Zaharias-Liras Wholesalers, a partnership, owes $418,000 to various shipping companies. Armand Zaharias has a personal net worth of $1,346,000, including a $140,000 equity interest in the partnership. Nick Liras has a personal net worth of $893,000, including the same equity interest in the business as his partner. The partners have kept only a moderate equity base of $280,000 in the business, with earnings being taken out as partner withdrawals. They wish to limit their risk exposure and are considering the corporate form.
a. What is their liability now for the business? What would it be under the corporate form?
b. Will creditors be more or less willing to extend credit with a change in organization form?