Business Law Paper

Moni Davit-Bek

Bus. Law 308

Prof. Cooper

3/12/2014

Writing Assignment

          After reading the paper provided by Prof. Cooper, I think the type of business entity that best fits Aric, Jorge, Virginia, and Jackie’s situation is a Limited Liability Company. An LLC has the mixture of partnership and corporation. It has the non-tax advantages of corporations and positive tax dealing of partnership. An LLC is owned by members, who can choose to manage the company themselves or they can vote for a manager who will run the business. Owners of the LLC have limited liability as shareholders in corporations. One of the best features of LLC is that it works with pass-through system, which means that the profits and losses are not taxed at the entity level, but they are reported on the members’ individual tax returns.

         Creating an LLC will be the best option for Aric, Jorge, Virginia, and Jackie because they will be able to adjust the operating agreement provided by RULLCA (Revised Uniform Limited Liability Company Act) in order to meet their needs. They will also be able to escape from double taxation. Another major reason of the LLC is that they will avoid risking their personal assets in case of lawsuits. An operating agreement will let all the members of the LLC to play a fair game and punish those members who will breach the agreement. The agreement will state the members’ rights, liabilities, duties, etc. An LLC will let the members to come up with their rules and decisions; it will allow the members to share the profits and losses at the desired percentage that they will state in the agreement.

LLC Operating Agreement

          This is a Limited Liability Company Operating Agreement made on March 12, 2014. The members of this agreement are Aric Krafton, Jorge Jarrison, Virginia Baker, and Jackie Spruce. The Limited Liability Company will be known as “Genius Guitar LLC.” The terms and conditions of this LLC will be outlined in this Agreement. This LLC Operating Agreement will be in effect on April 12, 2014, and will be terminated as outlined in this Agreement. The “Genius Guitar LLC’s” main purpose is to make profit from selling the collapsible guitars.

          Contributions

          A contribution can be either tangible or intangible property or other benefit to a limited liability company, such as money, services performed, promissory notes, and other agreements made by members. The members will make an initial contribution to the LLC in the following format: Aric Krafton--- contributed $20,000. Jorge Jarrison--- will contribute $1,000,000 of his own money, so will do nine of his clients. Virginia Baker---will contribute $20,000, and Jackie Spruce--- will contribute $20,000.

           Requirements          

            Aric Krafton: “It’s my invention, so I should have the greatest ownership interest as well as creative control. And I don’t want to be in position whereby the money people can kick me out and take my patent from me.” Jorge Jarrison: “… I need my group to have the greatest ownership interest. Also, I’m not willing to put myself or my clients at risk for any more money or other liability, and I need to make sure that the money is largely spent developing, marketing, and selling the product, and not on exorbitant salaries.” Virginia Baker: “… I want at least some meaningful ownership interest and the ability to devote half of my time to marketing other products until this one comes off.” Jackie Spruce: “I need to have an ownership interest plus some job protection.”

          Division of percentage for each member  

Aric Krafton will get 25% of the venture, Jorge Jarrison and his clients will get 49% of the venture, Virginia Baker will get 13% of the venture, and Jackie Spruce will get 13% of the venture.

           Profits and Losses

           The members will share the profits and losses in the following percentages:

Profits: Aric Krafton will get 35%, Jorge Jarrison and his clients will get 45%, Virginia Baker and Jackie Spruce will get 10% each. Losses will be distributed in the same percentages as the profits. Profits will be distributed quarterly. Each member will be allowed to withdraw from their profit at any time with a written notice to all other members of the LLC.

         Liability of Members

         According to the RULLCA section 17703.04, debts, obligations, and other liabilities of the limited liability company are solely  the debts, obligations, and other liabilities of the limited liability company and do not become the debts, obligations, and other liabilities of a member. None of the members shall be liable for the debts and tort of the LLC just because he or she is the member of the LLC. However, each member remains liable for his or her Capital Contribution.