Term Paper on "Business Could Be Structured. The Bar"

Term Paper 4 pages (1220 words) Sources: 3

[EXCERPT] . . . .

business could be structured. The bar could be run as a partnership, with Miriam as a silent partner. The partnership agreement can be used to determine the manner in which the proceeds of the business are divided. However, a partnership would also expose the principles to liability associated with the business. Given that they are opening a bar, there is high liability risk, and this type of business has a high failure rate. Thus it is recommended that the three incorporate. There are a few different types of corporations, including limited liability companies (LLCs), S-corporations and standard corporations. An LLC limits the downside risk to the owner of the firm. The LLC structure will also provide managerial flexibility and flow-through taxation. The LLC, however, is not recognized by the federal government for tax purposes, which means that taxes will still be dealt with as a corporation, partnership or sole proprietor. An S-corporation pass income to the shareholders in the same way that a partnership would. The ownership structure would allow Miriam to take a weighted share of the profits. However, any flow-through structure makes it more difficult to plow back earnings into the business as it does not allow for retained earnings. A corporation is a separate tax-paying entity, and has limited liability risk to the owners. It is, however, a more complicated structure to set up.

In this case, the partners will need to decide which of these structures best fits their needs. An LLC that is taxed as a partnership would likely be best in this situation, as it provides downside liability risk protection and it would also allow the partners to flow their income from the venture through. This way, a

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ll three parties would be taxed the same on the income. The corporation structure has cost disadvantages associated with set-up and double taxation, and it is unlikely that the three partners will need to utilize the benefits of that structure.

The bar business is going to be subject to a wide range of laws. In addition to IRS tax policy, there are laws with respect to food handling, employees and the service of alcohol. There are some federal laws pertaining to these topics but many of the laws are at the state, county or municipal level and the parties would need to investigate these with their local authorities.

There are a number of risks associated with this business. The first is the risk to the capital invested, as the bar business has a high failure rate. The second set of risks comprises those risks associated with food and alcohol service. Foodborne illness is a considerable risk and improper alcohol service could result in harm to a customer and loss of the bar's liquor license. There are also risks involved with hiring staff and risks related to fire and electrical hazards. This business can expect to have a fairly high insurance bill to cover the wide range of risks to which it is subject. However, it would not be able to insure against the risk of the business failing due to lack of demand. Miriam would also want to minimize her downside risk, since she is investing the money but is not going to take an active role in management. This would be arranged in the contract with Lou and Jose, as to at what point she would pull the plug on the business. Thus, there is risk associated with the business arrangement in general, and each of the partners should ensure that his or her interest is protected in the event that things do not work out as well as hoped.

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Quoted Instructions for "Business Could Be Structured. The Bar" Assignment:

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Business Entities, Laws, and Regulations Paper

Restaurant/bar: Lou and Jose plan to open a sports bar and restaurant where customers socialize and watch sporting events on large-screen TVs that hang around the bar. They do not have much money, but they do have *****, a wealthy investor who does not have time to participate actively in the business, but wants to provide capital to start the business in return for a percentage ownership.

Extermination business: Frank is a wealthy investor who plans to open a chain of exterminating businesses across the United States.

Professional practice: Akiva and Tara have just completed all educational and experiential requirements to be licensed as obstetricians. They want to open a medical practice together. They will take out a large loan to finance start-up costs.

Construction Scenario: Mei-Lin is the hiring manager for Surebuild, Inc., a new construction company. She has advertised a position as a jackhammer operator. The position*****s description states that the successful applicant must have a high school diploma. The following people apply for the position: *****, 35, who appears to be pregnant, is a high school graduate, and was formerly employed as a jackhammer operator; Eric, 55, who is experienced with a jackhammer, but has no high school diploma; Felipe, who is 38, speaks no English, has no high school diploma, but is experienced with a jackhammer; and Nick, 23, a college graduate who is epileptic, and has no experience with a jackhammer.

Write a 1,250- to 1,500-word paper, discussing two of the above businesses, plus the Construction scenario. For each of the two businesses you choose, discuss the following: (a) the business entity that represents the best choice for each business, taking control, taxation, and liability issues into consideration; (b) identify laws and regulations each business must consider in starting the business; and (c) identify risks against which each business must protect itself. For the Construction scenario, discuss only the following: identify and discuss the employment laws and regulations with which the business must comply in making a decision with regard to the individuals who applied for the jackhammer operator position.

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