under consideration all the parties may consider setting up an LLC due to the fact that it will favors them due to limited liability therefore protecting their personal property, flexibility in management as well as less formation costs as compared to a corporation. Also they will have tax advantages if they are taxed as an S-corporation in that their distributions in the business will not be taxed therefore minimizing the tax liability.
In alternative 1 it is recommended to form limited liability partnership so that liability of George and Martha can be limited and as they have either not to contribute or very little, their personal assets are not liable towards business liabilities. In alternative 2 as FFE and land and building is also contributed by Tom along with mortgage assume, it is recommended to form corporation.

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