Sitting across your desk is Pacific Restaurants LLC's managing member, Brian McIntyre.He has been a client of your accounting firm for many years while employed as manager of D-Back Restaurants.Throughout the years, he has saved enough money to open his own restaurant.As you read through the limited liability company operating agreement, you learn that Brian has 3 more partners or members, and that each member will contribute an equal amount of capital to start the business (Table 1).Brian confides that although relatives and friends have recommended that he forms a limited liability company, he knows little about this entity except that it will provide him with liability protection.He is also aware that he could elect to be taxed as either a partnership or a corporation.His associates in this venture are split between these two alternatives.He needs your assistance in weighing his options.His lawyer explained the legal aspects of the LLC and recommended that he arranges a meeting with you to discuss any tax implications.The operating agreement and state filing requirements were effectuated 30 days ago on April 1^st, 20X2Brian plans to open the restaurant on July 1^st.Brian prepared projected financial statements for his business plan for the next 3 years (Table 3).As stated in the operating agreement, Brian is the managing member and has the authority to make contractual decisions for the LLC.As managing member, he is entitled to guarantee payments (Table 2).Member No. 2 is Brian's wife.She is a stay at home mother of two and has her own business making custom wedding cakes. Members No. 3 and 4 reside out-of-state and have full time jobs in their state of residence.They plan to travel once or twice a year to meet and discuss with Brian the restaurant's operations.At the end of the meeting, you cordially ask Brian to leave a copy of the operating agreement and promise to get back to him with a recommendation in the next couple of days.

Table 1 - Capital Contributions (Cash unless indicated)

1. Brian McIntyre - Managing Member$50,000

2. Sophia McIntyre$50,000

3. Margaret VitaleRestaurant equipment: adjusted basis of $35,000 and a FMV of $50,000

4. Donald Hong$50,000

Table 2 - Brian's Guarantee Payments

20X2$70,000

Table 3 - Projected Financial Statements

PROFIT & LOSS STATEMENT

PACIFIC RESTAURANTS, LLC

20X2

REVENUES

Sales - Food $558,075

Sales - Beverages211,558

TOTAL REVENUES769,633

F&B COSTS

Purchases - Food204,061

Purchases - Beverages127,824

TOTAL F&B COSTS331,885

GROSS PROFIT$437,748

OPERATING EXPENSES

Salaries & wages302,236

Employee benefits39,942

Advertising67,888

Depreciation11,892

Administrative & general expenses82,030

Meals & entertainment9,554

Political contributions1,550

Repairs & maintenance3,177

TOTAL OPERATING EXPENSES518,269

NET PROFIT OR (LOSS)$(80,521)

Table 3 - Projected Financial Statements

BALANCE SHEET

PACIFIC RESTAURANTS, LLC

20X2

CURRENT ASSETS

Cash$13,449

Accounts receivable6,459

Food & Beverage inventory18,923

TOTAL CURRENT ASSETS38,831

FIXED ASSETS

Equipment50,000

Vehicles-

Building68,918

TOTAL FIXED ASETS118,918

TOTAL ASSETS$157,749

CURRENT LIABILITIES

Accounts payable38,269

TOTAL CURRENT LIABILITIES38,269

OWNERS' CAPITAL

Capital 200,000

Draws-

Net Profit/(Loss)(80,520)

TOTAL OWNERS' CAPITAL119,480

TOTAL LIABILITIES & OWNERS' CAPITAL$157,749