Shawn Bates was working to establish a business enterprise with four of his wealthy friends. Each of the five individual would receive a 20% 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 investor asre taxedf at the rate of 15% on dividend income and 30% on the other income and that the corporate tax rate is 30%. Also suume that the new company is ex[pected to earn $400,000 of cash income before tax during its first year of operation. All earning are expected to be immeiately disturbed to the owners.
Calculate the amount of after-tax cash flow available to each investor if the business is established as a partnership versus a corporation. Write a memo explaning the advantages and disadvantages of these two form of business organization. Explain why a limited liability company may be a better choice that either a partnership or a corporatiom