Before beginning this activity, read LO1 from chapter 35 in your text. Pay attention to the major types of business organizations such as sole proprietorships, partnerships, companies, and limited liability companies. It is also important to understand how these forms of businesses are created and ended. This activity helps illustrate some of the factors people must consider when they form business organizations.
Choosing the form of business to create is one of the most important decisions an enterprise makes. The extent of liability and control the owner will have depends on the form of the business organization created.
Read the case and answer the questions that follow.
After graduation, four college fraternity brothers decide they want to form a business together. They want to open a sports bar on some property that recently was put up for sale adjacent to the local stadium. The fraternity brothers are not yet sure whether they want to make equal investments and have equal control over the partnership. However, each brother is able to invest a maximum of $20,000. The fraternity brothers are open to considering any of the different forms of business organization frameworks available to them.
Please correctly answer the questions below AND provide a complete explanation for your answer.
1. Because there are multiple people interested in creating a business organization, the fraternity brothers cannot form which of the following?
2. Suppose the fraternity brothers are considering forming a partnership. What would be one major disadvantage of this option?
3. Suppose that the fraternity brothers decide they indeed want to form a partnership. If all the partners agree that they want to share the management responsibilities and profits equally and accept equal personal liability, they should form a ___________________.
4. Suppose that instead of a partnership, the brothers decide to consider a corporation. Which of the following is an advantage of a corporation that they might find tempting?
5. What is one major disadvantage of a corporation that the fraternity brothers might face should they decide to incorporate?
6. Suppose the fraternity brothers want to combine the tax advantages and management flexibility of a partnership with the limited liability of a corporation. What type of business organization should they form?
7. Ultimately, the fraternity brothers decide to form a limited liability company (LLC). Under this form of business organization, what is the magnitude of liability each partner would face?
The year 2012 was a nightmare for James Littleton. In January 2012, Littleton was diagnosed with “Type 2” (adult onset) diabetes; in June, Littleton’s physician expressed concern with the lack of circulation in his left leg, and in October, a circulatory specialist recommended that the left leg be amputated to the knee; reluctantly but resigned to his fate, James agreed.
On November 1, Littleton was admitted to Pinecrest General Hospital for surgery. In what can only be described as a horrible and catastrophic mistake, the surgeon misreads the diagnosis and surgical instructions, and amputates Littleton’s right leg by mistake. Littleton’s left leg is amputated the next day.
Confined to a wheelchair, but supported by the love, care and concern of his family, Littleton is taken to a local Pinecrest law firm, Stephenson, Gordon, and Ratcliff, a general partnership. Stephenson and Gordon agree to represent Littleton in the medical malpractice lawsuit, and sign a contract of representation with Littleton, agreeing to represent him for the standard one-third contingency fee, plus associated expenses.
The statute of limitations for medical malpractice actions in the state is three years. Due to oversight and neglect (rumor has it that both Stephenson and Gordon have substance abuse problems,) the firm fails to file a complaint against the attending surgeon and Pinecrest General Hospital within the three-year period. Even though he lacks legal training, Littleton knows he will be forever barred from bringing a lawsuit against the doctor and the hospital. Having experienced catastrophic neglect from two professions he once respected, Littleton focuses his remaining “life energy” on bringing Stephenson, Gordon, and Ratcliff to justice. He sues the general partnership, as well as individual attorneys Stephenson, Gordon, and Ratcliff for legal malpractice. Ratcliff’s attorney moves for dismissal of the claim against his client individually, arguing that Ratcliff did not agree to represent Littleton, and was not an “attorney of record” for Littleton, and as a result, should be dismissed personally from the lawsuit.
Will Ratcliff succeed in his motion for dismissal? Why?
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