Your supervisor advises you to recommend that they form a LLP, a LLC, or a professional corporation.
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Mark and Marsha recently graduated from the Law School and want to start a general practice law firm together. Since they were friends for a long time and graduated at the top of their class, they are confident in each other’s ability to practice law. Each of them has about $20,000.00 to invest in the new law firm, and neither has any significant personal assets besides two secondhand cars from their law school days. They are unsure of how to form their business association, and they visit the consultancy company that you work for to learn about their options. Your supervisor advises you to recommend that they form a LLP, a LLC, or a professional corporation.
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- Jack and Jill decided to pool their money and start a water delivery business. Since they trust each other so much, they did not draw up any legal documents for the business. During the first year of business, they earned $50,000 which was net of $10,000 paid to Jill as a guaranteed payment. During the second year of business, they decided to limit their liability exposure by forming an LLC. Was a partnership formed during the first year? If a partnership was formed, how much income will be taxed at the partnership level? For the second year, do they need to file a partnership tax return?Kate and Mark, a married couple, own a limited liability company. Although Kate and Mark are not yet ready to retire, they would like to begin involving their three children in the business since they are now all responsible adults. Their primary concern is ensuring that the business will remain in their family for future generations. It is also important to Kate and Mark that their children learn the value of a dollar, so they would like them to purchase their interests in the company. Kate and Mark have been successful in their business and have a modest estate, but they do not predict they will owe any estate tax. Which one of the following is the most appropriate form of business transfer technique for Kate and Mark to use to achieve their objectives? A)A preferred stock recapitalization of the business B)A gift of the business interests from Kate and Mark to each child C)A cross-purchase buy-sell agreement between Kate, Mark, and the children D)An entity…Heather and Dan Holt met while both were employed in the interior trim and upholstery department of an auto manufacturer. After their marriage, they decided to earnsomeextra income by doing small jobs involving canvas, vinyl, and upholstered products. Their work was considered excellent, and at the urging of their customers, they decided to go into business for themselves, operating out of the basement of the house they owned. To do this, they invested $120,000 cash in their business. They spent $10,500 for a sewing machine (expected life 10 years) and $12,000 for other miscelianeous tools and equipment (expected life 5 years). They undertook only custom work, with the customers purchasing the required materials, to avoid stocking any inventory other than supplies. Generally, they required an advance deposit on all jobs. The business seemed successful from the start, as the Holts received orders from many customers. But they felt something was wrong. They worked hard and charged…
- Steve Reese is a well-known interior designer in Fort Worth, Texas. He wants to start his own business and convinces Rob O’Donnell, a local merchant, to contribute the capital to form a partnership. On January 1, 2022, O’Donnell invests a building worth $54,000 and equipment valued at $20,000 as well as $16,000 in cash. Although Reese makes no tangible contribution to the partnership, he will operate the business and be an equal partner in the beginning capital balances. To entice O’Donnell to join this partnership, Reese draws up the following profit and loss agreement: O’Donnell will be credited annually with interest equal to 10 percent of the beginning capital balance for the year. O’Donnell will also have added to his capital account 10 percent of partnership income each year (without regard for the preceding interest figure) or $5,000, whichever is larger. All remaining income is credited to Reese. Neither partner is allowed to withdraw funds from the partnership during 2022.…Steve Reese is a well-known interior designer in Fort Worth, Texas. He wants to start his own business and convinces Rob O’Donnell, a local merchant, to contribute the capital to form a partnership. On January 1, 2016, O’Donnell invests a building worth $52,000 and equipment valued at $16,000 as well as $12,000 in cash. Although Reese makes no tangible contribution to the partnership, he will operate the business and be an equal partner in the beginning capital balances. To entice O’Donnell to join this partnership, Reese draws up the following profit and loss agreement: O’Donnell will be credited annually with interest equal to 20 percent of the beginning capital balance for the year. O’Donnell will also have added to his capital account 15 percent of partnership income each year (without regard for the preceding interest figure) or $4,000, whichever is larger. All remaining income is credited to Reese. The partnership reported a net loss of $10,000 during the first year of its…After graduating from college, Shelley Williams held several different jobs but found that she did not enjoy working for other people. Finally, she and Yvonne Hargrove, her college roommate, decided to start a business of their own. They rented a small building and opened a florist shop selling cut flowers such as roses and chrysanthemums that they bought from a local greenhouse. Williams and Hargrove agreed orally to share profits and losses equally, although they also decided to take no money from the operation for at least four months. No other arrangements were made, but the business did reasonably well, and after the first four months had passed, each began to draw out $500 in cash every week. At year-end, they took their financial records to a local accountant so that they could get their income tax returns completed. He informed them that they had been operating as a partnership and that they should draw up formal articles of partnership agreement or consider incorporation or…
- Steve Reese is a well-known interior designer in Fort Worth, Texas. He wants to start his own business and convinces Rob O’Donnell, a local merchant, to contribute the capital to form a partnership. On January 1, 2019, O’Donnell invests a building worth $74,000 and equipment valued at $44,000 as well as $32,000 in cash. Although Reese makes no tangible contribution to the partnership, he will operate the business and be an equal partner in the beginning capital balances. To entice O’Donnell to join this partnership, Reese draws up the following profit and loss agreement: O’Donnell will be credited annually with interest equal to 10 percent of the beginning capital balance for the year.O’Donnell will also have added to his capital account 10 percent of partnership income each year (without regard for the preceding interest figure) or $6,000, whichever is larger. All remaining income is credited to Reese.Neither partner is allowed to withdraw funds from the partnership during 2019.…Steve Reese is a well-known interior designer in Fort Worth, Texas. He wants to start his own business and convinces Rob O’Donnell, a local merchant, to contribute the capital to form a partnership. On January 1, 2019, O’Donnell invests a building worth $126,000 and equipment valued at $132,000 as well as $52,000 in cash. Although Reese makes no tangible contribution to the partnership, he will operate the business and be an equal partner in the beginning capital balances. To entice O’Donnell to join this partnership, Reese draws up the following profit and loss agreement: O’Donnell will be credited annually with interest equal to 10 percent of the beginning capital balance for the year. O’Donnell will also have added to his capital account 20 percent of partnership income each year (without regard for the preceding interest figure) or $7,000, whichever is larger. All remaining income is credited to Reese. Neither partner is allowed to withdraw funds from the partnership during…Jerry and his wife, Joanie, own a successful concrete company that is organized as a corporation. Jerry spends all his time running the company, whereas Joanie has a full-time job as a legal secretary. The corporation pays Joanie a salary of 45,000 a year as vice president.
