July 9, 2012
Restaurant/ Bar Case
Lou, Jose and Miriam can go into business in the form of a corporation, or partnership, or LLC where Miriam provides monetary capital, while Lou and Jose provide manpower. An operating agreement or purchase-option agreement should be established under which Lou and Jose could each buy a predetermined portion of the business at a predetermined cost. If they choose to establish a corporation, they can elect to be taxed as an S corporation where they will not pay tax at the corporate level. The taxes will be paid at the personal level to avoid double taxation. One thing that should be guarded against is entering into a future agreement where manpower or future personal effort will be exchanged for shares or capital contributions. This is because capital contributions must have present value. Furthermore, Miriam must be aware that any present transfer of her capital contributions to either Lou or Jose capital account or shares, could be considered as a gift, and could subject Miriam to gift taxation. Also, it could be viewed as taxable income to Lou and Jose, which would reduce their net investment value (Hartman, 2006). Extermination Business
Based on the fact that Frank wants to establish the extermination business in many different places, the first thing he needs to think of is that his business should be a corporation. His plan will not qualify for a limited partnership. The only option available to Frank is the corporate option because Frank plans on establishing the business nationwide. Projecting the expected growth rate of the business, it may be best to file for a standard C corporation which will allow his business to take in more than 30 investors which will likely occur based on franchises or other opportunities by which he can acquire investor money for the business. One of the primary reasons is to remove his own personal...