Which Entity Should I Choose?

Instructions: Read the following fact pattern. Read the facts presented in the fact pattern below. Combine your understanding of the facts presented along with your knowledge of business entities to select the most suitable business form for the scenario. (Sole proprietor, partnership, LLC, or Corporation). Be sure to discuss the characteristics of the business formation you chose and state why those characteristics make it the best formation for the scenario. Also discuss why all or some of the characteristics of other entities make them less suitable for the situation.

FACT PATTERN Johnny came to you seeking advice on a new business venture that he plans to partake in. Johnny wants to open a new bakery business. Initially, the bakery will only service retail customers that enter the physical building. Johnny has been looking for retail spaces for the bakery. Most of the suitable spaces will require him to enter into a five year commercial lease.

If successful, Johnny would like to expand the bakery business to selling wholesale baked goods to grocery stores throughout the country. If the bakery business is able to expand like he hopes, he would want to add partners and investors to assist him with the growth—both management-wise and monetarily.

Johnny is not new to food industry. In fact, he currently has two successful restaurants that have been very lucrative for him. His third restaurant did so well that he decided to sell it in order to provide him with more time and the funds to start his bakery. The other two restaurants are still in operation. Johnny is still the owner with no intentions of changing that. Because Johnny already owns two restaurants, he needs lots of flexibilities in his business. Johnny has always been a “doer” and does not like to go through red tape in order to get things done. He runs his businesses in this freeform way as well.

Johnny wants the bakery finances to be separate from his other restaurants. He is also weary of losing the lucrative restaurants due to mistakes made in the bakery. He plans to get insurance but he still worries that a mistake in the bakery could ruin his culinary empire.

If Johnny’s timeline for success is accurate, he hopes to be wholesaling his fine baked goods within three years. At the five year mark he plans to aggressively open additional stores—either owned by him or through franchise agreements. By year seven, he will liquidate a large portion of his ownership in the bakery in order to diversify his holdings.

Help Johnny decide which business formation is best for he and his business.