question archive CONCEPT REVIEW: Choosing the form of business to create is one of the most important decisions an enterprise makes
CONCEPT REVIEW: Choosing the form of business to create is one of the most important decisions an enterprise makes
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CONCEPT REVIEW:
Choosing the form of business to create is one of the most important decisions an enterprise makes. The extent of liability and control the owner will have depends on the form of the business organization created.
Read the case and answer the questions that follow.
After graduation, four college fraternity brothers decide they want to form a business together. They want to open a sports bar on some property that recently was put up for sale adjacent to the local stadium. The fraternity brothers are not yet sure whether they want to make equal investments and have equal control over the partnership. However, each brother is able to invest a maximum of $20,000. The fraternity brothers are open to considering any of the different forms of business organization frameworks available to them.
Correctly answer the questions below AND provide a complete explanation for your answer.
1. Because there are multiple people interested in creating a business organization, the fraternity brothers cannot form which of the following?
2. Suppose the fraternity brothers are considering forming a partnership. What would be one major disadvantage of this option?
3. Suppose that the fraternity brothers decide they indeed want to form a partnership. If all the partners agree that they want to share the management responsibilities and profits equally and accept equal personal liability, they should form a _.
4. Suppose that instead of a partnership, the brothers decide to consider a corporation. Which of the following is an advantage of a corporation that they might find tempting?
5. What is one major disadvantage of a corporation that the fraternity brothers might face should they decide to incorporate?
6. Suppose the fraternity brothers want to combine the tax advantages and management flexibility of a partnership with the limited liability of a corporation. What type of business organization should they form?
7. Ultimately, the fraternity brothers decide to form a limited liability company (LLC). Under this form of business organization, what is the magnitude of liability each partner would face?
