Manny Moe and Jack Business Law Pizza Case
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Manny, Moe, and Jack are cousins and are thinking about opening a pizza restaurant in town. They have come to you for advice on how to set up their business. They have heard about things like partnerships and corporations but dont know much else. In your initial meeting with them, they have told you that they have “big dreams and big plans” for their business. They say that if they are successful with their first restaurant they would like to open additional restaurants in the town and perhaps elsewhere. Maybe get as big as Pizza Hut. They recognize that if they are successful at first and want to grow, that they may have to bring in other investors and to borrow money from a bank or other lender. They say they have enough money among themselves to pay for the first restaurant. They also want to know how best to protect themselves from liability. They also want to pay as few taxes as legally possible.
ASSIGNMENT:
Prepare a written report to Manny, Moe and Jack that addresses the following questions:
The possible business formation choices and business entity choices available to them.
-They are able to have a general partnership, which is an informal business entity and does not require documentation to come into formation, it does not protect any assets and they can create unexpected exposure. They can have a limited liability partnership but this requires at least one general partner and at least one limited partner. To form this documentation must be filed with the secretary of state. In this type of partnership there is usually a “silent partner”. They can also make it a corporation, which provides protection for all of its shareholders. They can also have a limited liability corporation or an LLC. LLcs are more flexible than a corporation, because there is less tax liability.
The advantages and disadvantages of each both as to their short term goals and longer term strategies.
-General partnership- advantages are less paperwork and documentation. Disadvantages are no asset protection.
-Limited liability Partnership- Advantages are one partner could be silent and does not have to run or manage the business, like an investor. Disadvantages are the limited partner can lose can lose his protection if he begins to manage the business.
-Corporations- Advantages are that this option provides personal liability protection for all of its shareholders. Disadvantages are the protection of the corporation can be given or taken away, for example, if your corporation is paying your personal expenses, or corporate funds and personal funds are put in the same account, the corporation protection may be revoked.
-LLC- Advantages are that an LLC is more flexible in terms