Prior to beginning work on this assignment, review Chapters 28, 29, and 30 of the textbook, as well as the articles on Changing Legal Structures: LLCs and C Corps, The Pros and Cons of LLCs, and How To Start An LLC In 7 Steps (2024 Guide) which discuss business entities.

Malik, Nia, and Talia are planning to start a catering business in a metropolitan area with a population of approximately 480,000. The target market for the venture will include both the corporate market (employee events, client meetings, etc.) and the private market (weddings, family events, etc.).

The business plan which they have developed has set start-up costs of $800,000. Malik will contribute 55% of the capital for the creation of the new entity, while Nia will contribute 30% and Talia adding 15%. The plan also projects that the company will operate at a loss for the first two years. In the third year, it is projected that the company will realize a profit of 15%, and 20% profit in year four.

Malik is primarily an investor in this new business and does not have any experience in catering or the restaurant industries. However, his family is wealthy, and he is well connected to the metropolitan area. Thus, he would be an asset as being recognized as a leader of the organization.

Nia has been highly successful as a marketing executive in the local entertainment sector. She is also considered to be a very effective social influencer in the area, as well as on social media. As a result, she will be working as the marketing and sales director of the catering business.

Talia is a culinary expert and has been working as a chef at a local restaurant. She has also been operating a small catering business as a sole proprietor on a part-time basis, which is how the idea for the new business venture originated. Talia has worked in several large cities such as Los Angeles, New York, and Rome. Since she is a chef, she does have experience of managing large kitchen staffs. However, she is relatively new to the current market area.

Nia and Talia will work for the organization on a full-time basis. Malik will work as a consultant but will not take part in many of the operational tasks that are involved in running the business. Initially, all other staffing needs will be done with part-time employees.

Based on some discussions Malik has had with his attorney, the group believes that they should form an LLC for the new business. However, they are open to other ideas.

In your paper,

Explain the advantages and disadvantages of using an LLC. Are there any other business forms that should be considered for the initial start-up?
Discuss whether the LLC should be member-managed or manager-managed, addressing the advantages and disadvantages of each.
Discuss how the profits and losses of the business should be shared. This would include addressing the following issues. How should the LLC be taxed? When addressing these concerns, also consider if Malik, Nia, and Talia should receive a salary? If so, how would the amount be determined? If not, how should they be compensated for their work?
Explain why it would be important to have an operating agreement when the LLC is formed.
Assume that in four years the company wants to expand into ten larger metropolitan areas.

Explain if the company should remain an LLC or transition into a new form of business.
The Limited Liability Companies (LLCs) paper
must be 4 to 5 full double-spaced pages in length (not including title and references pages) and formatted according to APA
must include a separate title page with the following in title case:
title of assignment in bold font
Space should appear between the title and the rest of the information on the title page.
students name
name of institution (The University of Arizona Global Campus)
course name and number
instructors name
due date
must utilize academic voice
must include an introduction and conclusion paragraph.
Your introduction paragraph needs to end with a clear thesis statement that indicates the purpose of your paper.
must use APA Level Headings,
must use at least 3 credible sources in addition to the course text. Course booK: Seaquist, G. (2012). . Zovio.

 

Sample Answer

Sample Answer

 

# The Advantages and Disadvantages of Using an LLC for a Catering Business

Introduction

In the realm of starting a catering business, the choice of business entity is crucial for its success and longevity. This paper will delve into the advantages and disadvantages of utilizing a Limited Liability Company (LLC) for the new venture initiated by Malik, Nia, and Talia. Additionally, considerations regarding the management structure, profit-sharing mechanisms, taxation, and the importance of an operating agreement will be explored. Moreover, the potential transition of the company into a different business form as it expands into multiple metropolitan areas will also be discussed.

Advantages and Disadvantages of Using an LLC

Advantages

1. Limited Liability: Members’ personal assets are protected from business liabilities.
2. Tax Flexibility: LLCs can choose to be taxed as a partnership, corporation, or sole proprietorship.
3. Less Formality: Minimal paperwork and fewer compliance requirements compared to corporations.
4. Profit Distribution: Profits can be allocated disproportionately to capital contributions.

Disadvantages

1. Self-Employment Taxes: Members are subject to self-employment taxes on their entire share of profits.
2. Complexity in Taxation: Tax treatment can be intricate, especially for multi-member LLCs.
3. Limited Life Span: In some states, the LLC may dissolve upon the death or departure of a member.

Consideration of Other Business Forms

While an LLC is a suitable choice for the initial start-up due to its flexibility and liability protection, considering a C Corporation might be beneficial in the future to attract investors through issuing stock.

Member-Managed vs. Manager-Managed LLC

Member-Managed

– Advantages: Members have direct control over business operations, fostering transparency and quick decision-making.
– Disadvantages: Potential conflict among members due to differing opinions on management issues.

Manager-Managed

– Advantages: Clear hierarchy with designated managers can streamline operations and avoid conflicts among members.
– Disadvantages: Members may feel detached from decision-making processes, leading to dissatisfaction.

Profit-Sharing and Compensation

To address profit-sharing and compensation:

– The LLC can be taxed as a partnership, allowing for pass-through taxation.
– Malik, Nia, and Talia can receive a salary based on industry standards and their roles within the company.
– Additional profits can be distributed based on their ownership percentages.

Importance of an Operating Agreement

An operating agreement is crucial for outlining ownership interests, profit-sharing arrangements, management structure, decision-making processes, and dispute resolution mechanisms. It serves as a blueprint for the LLC’s operations and helps prevent misunderstandings among members.

Transitioning into Larger Metropolitan Areas

As the company expands into ten larger metropolitan areas:

– Transitioning into a C Corporation might be advantageous to attract external investments and facilitate growth.
– C Corporations offer more flexibility in terms of ownership structure and stock issuance, making them ideal for scaling operations.

Conclusion

In conclusion, choosing an LLC as the initial business entity for the catering venture provides a balance between liability protection and operational flexibility. As Malik, Nia, and Talia navigate through the growth phases of their business, considerations should be made to adapt the business entity structure to align with their evolving needs and strategic objectives. By proactively addressing governance, taxation, profit-sharing, and future expansion plans, the catering business can set a solid foundation for sustainable growth and success.

 

 

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