John is the sole proprietor of a business that designs web pages. He leases an office and buys computer equipment. He has an idea or a new software product, however, on which he works whenever he has time and which he hopes will be more profitable than designing Web pages. After six months, Mary and Paul come to work in the business to help develop John’s idea. John continues to pay the rent and other expenses, including salaries for Mary and Paul. John does not expect to make a profit at least until the software is developed, which could be months, and there may be very little profit if the product is not marketed successfully. John believes that if the product is successful, however, the company will be able to follow up with other products. John would like to retain overall control of the business but needs to find a way to tie the salaries of Mary and Paul to the success of the business, and needs to raise capital to implement his business plan. He also wants to limit his personal liability if the business fails.
Post one important consideration in choosing a form of business organization for this firm that will best allow it to meet John’s objectives. What are the advantages and disadvantages of this option? Suggest a written document that John should develop to reduce future liability and problems of the new business. Provide sound reasoning for your stance and back it up with references, if possible. Your logic should be factual, not emotional.
