Question

Khalid is a 39-year-old, married business owner who runs a dry cleaning service with three locations. His personal obligations are the home that he owns with his wife who works for a well-known insurance company; the health needs of his family; and his commitment toward saving for the future higher education needs of his three children. Khalid knows that two of his locations require a large infusion of cash to pay for new and expensive dry cleaning equipment. Although his wife’s job provides the family with health insurance, it also places the family in a higher income tax bracket. Khalid would certainly like to minimize his taxes. Which of the following forms of business ownership would you suggest for Khalid? Khalid should consider:

A. A sole proprietorship due to the fact that it pays its own taxes and it has limited liability.
B. A sole proprietorship due to the fact that it has unlimited liability and it will protect the family’s personal assets.
C. A corporation because he can avoid the negative aspect of limited liability. Corporations are always taxed at a lower rate than individuals.
D. A limited liability company because he will only be liable for what he has invested in the business. His personal assets will be protected, and he can be taxed like a sole proprietorship.

Answer 1

D. A limited liability company because he will only be liable for what he has invested in the business. His personal assets will be protected, and he can be taxed like a sole proprietorship.