Question
Three entrepreneurs, named X, Y, and Z, plan to launch a business together. X will fund the venture but wants to limit her liability to her initial investment. She has no interest in the daily operations. Y will contribute his full efforts on a daily basis but has limited funds to invest in the business. Z will be involved as a consultant and manager and will also contribute funds. X and Y are willing to accept liability for the firm's debts as they feel they have nothing to lose by doing so. All three individuals will share in the firm's profits and wish to minimize the initial costs of organizing the business. Which form of business entity should these individuals adopt?
Multiple Choice
Sole proprietorship
Joint stock company
Limited partnership
General partnership
Corporation
Multiple Choice
Sole proprietorship
Joint stock company
Limited partnership
General partnership
Corporation
Answers
GPT-4o mini
Given the requirements and interests of the three entrepreneurs:
1. **X wants to limit her liability to her initial investment** and is not interested in the daily operations, suggesting a protective element for her investment.
2. **Y is ready to contribute his efforts and has limited funds**, indicating he’s interested in being actively involved but may not have the same level of financial commitment as X.
3. **Z will act as a consultant and manager while also contributing funds**, which implies he is also involved in both financial and operational aspects.
Considering these points, the **Limited Partnership** is the most suitable choice. In a limited partnership:
- X can be a **limited partner**, meaning her liability is limited to her investment, and she does not have to participate in the daily operations.
- Y can be the **general partner**, actively managing the business and accepting full liability for debts.
- Z can also be a **general partner** or another limited partner, depending on the arrangement, allowing for some flexibility in their roles and contributions.
This structure allows them to minimize initial costs since a limited partnership generally has fewer formal requirements and ongoing compliance obligations compared to corporations.
Therefore, the answer is:
**Limited partnership**.
1. **X wants to limit her liability to her initial investment** and is not interested in the daily operations, suggesting a protective element for her investment.
2. **Y is ready to contribute his efforts and has limited funds**, indicating he’s interested in being actively involved but may not have the same level of financial commitment as X.
3. **Z will act as a consultant and manager while also contributing funds**, which implies he is also involved in both financial and operational aspects.
Considering these points, the **Limited Partnership** is the most suitable choice. In a limited partnership:
- X can be a **limited partner**, meaning her liability is limited to her investment, and she does not have to participate in the daily operations.
- Y can be the **general partner**, actively managing the business and accepting full liability for debts.
- Z can also be a **general partner** or another limited partner, depending on the arrangement, allowing for some flexibility in their roles and contributions.
This structure allows them to minimize initial costs since a limited partnership generally has fewer formal requirements and ongoing compliance obligations compared to corporations.
Therefore, the answer is:
**Limited partnership**.