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LAW 220
Sep 5, 2023
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"Carla's Pets Store" David J Hahn Grantham University LAW 220: Business Law I Dr Matthew Cates July 18, 2021
"Carla's Pets Store" In this scenario, Carla should start a limited liability company for her Pets Store. She would not be able to do a sole proprietorship due to her hiring Quimby and Ruth as store employees. A limited liability company (LLC) combines the limited liability of a corporation and the tax advantages of a partnership (Miller & Hollowell, 2019). The characteristics of limited liability company are it requires the filing of documents with the Secretary of State to be authorized and it may have one ore more owners called members. It can be member-managed or manager-managed, all members have limited liability, and the profits and losses flow through to the members according to the operating agreement, their capital accounts, or local law which is generally proportional to their contributions (Gastelum, 2021). Some of the advantages of limited liability company (LLC) are it limits liability for managers and members, superior protection via the charging order, and flexible management. LLC also has flow- through taxation: profits are distributed to the members, who are taxed on profits at their personal tax level. This avoids double taxation and has good privacy protection. Limited liability company also is a premier vehicle for holding appreciating assets such as real estate and intellectual property and gives extraordinary flexibility in the ability to allocate profits and losses to members in varying amounts (Sutton, 2021). The ability to be taxed a personal level for Carla should be especially good advantage as she does not expect to make any profit for the first two years and almost none for the first three years. The disadvantages of limited liability company (LLC) are some states charge extra fees for operating an LLC and income splitting is available but unlike S Corp, in a business operating as an LLC all income may be subject to payroll or self-employment taxes (Sutton, 2021). This is not much of a worry right now for Carla since her Pets Store will not be making a good profit for about four years. More disadvantages of an LLC are transferability restrictions - consent of membership for each and every transfer of membership interests (Sutton, 2021). This is not much of a worry for Carla as she will only be using her own money to visit in her business and will have total control over the business. Lastly, single member LLCs face reduced asset protection, many states do not honor asset protection for LLCs with a single owner (Sutton, 2021). While this will affect Carla greatly in the beginning, if she wants to expand like she wants, more than likely, additional members will get added to the LLC. Best option for Carla to do to obtain additional capital to expand the business is to add additional members to her Carla's Pets Store LLC. She can have an operating agreement with the new members of the LLC describing the members who are providing the additional capital are limited partners in the company. The additional members will share in the profits of the LLC but they will not have managerial control over the operation of the limited liability company. Another option for additional capital if the business wants to expand nationally or internationally, Carla could seek out venture capitalists. For an equity stake, venture capitalist (VC) investors will provide capital so companies can expand (Ganti, 2021). If Carla's Pets Store becomes big, she can conduct an initial public offering (IPO) on the stock exchange. I believe this is the ultimate goal of most entrepreneurs is get their company listed on a stock exchange and become an international company.
"Carla's Pets Store" References Miller, R. L., & Hollowell, W. E. (2019). Business Law: Texts & Exercises (Ninth). Cengage Learning. Gastelum, M. (2021, January 10). What are the characteristics of a Limited Liability Company or LLC. Sutton, G. (2021, March 27). Top 12 LLC Advantages and Disadvantages. Corporate Direct. . Ganti, A. (2021, May 23). Venture Capitalist (VC) Definition. Investopedia. .
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