Two friends, Jim and Pam, form a consulting firm. When deciding on what business entity they should use, they are especially concerned about losing personal assets if they are sued for their professional services. They are also concerned about income and taxes as they are just starting their careers and are on a tight budget.

QUESTION #1: What business entity should they use? Why?

QUESTION #2: What type of agency principles are involved in the type of business entity you chose in Question #1?