Shawn Bates was working to establish a business enterprise with our of is wealthy friends . Each f the five individuals would receive a 2- percent ownership interest in the company. A Primary goal of establishing the enterprise was to minimize the amount of income taxes paid. Assume that the five investors are taxed at the rate of 15% on dividend income and 30% on all other income and that the corporate tax rate is 30 percent. Also assume that the new company is expected o earn $400,000 of cash income before taxes during the first tear of operation. All earnings are expected to be immediately distributed to the owners.
Required
Calculate the amount or after tax cash flow available to each investor If the business is established as a partnership versus a corporation. Write a memo explaining the advantages and disadvantages of these two forms of business organization. Explain what a limited liability company may be a better choice than either a partnership or a corporation