Problem 1: Simon and Lin formed SnL Limited Partnership. Simon made a capital contribution of $50,000 and became a general partner. Lin made a capital contribution of $25,000 and became a limited partner. At the end of the first year of operation, a third party sued the partnership and both partners individually in a tort action.
- What is the potential liability of Simon? Why?
- What is the potential liability of Lin? Why?
Problem 2: Two young business school graduates, Nicki and Cardi, form a consulting firm. When deciding on what business entity they should use, they are especially concerned about losing personal assets if they are sued. They are also concerned about income and taxes as they are just starting their careers and are on a tight budget.
What business entity should they use? Why?