BACKGROUND:

Madison and Doug are going to start an online retail business in which they both will participate on an active consisted basis. Doug will own 60% of the business and Madison 40%. They anticipate an initial need for approximately $120,000 in working capital to purchase $80,000 in equipment and the rest will be available for working capital. They expect annual net earnings before income taxes for the business to be in the $200,000 range. Because each has personal assets they do not want to put at risk in these ventures, their primary concerns evolve around limited liability but just importantly is to minimize eachs income tax liability. Both Madison and Doug are single and currently in the 22% marginal rate. Finally, the goal for both is to receive as much of the profits individually as possible. Finally, the game plan calls for them to sell the business in 6 years for an estimated $800,000 to an unrelated buyer.

REQUIRED:

Based upon the information provided above, what type of business structure would you suggest to them and why?