LGLA 2311: Business Organizations Assignment: Module 11: choice of Entity Bob's Barbecue Supplies Local businessman Bob Gonzalez has come to your law firm (Brown and White, P.C.) for advice. Managing partner Lucy White has asked you to interview Bob and find out about his business and his plans for the future. Then, Lucy wants you to draft a memorandum to her explaining his options and making a recommendation about which business entity would be best for Bob. Mary wants the memorandum to be at least three complete pages long, single-spaced, but no more than five pages. All of the legal information that you need for this assignment you will find in the textbook, in lectures, on the Texas Secretary of State website, and posted on Blackboard (PowerPoints, cases, and web links). In your memorandum to Mary, you should describe: What a sole proprietorship, general partnership, limited liability partnership, limited liability company, and corporation are; What the advantages and disadvantages of each entity are; What the initial fees charged by the State of Texas are for each entity; What type of entity Bob currently has; What type of entity you would recommend that Bob use and the reasons for that choice; Describe any other recommendations that you would have for Bob beyond the selection of the business entity (such as the organization of the entity, tax planning, liability management, ownership interests, etc.). Though Mary is very familiar with these entities, you should write her memorandum as if Mary were an unsophisticated layperson who has no knowledge of business entities. You should define all legal terms that you use. You should also cite the relevant statutes. While you do not need to use correct Bluebook and Greenbook formats, your citations should be easy to understand. (While I encourage you to google materials as you research your assignment, the text of your assignment must be in your own words. I will run the assignments through a plagiarism checker.) Mary will review the memorandum and, if she agrees with your analysis, present the recommendation to Bob. When you interview Bob, you learn the following information: Bob runs a successful store called Bob's Barbecue Supplies in Plano. He sells high-end barbecue grills and supplies, such as special brushes and baskets for cooking food on the barbecue. The store also features barbecue demonstrations, and it sells various marinades, sauces, and dry rubs for barbecues. Early next year, Bob is planning to open a second store in McKinney. Over the next five years, he hopes to open at least two additional stores, both in the Dallas area. Bob has been running his business pretty informally. Other than getting a sales tax permit and getting an assumed name certificate, Bob has not filed anything with the state of Texas. He recognizes that now is the time to consider what type of business entity he should select, but he does not know much about the choices. Bob is cautious by nature, and he does not want to spend more money than is necessary for legal services and filing fees. Page 1 of 3 Since he started this business four years ago, Bob has used money that he inherited from his late aunt Susan as his capital (approximately $200,000). He realizes that he will need more capital for his expansion plans, but he does not have any additional savings that he wants to put into the business. (He does expect to inherit land worth approximately $300,000 from his elderly grandfather Jose in the near future.) His friend Marie has indicated that she might be willing to invest her annual bonus check (approximately $30,000) if she can get a percentage of the profits from the business. Bob's cousin Pete is also willing to help out with approximately $20,000, but he wants to make it a loan that would have to be repaid within five years, at a modest interest rate. Bob also thinks that his bank, Plano National Bank, would loan him additional money (maybe $50,000), based upon the current profitability of his business. Here are some statistics about his business: Year Year 1 Year 2 Year 3 Year 4 Gross Sales $70,000 $100,000 $150,000 $200,000 Expenses Tort Claims Profit/Loss (excluding tort Paid Out liability) $50,000 0 $20,000 $70,000 $40,000 - $10,000 $100,000 0 $50,000 $130,000 $30,000 $40,000 Bob has had two incidents in which his cooking demonstrations have gone horribly wrong. In Year 2, the reigning Miss Texas was flipping some burgers when her hair caught fire. Though nothing other than her hair and her dignity were injured, she sued Bob for $100,000, and ultimately settled for $40,000. Last year (Year 4), another cooking demonstration went awry. As Bob grilled some steaks, Santa came down the chimney a bit early and burned his sleigh when it knocked over the grill. Since Bob had hired Santa to appear, Santa was able to successfully sue Bob for $30,000, as the jury members did not want to find coal in their stockings. Bob is tired of paying off these claims, and he is especially concerned about his financial wellbeing once he inherits from his grandfather. Bob does not carry any insurance on his business. A State Farm agent quoted him a premium, but apparently the agent had already heard about the Miss Texas and Santa Claus incidents, as the premium was very high. Bob currently employs Steve and Mabel as part-time salespeople and installers. They each earn $10 an hour. Mabel has expressed an interest in investing some of her wages in the business. She has said that she would be willing to earn only $8 an hour if the extra $2 an hour could go to buying a portion of the business. Bob pays his current Plano landlord monthly rent. When he opened the business, the landlord required that he be personally responsible for the rent obligation. Bob thinks that he may be able to persuade the future McKinney landlord not to require that Bob be personally liable for the rent. Page 2 of 3 Currently, Bob works about 50 hours a week. He had not taken any profits out of the business yet. Bob's wife Brenda has been supporting the family through her income, which is approximately $40,000 a year. When the McKinney store opens early next year, Bob plans to begin drawing a monthly salary of $2,000. Bob and Brenda would like Brenda to have some legal status vis--vis the business. If anything were to happen to Bob, Bob would want to business to continue, with Brenda running and owning most of it. Page 3 of 3