Question

Gerry and Matt are friends that want to open a new type of business, a

bar/restaurant with a day-spa so that people can eat and drink while they wait for
their appointments. They have selected a location and negotiated a lease
agreement for 1,000,000 dollars. Gerry has another friend, Meghan, who has
years of experience in the beauty industry but has a checkered past dealing with
customers (she previously attacked a client). Gerry and Matt would like to add her
to the business but are unsure of what type of model would be best.
Gerry recently purchased a new car that he doesn't want to risk losing and
Matt started a college fund for his daughters that he wants to protect.
• Explain which for of business organization you think would be best for Gerry
and Matt
• Explain why the other two forms of business organization are not
appropriate for Gerry and Matt
o Note: when answering the question about their business, make sure
you use facts from the scenario

Answer 1

Based on the given scenario, a limited liability company (LLC) would be the most suitable form of business organization for Gerry and Matt.

Limited Liability Company (LLC): An LLC would provide Gerry and Matt with personal liability protection while allowing them to share profits and losses. This business structure would be suitable because:

It offers limited liability, meaning Gerry and Matt's personal assets, such as Gerry's new car and Matt's college fund, would be protected in case of any legal issues or debts incurred by the business.

It allows for flexibility in management and decision-making, enabling Gerry, Matt, and potentially Meghan to have control over the business's operations.

It provides the opportunity to bring in Meghan as a member of the LLC while minimizing the potential risk associated with her past actions. As an LLC member, Meghan's liability would also be limited.

Sole Proprietorship: A sole proprietorship would not be appropriate for Gerry and Matt in this scenario. This form of business would make Gerry and Matt personally liable for any legal issues or debts incurred by the business. Given that they have personal assets they want to protect, such as Gerry's new car and Matt's college fund, a sole proprietorship would expose them to unnecessary risks.

Partnership: A general partnership would also not be suitable for Gerry and Matt. In a general partnership, each partner is personally liable for the business's obligations and any actions taken by the other partners. Considering Meghan's checkered past with customers, Gerry and Matt may not want to assume personal liability for any potential issues that may arise from her involvement in the business.

In summary, a limited liability company (LLC) would be the most appropriate form of business organization for Gerry and Matt. It offers personal liability protection, flexibility in management, and the ability to bring in Meghan while minimizing potential risks associated with her past actions.

Explanation: