Discussion Question: Deidre McFadden Came To The Offices Of ✓ Solved

Discussion Questiondeidre Mcfadden Came To The Offices Of Webber Ass

Deidre McFadden came to the offices of Webber & Associates seeking help in organizing her business, Fashion Angels, a toy-making enterprise focusing on dolls with multiple outfits. She wants to run the business and has few personal assets so is not worried about personal liability. Deidre’s aunt, Penelope, is elderly, wealthy, and adores her only niece. Penelope is willing to invest $500,000 to start the business, and Deidre has $10,000 to contribute on her own. Deidre expects to do all the work without compensation as it will take at least a year before Fashion Angels will make any profit.

Penelope will sign any agreement terms, with one condition. Penelope is insisting that Deidre cannot leave the company, stating “I don’t want my money going to a stranger, it’s for Deidre.” Deidre is looking for your advice as to the type of entity that would suit her best. “I don’t want my aunt to become the target for bill collectors if I fail. And to be honest, I really don’t want her interfering in the business because she can be quite aggressive.” What advice would you give Deidre?

Sample Paper For Above instruction

Introduction

Choosing the appropriate business entity is crucial for entrepreneurs, especially when significant investments and family involvement are involved. In Deidre McFadden’s case, her primary concerns are protecting her aunt’s assets from business liabilities, maintaining family harmony, and establishing clear operational boundaries. Therefore, understanding the various legal structures and their implications becomes vital to providing suitable advice.

Understanding Business Entities

Business entities such as sole proprietorships, partnerships, Limited Liability Companies (LLCs), and corporations have distinct legal and financial implications. For Deidre, the key considerations include liability protection, control over the business, tax implications, and the ability to restrict or regulate ownership transfer and exit strategies.

Suitability of Different Business Structures

• Sole Proprietorship: This is the simplest form with minimal formalities, but it does not provide liability protection. Since Deidre has few assets and is concerned about liability, this option is unsuitable.
• Partnership: Similar to sole proprietorships but with multiple owners. It offers no liability protection unless structured as a limited partnership, and disagreements can arise, especially concerning profit sharing and control.
• Corporation: A corporation provides liability protection but involves complex formation, higher costs, and double taxation (corporate level and dividends). It also allows for restrictions on transfer of ownership, which may be advantageous given Penelope’s condition.
• Limited Liability Company (LLC): An LLC combines liability protection similar to a corporation with operational flexibility akin to a partnership. Members (owners) can specify profit sharing arrangements and ownership restrictions in the operating agreement.

Recommendations for Deidre

Given Deidre’s circumstances—her desire to protect her aunt’s assets from liabilities, her wish for control over the business, and her concern about her aunt’s interference—the most suitable choice is an LLC. An LLC would limit Penelope’s exposure to business liabilities, thus protecting her personal assets from potential lawsuits or debts.

Furthermore, LLC operating agreements can specify that Penelope’s investment remains within the LLC, providing her with ownership rights without giving her direct control of daily operations or decision-making. This arrangement aligns with Deidre's desire to run the business independently while satisfying Penelope’s condition that her investment remains within the company.

Additionally, Deidre can include provisions in the LLC operating agreement that restrict her ability to leave or transfer her interest without Penelope’s approval, complying with her aunt's condition. This arrangement provides stability and reassurance to Penelope, while also protecting Deidre’s independence and operational control.

Conclusion

In conclusion, establishing an LLC offers the best combination of liability protection, operational flexibility, and control for Deidre. It allows her to safeguard her aunt’s investment, maintain control over the business, and set contractual restrictions to prevent her from leaving unilaterally. Proper legal counsel should draft the LLC operating agreement to ensure all concerns and conditions are adequately addressed.

References

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• Clark, J. R. (2020). Business Structures: Choose the Right Form for Your Business. Small Business Administration.
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• Garton, A., & Hsu, J. (2017). Legal Structures for Small Business. Harvard Business Review.
• Scherer, M. (2021). The Pros and Cons of LLCs for Small Business Owners. Journal of Business Structures.
• U.S. Small Business Administration. (2022). Choosing a Business Structure. SBA.gov
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