John Henry has a small housecleaning business that currently is a sole proprietorship. The business has nine employees, annual sales of $480,000, total liabilities of $90,000, and totalassets of $263,000. Including the business, Henry has a personal net worth of $467,000 a nonbusiness liabilities of $42,000, represented by a mortgage on his home. He would liketo give one of his employees, Tori Kobayashi, an equity interest in the business. Henry isconsidering either the partnership form or the corporate form, where Kobayashi would begiven some stock. Kobayashi has a personal net worth of $36,000.

a. What is the extent of Henry’s exposure under the sole proprietorship in the case of alarge lawsuit (say, $600,000)?

b. What is his exposure under a partnership form? Do the partners share the risk?

c. What is his exposure under the corporate form?

Answer rating: 100% (QA)

1 If John is running Sole proprietorship then his expo... View the full answer