Case 3: Choice of Business Entity (Mallor 16th Ed. p. 990) Afterworking for a large company for 10 years, you decide to giveexpression to your entrepreneurial urges and start a business. Yourbusiness plan is to help small firms that are struggling withfinding ways to make new information technologies affordable andeffective for their business. You envision that your business willneed a capital infusion of $500,000 for the first year, duringwhich you project the business will have a net loss of $200,000,which reflects in part your salary of $80,000. Beginning with thesecond year, you believe that the business will generate enoughcash flow to finance internally all its normal capitalexpenditures. You expect second-year losses to be $100,000.Beginning with the third year, the business will be profitable. Youhave $120,000 of savings that you are willing to invest in thebusiness. You hope to obtain the remaining $380,000 of initialcapital from investors. While you are willing to give a portion ofthe equity of the business to the investors, you want to controlthe business, including day-to-day operations. It is especiallyimportant that the other investors not be able to expel you fromthe business or its management. 1. Although any business form maybe adapted to the needs of your new business, the business formsthat fit best are the LLC and LLLP. 2. If the LLC is chosen, bothyou and the other investors in the new business should elect tobecome a member managed LLC and name yourself and the othersubstantial investors members of the LLC. 3. While the limitedpartnership will also work, the LLLP is better, because it grantslimited liability to the general partner, if that form is chosen,and, if you are the general partner, you retain control of thebusiness. 4. The new business should not be conducted as acorporation, because, while you will attain limited liability as ashareholder, you will be unable to retain control over the businessif the other investors also become shareholders, and you will notbe able to deduct the initial years’ losses on your tax return. 5.You cannot attain your objectives by forming a sole proprietorshipand borrowing the capital from the investors in the form of aloan.