Maria and Johnny are partners of the Lame Duck Restaurant. They have five employees working for the business. The business is doing well and has been profitable for them. An opportunity has arisen to expand the business into Palmerston and Darwin City. Maria and Johnny are keen to expand their business, but they will need a significant amount of funds to lease and fit out two more premises and employ approximately 10 more staff, as well as a manager for at least one of the other shops. Johnny is concerned about his potential liability for the debts and liabilities of the partnership. Also, he is concerned about the future of the business if one of them should decide to leave, as the current lease and future leases will be in both of their names. Based on the above facts, advise Johnny on the advantages and disadvantages of forming a company rather than retaining the partnership.
Maria and Johnny are partners in the lame duck restaurant which means they are general partners with unlimited liability each. Unlimited liablity means that if they can not pay any debt in the future that they owed for their restaurant ,they will have to pay it from their personal assets.
They are in need of funds to extend and to increase their foothold while they are also concerned about the debts it may bring forth.
Moving to structure-company is the correct decision in this case.
A company structure will have the following two key benefits that Maria and Johnny are concerned about :
1. They can raise money by offering the shares of the company and invite investors which will solve their issue of funds.
2. Company is a separate legal entity and is itself responsible for the liability or debts of the company while owners or shareholders of the company have a limited liability I.e. to the extent of their contribution in the company which shields their personal assets.
From the above analysis ,it is only logical to move to a company structure.
Maria and Johnny are partners of the Lame Duck Restaurant. They have five employees working for...
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