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What is exposure under the corporate form

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1. Andy has a small advertising business that is currently organized as a sole proprietorship. The business has employed six staff, annual sales of $480,000 total liabilities of 90,000, and total assets of 263,000. Including the business, Andy has a personal net worth of $467,000 and non-business liabilities of $42,000 represented by a mortgage on his home.

He would like to give one of his staff, Aaron, an equity interest in the business. Andy is considering either the partnership form or the corporate form, where Aaron would be given some stock. Aaron has a personal wealth of $36,000.

a. What is the extent of Andy's exposure under the sole proprietorship in the case of a large lawsuit (for example $600,000)?

b. What is his exposure under a partnership form? Do the partners share the risk?

c. What is his exposure under the corporate form?

Reference no: EM132665947

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