Law and Politics

Start Free Trial

Assume that you and your best friend are entrepreneurs. Your goal to set up a business that sells the most delicious tacos in the city! Discuss what type of business organization would be best for you to incorporate and WHY. This discussion should be substantial as you should explain the reasoning behind choosing one over another (taxes, liability, etc). What benefits do you receive as a result of your decision? What are the potential downfalls?

Expert Answers

An illustration of the letter 'A' in a speech bubbles

The key elements of this scenario are the fact that (a) the business will be a partnership and (b) the business will sell food.

A partnership does not incline itself to a sole proprietorship. In a sole proprietorship, the person and the business are one and the same. In the...

See
This Answer Now

Start your 48-hour free trial to unlock this answer and thousands more. Enjoy eNotes ad-free and cancel anytime.

Get 48 Hours Free Access

The key elements of this scenario are the fact that (a) the business will be a partnership and (b) the business will sell food.

A partnership does not incline itself to a sole proprietorship. In a sole proprietorship, the person and the business are one and the same. In the event of a split between you and your partner, you will have difficulty appropriately dividing property.

A business selling food, which carries with it substantial liability risk, also does not incline itself to a sole proprietorship. An accidental food poisoning, for instance, would put both you and your partner's personal assets at risk.

This means that your partner and you should look at forming either an LLP (Limited Liability Partnership) or an S Corporation. Both of these business models insulate your personal assets from those of the business and allow a better structure for joint management. Between an LLP and S Corporation, the former may present a better option for a small business from a tax standpoint. Limited liability companies and partnerships allow "pass through" income, meaning the complexities of corporate taxes can be somewhat ameliorated.

Approved by eNotes Editorial Team