“Lou and Jose plan to open a sports bar and restaurant but they do not have much money. Miriam is a wealthy investor who does not have time to work the business; however, she wants to provide funds for the start-up of the business. In return, Miriam wants a percentage of ownership” (University of Phoenix, 2010). Business Entity
A limited liability partnership is the best choice of business entity for Lou, Jose, and Miriam. Jose and Lou will control and manage the business while Miriam is the investing partner and will act as a limited partner. According to the IRS, “a partnership is the relationship existing between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business” (IRS, 2012). Control. A written partnership agreement is not required by law; however, it is a way for partners to formalize the business relationship in writing. A partnership agreement should address how profits are to be divided, the official name and address of the business, and should identify the partners. The partnership agreement should also indicate the management duties, control, and decision-making authority of the involved parties or each partner. Taxation. Partnerships are not double taxed. “Taxation of general partners is accomplished through each of the partner’s personal tax return and not the partnership. A partnership must file an information return with the government explaining any income and losses incurred by the partnership” (Cheeseman, 2010, p. 255). Limited liability partnerships (LLP) offer some personal liability protection to participants; however they retain the tax advantages of the general partnership form. Liability. Individual partners in a limited liability partnership are not personally responsible for the wrongful acts of other partners, or the debts or obligations of the business. The partners are statutorily relieved of all or part of their personal liability for partnership liabilities, debts, and obligations unless they are guilty of the wrong-doing. The nature and extent of relief from personal liability and the types of business enterprises that can use the LLP form varies depending on the state of the LLP formation. Laws and Regulations
For the business to operate there are licenses that need to be acquired first. The business needs to start by registering for an employer identification number (EIN). This will give the company an identity and will be used for taxes and other financial documents. A ‘doing business as’ (DBA) is required to register a business name if it is not the owner’s name. Some other permits/licenses needed are city and/or county business license, sign permit (to show the name/address of the business), health department license, fire department permit, and liquor, wine, and beer licenses (to be displayed behind the bar to show the restraunt is licensed to sell). Risks to Protect Against
Inadequate funding can be difficult for a business in the first year. Many restraunts/bars struggle to find grounding in the first year, regardless of having a solid business plan. To decrease the risk, owners should plan to have several months of funding to cover the costs of salaries, food, and other bills. It can take time to simply break even, much less make a profit. Another risk associated with a partnership is conflict because the members have different interests making it difficult for the partners to achieve their goal. A partnership is like any other business entity and has to be registered prior to conducting business to ensure the business is legal. Professional Practice
“Akiva and Tara have just completed all educational and experiential requirements to be licensed as obstetricians. They want to open a birth clinic together and will take out a large loan to finance start-up costs” (University of Phoenix, 2010). Business Entity
Akiva and Tara...