Scenario 1 - Corporate Formation and Shareholder Liability

Ronald Powers, a well-known local entrepreneur, owned several businesses that filed for bankruptcy from 2010 to 2015. Last year, Powers established R. P. Properties, Inc. Powers is the sole shareholder and invested $2,500 in the company as a capital contribution. R.P. Properties, Inc. purchased 4 houses using a $600,000 loan obtained from the bank. Powers planned to fix up the homes a little and give renters a break on the rent if they agreed to do some repairs. R.P. Properties skipped several mortgage payments on the houses even though his tenants paid the rent. R.P. Properties is no longer able to pay its bills. As one of R.P. Properties' creditors, you seek to hold Powers personally liable for the debts of the company.

• Will you be successful in holding Powers responsible for the company's debts? Explain why or why not.

Scenario 2 - Forms of Business Organizations

Nick and Mitch are partners in a successful lawn care business and are considering the possibilities of expansion. Mitch has been attending college to study accounting. Mitch would like to cut back on his landscaping responsibilities when he graduates to take on a full time job in accounting; however, he could manage the financial affairs of the partnership.

Nick suggests that they hire Tracy to join the partnership because he is younger and could pick up the work Mitch was doing. Nick and Mitch currently operate as a general partnership. When the partners talk with Tracy, he suggests that he would like to become a full partner.

• How would you advise Nick and Mitch when they come to you for advice about the best type of business organization for their landscaping business? Explain your reasoning.

Consider at least one limited liability option in your response, such as the LLC or LLP.

Discussion Question Part II

Select any form of business organization studied this week and make up a business that sells at least one tangible product, such as books or food, or provides a service, such as pet grooming or daycare. You will continue to build this business each week. In two to three paragraphs provide the following information about your business.

• Name of business
• Description the product or service and why it was selected
• Location of the principal office-must be in your state
• Type of organization (sole proprietorship, partnership, LLC, S corp, etc.) and why that form of organization was selected
• Advantages and disadvantages of the form of organization selected
• Legal requirements for formation of the business in your state. Cite sources from the state, as applicable.