How would contributions to the new business of skills, experience, labor, etc. be valued when determining percentages of ownership?Explain

Forming a Business

Peter and Andrew are brothers. Since childhood, they have wanted to convert a barn on their grandfather’s farm into a hunting and fishing lodge that would provide modest but comfortable accommodations for sportspersons using nearby recreational lands. Andrew has suggested that they bring his friend, Paul, into the business, as well.

While Peter and Andrew would develop the property, Paul has experience in the hospitality industry and could manage the day-to-day operations. Peter and Andrew would also want to make the lodge available to local church groups for worship retreats. They haven’t yet discussed this with Paul, because they know he is not comfortable with most churches and their positions on social issues. The men are now discussing how to form the new business, and have narrowed their choices to a general partnership or a limited liability company (LLC).

What would you advise, and why? Consider and discuss issues such as:

• What personal liability will the owners have for the obligations of the business

• Should Paul be included as a co-owner, or in some other role? On what do you base that decision?

• How would contributions to the new business of skills, experience, labor, etc. be valued when determining percentages of ownership?

• How would profits and losses be distributed?

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