Case Study of $$Generator Portfolio Company$($GP Company$)$

Location: Austin, Texas

Facts: GP Company is conceived by Johnson Bridges and Jeffrey Arnold $($the $$Founders$),$ both who are residents of Austin, Texas. They both recently graduated from the University of Texas in Austin, earning degrees in Business Administration with a minor in Real Estate. Although the company is still in the conception stage, the Founders realize that they should organize some form of business entity to carry on business successfully.

One of their goals is to use their real estate skills to earn profits quickly, so they can experience $$the good life.$$ John Kismet is a friend who graduated from UT School of Law and passed the bar exam. He agrees to be the company$$s legal initial advisor and immediately recommends they consider forming either a C corporation or an S corporation for the business and to focus on commercial real estate instead of residential real estate. He also suggests that forming a real estate investment trust could attract investors who want a return on their investment without actually owning the real estate properties themselves.

You$$ve been hired as additional outside counsel to advise the Founders during each step of the company$$s formation and operation. As the new legal advisor, how do you respond to the following questions, so it will benefit your client, GP Company?

Questions:

$1.$ What form of ownership would be best for the Founders and their investors, a C corporation or an S corporation? What are the pros and cons of each entity in this case? Pick an entity and make your argument.