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 should classify their business as a limited liability company (LLC). “A limited liability company (LLC) is a business structure allowed by state statute. LLC’s are populare because, similar to a corporation, owners have limited personal liability for the debts and actions of the LLC. Other features of LLC’s are more like a partnership, providing management flexibility and the benefit of pass-through taxation” (IRS, 2012).
Control. Control of LLC companies is handled through a ladder of leadership. Ultimately the owner/operator has the most authority when decisions need to be made that affect the company. The officers also have responsibility for the company but an LLC allows the officers to walk away without liability of the company’s actions.
Taxation. LLC’s pay all standard employee taxes but do not pay corporate taxes which allows the company to stock pile assets and the freedom to delegate where the assets are spent and which parts should be divvied-up for the owner and officers, allowing them to take a draw. Liability. An LLC is run by one owner and however many officers the state allows and as such, the owner makes almost all financial decisions that affect the company. Also, in this aspect the owner is the sole liable party should the business go under and/or face legal retribution.
This protects the officers of the company ensuring they walk away unscathed from any responsibilities that may befall. As such, the owner of the business uses his or her social security number as the basis of creating the company and leaves them soley responsible for the company’s actions as if they are their own personal actions. Laws and Regulations
Many states regulate the amount of members and/or officers that an LLC may have. Some states will allow other businesses, corporations, and international investors to become members of an LLC. Other states however harshly regulate the financial backing an LLC may receive. “The federal government does not recognize an LLC as a classification for federal tax purposes; therefore the business entity must file as a corporation, partnership, or sole proprietorship” (IRS, 2012). Risks to Protect Against
An LLC is a low-risk venture for any company to start out as. A company can re-classify at a later date after they have grown out of the LLC status but as an LLC, while they are limited to the amount of growth potential they are also protected from the risks other companies take. The owner should also be aware of and prepared for any type of malpractice that can occur and should look into the options available to protect the business. Construction
“Mei-Lin is the hiring manager for Surebuild, Inc., a new construction company. She has advertised a position as a jackhammer operator. The position’s description states that the successful applicant must have a high school diploma. The following people apply for the position: Michelle, 35, who appears to be pregnant, is a high school graduate, and was formerly employed as a jackhammer operator; Eric, 55, who is experienced with a jackhammer, but has no high school diploma; Felipe, who is 38, speaks no English, has no high school diploma, but is experienced with a jackhammer; and Nick, 23, a college graduate who is epileptic, and has no experience with a jackhammer” (University of Phoenix, 2010). Employment Laws and Regulations
“Equal employment opportunity laws prohibit specific types of employment discrimination. These laws prohibit discrimination on the basis of race, color, religion, sex, age, national origin, or status as an individual with a disability or protected veteran” (United States Department of Labor, 2012).
Michelle fits the role Surebuild Inc. is looking for because she has a high school diploma as well as previous experience with a jackhammer. She does appear to be pregnant; however, the Pregnancy Discrimination Act forbids discrimination based on pregnancy when it comes to any aspect of employment, including hiring.
Eric is experienced with a jackhammer however he does not meet the minimum requirements of the position description. The position states the successful applicant must have a high school diploma and he does not. Eric is over 40 therefore if the company did not hire him based on his age it could be in violation of the Age Discrimination Act.
Felipe is experienced with a jackhammer however he does not meet the minimum requirements of the job posting. He does not have a high school diploma and he does not speak English. This language barrier could be potentially dangerous and hazardous to those working around Felipe should he be hired. Potential situations that can arise are emergencies or other situations in which workers must speak a common language to promote safety, He would not be able to cooperate with other employees for work assignments, and would decline efficiency in the company. While he cannot be discriminated against for being of a different race, his inability to perform the basic job functions including understanding instructions due to the language barrier deprives him of this position.
Nick is above the minimum education requirement. The job posting does not require the applicant to have experience with a jackhammer, only a high school diploma. Nick is epileptic; however, the company cannot dis-include him for the position based on this. The Americans with Disabilities Act protects Nick from not being considered based on his health. The employer is required to make reasonable accommodations unless doing so would cause significant difficulty or expense for the employer.