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AFM231 Lecture Notes - Lecture 18: Limited Liability Partnership, Sole Proprietorship, Limited Partnership

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School
University of Waterloo
Department
Accounting & Financial Management
Course
AFM231
Professor
Darren Charters

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Document Summary

Question: how do we want to organize" the business. You want to make sure it is the one you want. Need to sort out the other details that come with it. Sole proprietorship does not have to be a one person" operation. But must be carefully structured or else it will likely be deemed a : key consideration. Partnership a business carried on by 2 or more persons that is not a corporation- Carrying on business with a view to a profit similar to a sole proprietorship, in that neither has a distinct legal personality separate from the people who make them up. There are limited exceptions to the above point. More than one type of partnership exists. Partnership: understand the different types of partnerships. Limited partnership: text notes primarily used as investment device. Still better off being intentional about how we set it up: don"t want it to happen by change.

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Related Questions

NEED 10 PAPER

You are the manager of Acme Fireworks. The company started in the owner�s garage two years ago and now has 15 employees that you manage. The company started as a sole proprietor, and the owner has never changed the entity. The company makes and sells fireworks. The owner has informed you that the company has received inquiries from several large retailers about the company�s ability to fill large orders on a regular basis. The owner told the retailers that the company could fill such orders, and a price per unit was agreed upon. No other details were discussed. The owner is anticipating that new employees will need to be hired but is worried that if the large orders do not continue, the company will not have the funds to pay the new employees. The owner is now considering changing the business entity but does not know what entity to form or how to form it.

The owner has asked you to do the following:

  • Explain potential personal liability for injuries to consumers caused by the product.
  • Analyze whether the owner formed a contract with the retailers applying the five elements as discussed from Week Two to the hypothetical facts.
  • Analyze how different employment types could be used with application of hypothetical facts.
  • Recommend a new business entity. Provide a rationale to support your recommendation

For each task, be sure to analyze the relevant law, apply the facts to the law, and make a conclusion. OUTLINE BELOW

  1. Introduction
  1. Provide a brief overview of the content contained within the proposal.
  2. Thesis: Transition from the current sole proprietorship to a Limited Liability Company (LLC) is the most seamless and logical progression based on the projected business model.
  1. Assessed Product Risk and Personal Liability
  1. Discuss the inherent risks associated with firework manufacturing and shipping.
  2. Note the variations/correlations in personal and business liabilities due to perceived negligence resulting in consumer/employee injury.
  3. Potential liabilities resulting from defective merchandise.
  4. Contract Viability
  5. Review the five elements of a contract from the information provided.
    1. Offer
    2. Acceptance
    3. Consideration
    4. Legality
    5. Capacity
  6. Provide recommendation of contract viability/probability
  1. Recruiting and Compensation
  1. Employment Types
    1. Full-time
    2. Part-time
    3. Casual
    4. Daily/weekly hire
    5. Probationary
  2. Determine the best option to increase productivity while minimizing prolonged or unexpected expenses
  3. Business Entity
  4. Discuss the different business entities available
    1. Sole Proprietor
    2. Partnership
    3. Corporation
    4. Limited Liability Company
  5. Compare and contrast benefits of an LLC v. other archetypes
  6. Conclusion
  7. Review all previously discussed information and develop a coherent vision
  8. Discuss aforementioned vision as it relates to thesis statement
  9. CHAPTER 5: Understanding and Choosing a Legal Structure. (2012). Women's Small Business Start-Up Kit (9781413317220), 149-186.

  10. Pakroo, P. H. (2014). CHAPTER 1: Choosing a Legal Structure. Small Business Start-Up Kit, 7-28.

You are the manager of Acme Fireworks, a fireworks retailer who sells fireworks, puts on ground display fireworks, and large aerial display fireworks. The company started in the owner�s garage two years ago and now has 15 employees that you manage. The company started as a sole proprietorship, and the owner has never changed the entity. The owner has informed you that the company has received inquiries from several large businesses wondering if the company could create several fireworks displays on a regular basis. The owner told the inquirers that the company could fill such display orders, and a price per display was agreed upon. It was discussed that most of the cost for a fireworks display is for skilled labor, insurance, and the actual service of setting off the fireworks. No other details were discussed. The owner is anticipating that new employees will need to be hired, but he is worried that if the large orders for fireworks displays do not continue, the company will not have the funds to pay the new employees. The owner is now considering changing the business entity, but he does not know what entity to form or how to form it.

The owner has asked you to do the following:

  • Determine if the contracts with the businesses will be governed by common law or the Uniform Commercial Code (UCC), and explain why.

  • Analyze whether the owner formed a contract with the businesses, and apply the five essential elements of an enforceable contract.

  • Explain the potential personal liability to Acme Fireworks if a spectator is injured by a stray firework from a fireworks display.

  • Discuss the different employment types and relationships relevant to agency law, and analyze the advantages and disadvantages of each type specific to Acme Fireworks.

  • Explain why Acme Fireworks should not operate as a sole proprietorship. Recommend a new business entity, and provide rationale to support your recommendation.

For each task, be sure to analyze the relevant law, apply the facts to the law, and make a conclusion.

I. You and two friends, Pat and Ron, have decided to form a newbusiness, running a restaurant. Your friends, pat and Ron, bringthe following to the business: Pat is something of an entrepreneur.He has several ventures and ready access to financing for yourbusiness. Because of his varied interests, however, he doesn’t wantto be an employee of the business. He does, however, want to havesome input into the management of the business. Ron has a full timejob, which she is willing to leave to make a full time commitmentto running this restaurant. She has limited funds available andhopes to develop “sweat equity” in the restaurant through her workeffort. She is a skilled chef who will manage the kitchen and thefood production. You are the “idea person”. You have conceived ofthis enterprise, and are charged with getting everything lined up.You will be involved in the day-to-day running of things, and willbe the manager of the business side of the restaurant. I. You needto decide the form of the business and explain why you chose thatform. Detail the options available and advantages and disadvantagesof each. II. Having chosen the form of business, you also need toarrange financing to obtain all of the kitchen equipment, diningroom equipment, stock the bar, purchase food, pay rent, getoperating capital for the first two months of operation, and amillion other details. A arranges through his sources to getfinancing. The lender requires that you do whatever is necessary tominimize his risk and each of the three of you to be responsiblefor the loan. What are all of the options? Which ones are best? Howdo they work? III. You also need to have sources for food, drink,etc. What are the options for buying/obtaining them? Which ones arebest? Why? How do they work? Do you need written contracts? Why? Ifyou run into problems with your suppliers, what are your remedies?Do they depend upon the options you chose when you began yourrelationship with them? Why? IV. What risks do you undertake inoperating a restaurant? How do you protect yourself against thoserisks? Are the solutions you have come up with practical ones? Why?(Consider ALL risks: UCC, tort, financial, etc.).