Acc 206 - Business Formation

ACC206 – Assignment 1

The partnership is a business model where those partners share in all facets of the business. Everything from ownership, profits, and losses, assets and liabilities are broken down between the partners (Mollaei, 2017). Corporations are owned and managed by the shareholders. Partnerships share the net income based on the investment of capital, there are no other entities, like shareholders to divide earnings between at year end (Weygandt, Kimmel, Keiso, 2013). If the business goal is to make money, in a corporation the money is reinvested into the company as capital and divided among the shareholders (Mollaei, 2017). The risks associated with this model are the responsibility of the partners themselves. Creditors will go after the partnership initially but if there is still outstanding debt the partner’s holdings sought for debt relief (Weygandt, Kimmel, Keiso, 2013). With a corporation there is protection for the owners, the company being the entity at risk. In setting up any company, there is legal paperwork but the paperwork mandated for a partnership is minimal compared to the legal paperwork, legal requirements and tax obligations required for a corporation (Mollaei, 2017). In a partnership the more partners the additional capital available to the business. Distributions of duties are more than to a single person, and there is a higher opportunity for success if ever partner brings a different skill to the company (Mollaei, 2017). From a decision-making standpoint, partnerships can make minor and major decisions in a reasonably quick amount of time. Whereas, in a corporation, there is a board of directors that makes all the decisions for the company (Weygandt, Kimmel, Keiso, 2013).

In reviewing the options for a partnership, there are multiple types to choose from, Limited Partnership (LP), Limited Liability Partnerships (LLP) and Limited Liability Company (LLC).

In a Limited Partnership, there is one partner that assumes all liability while others assume none. This type of model does not share equally in the partnership. For less responsibility, the tradeoff is limited compensation and control in the company (Weygandt, Kimmel, Keiso, 2013). The general partner receives a higher financial benefit for assuming the additional risk (Weygandt, Kimmel, Keiso, 2013).

A Limited Liability Partnership is deliberately designed to shield innocent partners from the acts of other partners. This type of model is beneficial for lawyers, doctors and any profession at risk for lawsuits stemming from malpractice or negligence (Weygandt, Kimmel, Keiso, 2013). LLPs also carry larger than average insurance policies due to the nature of the company and legal implications (Weygandt, Kimmel, Keiso, 2013).

Limited Liability Companies have become a fast moving train for partnership models in the last few years. This type of company offers protection from personal assets sought by creditors (Weygandt, Kimmel, Keiso, 2013). Additionally, there is no active participation in the management of the business for the partners.

Partnership requires the least amount of capital for startup businesses (Weygandt, Kimmel, Keiso, 2013). However, if you chose to finance, the requirement would be for the LLC to take out the loan rather than the individual partners. Having a target demographic of residents of the Sedona, Arizona area that is over 50 years old suggests this would follow the small business model of a partnership rather than the corporation format. Just from a startup standpoint the least amount of capital required would be ideal. There is always the option to franchise the company nationwide and change the business structure to a corporation from a partnership.

What type of partnership would be best for the three of you is another option to consider? There is little to no risk of lawsuit or malpractice unless you want to partner with a doctor’s office and open a separate line of service as a physical rehabilitation facility. In that case, it would be best to consider the LLP format. However, an LLC business structure would be an excellent fit for the company. If you are all three planning to operate as equal partners one option is to designate a job title, salary, and scope of responsibilities for each partner. This option would limit having one person in charge of all decisions or hiring a separate general manager. Placing each of the owners in charge of a department, like marketing, accounting, or operations would give each partner a salary position and involvement in the company.

Without knowing the financial positions