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Choosing a Form of Business

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Introduction

Read the overview below and complete the activities that follow.

Choosing a Form of Business

In this activity, we explore some of the dynamics to be considered when deciding between a sole proprietorship, partnership, limited liability partnership, limited partnership, limited liability limited partnership, corporation, or limited liability company.

CONCEPT REVIEW:

Depending on the form one chooses for her business, there are certain strategic advantages to be gained, including tax savings and limitations on liability.Choosing a form of business is important because the business owner's liability and control of the business vary greatly depending on what form of business is adopted.Additionally, some business forms offer significant tax advantages to their owners.

Comprehension Case

Business forms and iFruitBasket

Read the text below and answer the questions.

Your client, Apples & Bananas, Inc., has decided to move forward with the development and manufacture of the iFruitBasket, its next generation data communication device.The iFruitBasket is new, untested technology that will take billions of dollars to develop and may or may not have commercial success.Apples & Bananas is developing the iFruitbasket with JEP Telecom Company.Both Apples & Bananas and JEP Telecom want to have equal power when making decisions regarding the iFruitBasket's development, manufacture, and sale.You advise Apples & Bananas, as well as JEP Telecom Company, to transfer their ownership of the technology and other property associated with the iFruitBasket to a separate limited liability company (LLC) that is equally owned by Apples & Bananas (50% ownership) and JEP Telecom (50%).

SA Qu. 01 Examining on the aspects of management structure and liability of owners...

Examining on the aspects of management structure and liability of owners, why did you reject the limited partnership as a form of business for Apples & Bananas and JEP Telecom to pursue for iFruitBasket?

SA Qu. 02 Considering only the aspects of owners' management...

Considering only the aspects of owners' management rights, federal income taxation, and transferability of the owners' interests, state why you believe the default characteristics of the limited liability company (LLC) make it an acceptable business form for Apples & Bananas and JEP Telecom to use for development and manufacture of the iFruitBasket.

SA Qu. 03 Because Apples & Bananas and JEP Telecom are already corporations and, therefore...

Because Apples & Bananas and JEP Telecom are already corporations and, therefore, their shareholders have limited liability for the obligations of Apples & Bananas and JEP Telecom, for what liability reason did you recommend that Apples & Bananas and JEP Telecom create the LLC as a subsidiary of both Apples & Bananas and JEP Telecom?