Question

Your clients, Jim and Darryl, has come to you for advice on how to set up their business. They have stated that they are looking for a structure that meets the following needs: Jim and Darryl will both participate in the business equally and share the profits. They are open to the idea of having shareholders, but it is not a requirement. They are certain they want protection from personal liability for all owners. Eventually they want to expand the business. When they do so, they do not want a limit on the number of owners they can have. They also do not want to limit the types of owners they can have. Meaning they would like the ability to have owners be individuals, businesses, trusts, foreign investors etc. If possible, they would like to avoid double taxation. They have a lawyer who will help them with any paperwork related to the formation of their business, so complexity of formation is not a major concern.

This is for the United States.

Answer 1

A corporation would be the best business structure for Jim and Darryl, as it allows them to participate equally, have personal liability protection, expand with diverse owners, and potentially avoid double taxation.

Step-by-step explanation:

The best business structure for Jim and Darryl, who want to participate equally in the business and share profits, protect themselves from personal liability, and have the ability to expand and have diverse owners, would be a corporation.

A corporation is a separate legal entity that offers limited liability protection to its owners, known as shareholders. Both Jim and Darryl can be equal shareholders in the corporation, meaning they would share in the profits based on their ownership percentage.

Additionally, a corporation allows for the issuance of different classes of shares, which can be beneficial in the future if Jim and Darryl want to bring in new investors or have different ownership structures. A corporation also has the advantage of being able to raise capital through the sale of stock, which can help with business expansion.

Finally, a corporation can avoid double taxation by electing to be taxed as an S corporation. This means that the profits of the business are only taxed at the individual level, avoiding corporate-level taxation.