You have saved $15, 000, and would like to start your own catering business. Initially, you will work out of your own condominium apartment. At first, you plan to hire part-time help on an as needed basis. Eventually, you would like to grow your business, hire at least a couple of full-time staff to help with food preparation, delivery, customer service, and maintaining business records. For your current needs, which include setting up a web-site, promotion and advertising, equipment purchase, as well as ingredients and delivery costs, you estimate that you will need another $15, 000 on top of your own for the first year. You intend to borrow this money from the bank.

Some other background information:

You own your own condominium, which you purchased with the help of your parents. You saved money for the down-payment when you worked for 5 years at 2 different jobs, lived in your parents’ home, and set aside $50,000 for down-payments. Your mortgage and condo fees add up to $2000 per month. Your parents are getting older, and you know that in about 15 years or so, you may need to start to take care of them. You do not have a spouse or children, but you do hope to have your own family soon.

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  1. What kind of business structure most suits your needs and is the most reasonable?Explain your answer, and include an overview of the advantages and disadvantages of setting up your business in such a manner (but do not go into the legal and financial risks, which are to be examined under question 2.)
  2. What are the legal characteristics of this kind of business structure? Explain what legal and financial risks are involved in setting up your business in this fashion.
  3. What are the tax implications of setting up your business in this manner?
  1. Your friend, Sharma, can contribute an additional $15,000 and would like to go into business with you. Suppose that you and Sharma decide that you will put in 55% of the time required for the business (focusing on customer relations and catering), and Sharma will put in 45% of the time required (focusing on web-design, business promotion, and book-keeping). You will share the profits 55% (you) to 45% (Sharma.) You also decide that while the two of you will make most of the business decisions together, you will make the decisions related to catering, the core of the day-to-day work of the business. You will each assist the other as needed in each other’s areas of expertise.
  1. Which of the following business structures: general partnership, limited partnership, limited liability partnership, and corporation, is/are most suitable for you and Sharma? Explain your answer, making sure that you address the question of liability for you and Sharma.
  2. Briefly explain why the other business structures in A), above, would not be sensible choices or could not be used by you and Sharma.
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