1. Your friends Ella and Sam come to see you and tell you that they are starting a business together. They tell you that they will be creating, manufacturing, and selling high quality, wooden jig-saw puzzles constructed from photographs that Sam has taken of various places in Maine: Moosehead Lake, Mount Desert Island, Lubec, Katahdin, and Monhegan to start. They would like a portion of their net income to be used to support conservation efforts in Maine. They have estimated that to buy the equipment needed to manufacture the puzzles they'll need to raise approximately $50,000 in addition to the contribution each of them is making. Ella will be in charge of manufacturing. Sam will be in charge of design and marketing. They expect to have at least 3 full-time employees initially, in addition to themselves. Sam's spouse has recently inherited $4 million from a rich uncle but will not be investing in the company. Ella has little personal debt but not very much accumulated wealth other than the $15,000 she'll invest in the business. Ella and Sam ask you what you think would be a smart business entity for them. 
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3. They tell you they think of themselves as partners already and ask if there is a way to just "get on with it." What are two forms of business entity that you would discuss with them? What are the pros and cons of each form for this situation? Consider the duration of the company, personal liability, ability to attract investment, tax advantages, documents required to set up the entity, and state of the law with respect to that entity. What form would you recommend between the two? Why? Are there any questions you'd like to ask them to help you decide?

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Two forms of business entity that could be discussed with Ell a and Sam are a general partnership and a limited liability company LL C A general partn... View the full answer