Scenario:You have three friends that want to begin a consulting business. Friend number one, has a good paying job, a full time position, is willing to invest $20,000 to start off the business and co-sign to obtain credit for the business, but does not have time to participate in the daily operation. She/He also wants to own a portion of the business, share authority to direct its future, and share in a portion of the profits.

Friend number two has just been laid off of her/his job. She/He is over extended on her/his credit, has a large mortgage payment, is separated from her/his spouse, has three minor children, and expects to be going through a divorce soon. However, she/he also has exceptional skills and expertise; she/he has made a lot of connections from her/his job, expects to bring in at least three high paying clients, and has plenty of time to dedicate to the business.

Friend number three owns retail space and has agreed to lease the space or allow the company to use it as an investment, has an accounting background, is working part-time, has agreed to keep the books, arrange appointments and scheduling, order supplies, answer the phones and plan marketing strategies. Friend number three has three adult children that she/he would like to eventually inherit her/his share and maybe even participate in the business as employees.

Your friends have heard that you are in business school and are taking business law, and have sought your advice as they proceed.

What legal business ENTITY (such as a Partnership, LLC, S Corporation or C Corporation) would you suggest they select for their situation to best meet their needs and goals? Fully explain your reasoning pros and cons for this entity.

Also, what process is required, if any, to create/form the suggested ENTITY? Be sure to identify both the institution and documents required.

And what additional information would you need or like to know in order to provide them with a complete answer?

From whom, after you, would you recommend that your friends seek advice as they proceed?