A.Subir, Brad and Lori are GSU graduates.Subir has come up with an idea for a new product that he believes could make the three of them very rich.His idea is to manufacture soft drink dispensers for home use, and his goal is to market them to consumers throughout the Midwest.Subir's business experience qualifies him to be both first-line supervisor and general manager of the new firm.Brad is a natural salesperson.Lori wants to develop a website for the business as well as head up marketing and advertising.She also would like to invest a large sum of money that she has inherited from her aunt.

1.Which form of business organization would it be advisable for these three to adopt?

a.general partnership

b.limited partnership or general partnership

c.LLC or limited partnership

d.Corporation or LLC

Assume that Lori is willing to invest her inheritance in this business, but that she wants no other involvement with the company.Nor does she want any further liability should the soft drink dispenser manufacturing business fail.Subir has also approached a bank to finance the venture.The bank is willing to lend the company sufficient capital at a 12% interest rate, but it will do so only if certain restrictions are placed on management decisions.The bank's offer is not satisfactory to Subir or Brad, so the two decide to bring Lori into the business.

2.Under these circumstances, which type of business organization would be best suited to Lori's needs?

a.A general partnership or a limited partnership would both be suitable.

b.A limited partnership or a corporation would both be suitable.

c.A sole proprietorship or a limited partnership would both be suitable.

d.A general partnership or a limited liability company would both be suitable.

Assume now that Lori does not want to invest in their business, and Subir and Brad have no other wealthy friends or family members that want to go into business with them.They have decided that the only way to launch their company is to borrow enough money to begin manufacturing.They form a corporation, with each of them being shareholders, and approach the bank for the loan.

3.What if the lender asks them for a personal guaranty of payment of the loan?What effect could such a requirement have on their liability?

a.They would not be liable to the bank because shareholders are generally not liable for the debts and obligations of the corporation.

b.They would be liable to the bank because shareholders generally are liable for the debts and obligations of the corporation.

c.They would be personally liable to the bank for the amount of the loan pursuant to the guaranty, but they would not have any liability to any other third party for the debts and obligations of the corporation.

d.By signing the guaranty, they would waive limited liability protection, and could be sued by any third party for the debts and obligations of the corporation.

B.Asner and Burton formed a limited partnership called ProSkate to sell in-line skates.Asner, a former competitive skater, became the general partner and Burton the limited partner.Burton put up $15,000 and Asner contributed some equipment and a computer that he already owned.They properly filed a certificate of limited partnership and opened their business.A few months later, Asner became seriously ill.Instead of hiring someone to manage the business, Burton took over complete management himself.While Burton was in charge, and without consulting Asner, Burton entered into a large contract with Thomas.Asner subsequently returned to work.Because of bad weather, sales had been slow and the company already had surplus inventory.Asner decided to cancel the Thomas contract.Thomas has sued for breach, contending that Asner and Burton are both personally liable for any damages caused by the breach that cannot be satisfied out of the assets of the limited partnership.

Is Thomas correct?

a.No, limited partners have limited liability.

b.Yes, all partners in partnerships have unlimited liability.

c.Yes, by assuming control of management, Burton will be treated as a general partner and have unlimited liability.

d.Yes, Burton's actions dissolve the partnership and so now all partners have unlimited liability.