BUSINESS FORMATION 1
Business Formation Assignment
Melissa Ruk
School of Business, Liberty University
BUSI561 Legal Issues in Business
Professor Matthew Martin
December 10, 2022
Author Note:
Melissa Ruk
I have no known conflict of interest to disclose.
Correspondence concerning this article should be addressed to Melissa Ruk.
Email: maruk@liberty.edu
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Which of the business entities under consideration best accomplishes her business goals?
Thoroughly explain the reasons for your recommendations.
When forming a new business, there are several ways in which a company can be legally
structured. According to the Small Business Administration (2022), individuals should consult
their legal counsel or accountant to help them choose the best business structure. When creating
a new business, deciding which legal business structure to use is essential because this will
dictate the business owner's liability, how taxes are calculated, and how much control the owner
has over the business (Kubasek et al., 2020). For Shania and her new Christian coffeehouse
business, she is considering the following business structures: a sole proprietorship, a
partnership, a small corporation, or an LLC.
When starting a new business, the business owner needs to understand the different
business forms they can choose from and find the one that is right for them. A sole proprietorship
is the simplest and cheapest way for Shania to form her new business; unfortunately, this type of
business formation does not offer the needed personal liability protection. With a sole
proprietorship, Shania would be the only owner of the company. There would also be no
separation between Shania’s personal assets and expenses and that of the business, and she
would be personally responsible for all business debts and obligations (Hoory et al., 2022). As
the business owner, Shania would be personally liable for the coffee shop, including if someone
was injured within the coffee shop, any debts or losses, can be personally sued for these
liabilities, and the company taxes would be combined with her personal taxes (Kubasek et al.,
2020). A sole proprietorship is not an appropriate legal business structure for Shania’s Christian
coffeehouse business. It does not allow for multiple owners. Moreover, Shania would take on too
much liability if she chose this structure.
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A partnership could be a beneficial business structure for Shania as it allows for the
company to be owned by two or more people, which would be needed if Shania is to own the
business with her husband, Marvin (Kubasek et al., 2020). The author lists the advantages of a
partnership as they are easy to create, they generate income for the owner, and the owners can
deduct business losses from their taxes. The authors continue with this list of disadvantages of a
partnership as each partner is personally liable for the business contracts, losses, debts, and
obligations, including those of another partner. Even though there is the ability to have more than
one owner with a partnership, each partner is still personally liable for the business. Because of
the personal liability that Shania and her partners would take, a partnership is not the correct
legal business structure for the new company.
Of the remaining legal business structure that Shania is considering, the most appropriate
one for her to use when forming her coffee shop business is a limited liability company (LLC).
Shania would benefit from setting up her business as an LLC because this structure offers her the
most flexibility. An LLC would be the best option for Shania and her partners because this legal
business form takes on the tax benefits of a partnership and the limited liability of a corporation
(Kubasek et al., 2020). To create an LLC, Shania will first need to draft Articles of Organization
that outline the rights, powers, duties, and obligations of the members with her business partners,
understand her state’s LLC filing requirements, and pay any applicable fees (Gordon, 2022).
While these steps are more involved and costly than other business structures, the protection
from an LLC is worth extra work in the beginning. When it comes to how the business will tax
each year, the advantage of an LLC is that the company can pick how the LLC will be taxed. The
members can choose to be treated as a sole proprietorship or partnership and report their share of
business income and expenses on their personal tax returns (Crail et al., 2022). Alternatively, as
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the article stated, the members can be taxed as an S-corp or C-corp, allowing the LLC owners to
collect a salary, participate in benefit programs and save on taxes. Finally, the most significant
advantage of the LLC is the protection that Shania and her partners would gain by using an LLC
as their business structure. Like a corporation, the members can limit their liability for the
business’s debts, contracts, or any other liability generated by the business (Gordon, 2022). If a
customer is injured in the coffee shop, none of the members can be held personally responsible
for the liability. The limited liability protection should give confidence to Shania and any other
owners’ as their personal assets will be protected from any business debts and lawsuits (Crail et
al., 2022). I recommend that Shania structure her business as an LLC because she can achieve
the flexibility of having one or multiple members, has different options on taxing, and will not be
personally liable for the company. While higher costs and time are associated with starting an
LLC, the benefits outweigh these disadvantages.
Which of the interested persons she should include in her business, in what role(s), and
why? Your analysis must include Biblical perspectives, such as Biblical considerations of
marriage, and business relationships with non-believers. Thoroughly explain the reasons
for your recommendations.
Shania should consider herself very fortunate as she has family and friends who believe
in her. They all want to help her in her new business endeavor and want to see the Christian
coffeehouse succeed. Marvin, her husband; Kelsey, her sister; and Carlos, her neighbor, each
want to contribute either capital to the business or work at the coffee shop.
Before spouses formalize a business partnership, much thought must be put into the
matter before making a decision, as some relations cannot withstand marriage and business
interaction (Hastenteufel & Staub, 2020). The article states that depending on the marriage and
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the individuals in the marriage, it might be best for them not to become business partners as it
will negatively impact the marriage. Shania does not have to worry about this, as her husband,
Marvin, wishes to support his wife from afar. Marvin wants to contribute working capital to the
coffee shop only; he wants to avoid being involved in the day-to-day operations of the coffee
shop. His willingness to invest working capital into her business demonstrates support for her
vision. As stated in the Ecclesiastes, “Two are better than one, because they have a good reward
for their toil. For if they fall, one will lift up his fellow. But woe to him who is alone when he
falls and has not another to lift him up!” (English Standard Version, 2016, Ecclesiastes 4:9-10).
God does not want us to journey through life alone, so he has placed people in our lives. In a
marriage, a couple can help one another accomplish tasks one person cannot complete alone.
Even though Marvin wants to be involved in the business in a limited capacity, Shania can lean
on her husband for support when needed. When Shania is unsure what to do, Marvin can help her
make the best decisions for the coffee shop, their family, and their marriage. Working together as
a team and supporting one another, they are always there to support each other when the other
needs help. Shania should make Marvin a member of the LLC because
Kelsey and Carlos’s positions within Shania’s new Christian coffeehouse would differ
from Marvin's. Their roles would be different because neither of them expressed any interest in
becoming owners of the new company owner, nor did they express that they would be investing
any working capital into the coffee shop company. Because of these reasons, Shania should refrain
from approaching them about being made owners of the business or members of the LLC.
Being a mature Christian-thinking woman, Shania should be aware of the following
passage from the Bible, “Wives, submit to your own husbands, as to the Lord. For the husband
is the head of the wife even as Christ is the head of the church, his body, and is himself its
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Savior. Now as the church submits to Christ, so also wives should submit in everything to their
husbands” (English Standard Version Bible, 2016, Ephesians 5:22-24). As much as Shania
would want to hire her sister Kelsey and would enjoy working with her, she should understand
the importance of her brother-in-law’s wish when it comes to his wife raising their children.
Even though it will be hard for Shania to tell her sister no, Shania should not come between
her sister and brother-in-law. If she does, this could affect Shania's relationship with her
brother-in-law and Kelsey’s relationship with her husband. There is also the potential that if
Shania hired Kelsey, the drama between Kelsey and her husband could find its way into the
coffee shop and negatively impact Kelsey’s performance, leading to poor decision-making,
reduced productivity, and bad customer service (Qiu & Freel, 2019). The authors also state that
these issues will boil over into the family and lead to the family’s breakdown. Hiring someone other
than Kelsey is best to preserve the business and the family. Once the business is well established, the
sister can revisit the issue later to see if Kelsey’s husband has a different view on the matter then.
As for Carlos, Shania should initially include him in the business as an employee or
even as a manager or assistant manager of the coffee shop. Carlos has expressed that he
believes the concept of a Christian coffeehouse would be very successful due to the extensive
local religious community. Carlos also wants to be part of a religious-based business despite
being non-Christian. Even though Carlos is not a believer himself, he sees the value in Shania's
idea because if he did not, he would not be so supportive of the idea of a Christian coffeehouse.
His support can benefit Shania as she will need employees that respect her company’s values
and are willing to work hard to help make the company successful. Even though Carlos’
current eagerness to work is rooted in personal selfishness to make money, Shania has the
opportunity to share the Christian faith with Carlos and show him how God can provide for us.
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The Bible reads, “Go therefore and make disciples of all nations, baptizing them in the name of
the Father and of the Son and of the Holy Spirit, teaching them to observe all that I have
commanded you. And behold, I am with you always, to the end of the age” (English Standard
Version Bible, 2016, Matthew 28:19-20). As a mature Christian woman, Shania should be
helping spread the word of God and show others God’s power. By working with Carlos, she
can share God’s grace and show him the wealth that God can bring to his life. If the Christian
coffeehouse is successful, that is partly because of Carlos' work, and if he wants to grow with
the business, then Shania and Marvin can revisit adding him to the LLC as a member. If he
developed a greater connection with God because he worked with Shania, that would be icing
on the cake.
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References
Crail, C., Haskins, J., & Watts, R. (2022, August 30). What is a limited liability company (LLC)?
definition, pros & cons. Forbes. Retrieved December 8, 2022, from
https://www.forbes.com/advisor/business/what-is-an-llc/
English Standard Version Bible. (2016). Retrieved from
https://www.biblegateway.com/versions/English-Standard-Version-ESV-Bible
Gordon, J. (2022, April 14). Limited liability company (LLC) - A detailed explanation. The
Business Professor, LLC. Retrieved December 8, 2022, from
https://thebusinessprofessor.com/en_US/business-governance/overview-llc
Hastenteufel, J., & Staub, M. (2020). Current and future challenges of family businesses.
Managerial Economics, 20(2), 119. https://doi.org/10.7494/manage.2019.20.2.119
Hoory, L., Haskins, J., & Watts, R. (2022, July 7). Sole Proprietorship vs. LLC: Here's what you
need to know. Forbes. Retrieved December 7, 2022, from
https://www.forbes.com/advisor/business/sole-proprietorship-vs-llc/
Kubasek, N. K., Browne, M. N., Barkacs, L., Herron, D., & Dhooge, L. (2020). Biblical
worldview edition of dynamic business law (2nd ed.). N. J. Kippenhan (Ed.). New York,
NY: McGraw Hill Education.
SBA. (2022). Choose a business structure. Retrieved December 7, 2022, from
https://www.sba.gov/business-guide/launch-your-business/choose-business-structure
