Question

you are forming a new company that delivers food to residents across college campuses. you have a number of partners, but your primary goals are to avoid personal liability and double taxation. you want to pay each of the partners based on their contribution to the success of the company, which is not equal to their percentage ownership. you could accomplish this by forming a(n):

d. limited liability company.
a. s corporation.
b. c corporation.
c. general partnership.

Explanation:

Analyze the business goals

The primary goals are:

1. Avoid personal liability.
2. Avoid double taxation.
3. Distribute profits disproportionately to ownership percentages.

Evaluate general partnerships

Using the Business Partnerships concept, a general partnership does not provide personal liability protection. Owners are personally liable for business debts.

Evaluate C corporations

A C corporation provides excellent Asset Protection (limited liability), but it is subject to double taxation on corporate profits and shareholder dividends.

Evaluate S corporations

An S corporation avoids double taxation and provides limited liability. However, profits and losses must be allocated strictly in proportion to each shareholder's ownership percentage.

Evaluate limited liability companies

A Limited Liability Company (LLC) provides Asset Protection (limited liability) and avoids double taxation through pass-through taxation. Crucially, an LLC allows for flexible, disproportionate allocation of profits and losses among partners, satisfying all three criteria.

Answer:

• d. limited liability company. (Correct answer)
• a. S corporation.
• b. C corporation.
• c. general partnership.