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Clark & Howell Business Entity

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Business Entity Assignment

LA245 – Fall 2018

Instructions: You are an associate attorney at the law firm of Clark & Howell. I (the Firm’s managing partner) have asked you to review three different business start-up scenarios for clients. For each of the three scenarios I would like you to explain what business entity you would recommend for each situation and provide an explanation/analysis as to why you have recommended a certain type of business entity versus another.

Scenario #1: Megan is a talented artist who sells original paintings and prints of her original work online. At first, Megan just painted as a hobby and sold her work to make a little extra cash, but in the past year Megan has started to earn enough money that she would like to start painting full time. Megan would like to eventually open a gallery or rent studio space to showcase her work, but since she is still struggling to make ends meet she intends to continue working out of her home for now and sell her work strictly online. Megan says that her sister is also an artist and she has expressed an interest in going into business with Megan. Megan would like our advice as to whether she should include her sister in her business venture, and she would also like guidance as to the appropriate business entity to form?

In this scenario, I would recommend that Megan consider a sole proprietorship as her business entity. A sole proprietorship is the most common and simplest form of business. It is also great for small business-like Megan’s painting business. Even though she has to manage the entire business on her own and is responsible for all the transactions, she does not have to worry about corporate tax payments or legal cost when forming the sole proprietorship. Sole proprietorships are great for startup businesses like Megan’s. So why shouldn’t she join arms with her sister, in a general partnership? In a general partnership, the debts and liabilities are shared equally, if not stated otherwise in the contract. Megan is already struggling to make ends meets, so why add more debt to her. It is also very early in both of their businesses’ careers, but if they both businesses become large and thriving, they can consider a partnership down the road. Megan does not need a large amount of money to jump start he business, so a LLC would not be useful in this scenario. In conclusion, a sole proprietorship would be the most ideal business entity for Megan to consider.

Scenario #2: Mike and Lamar are recent graduates from BU. While at school they developed and patented a synthetic compound that can be used as a substitute for many motor oils and machine lubricants. Mike and Lamar have already received some interest from local business developers and venture capitalists that see global potential for their developed product. Mike and Lamar’s parents



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