Journal Entry – Chapter 19
Chapter 19: The Entrepreneur’s Options – Chapter 19 – Journal Entry
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THE ENTREPRENEUR’S OPTIONS (page 567)
In Papagos, Arizona, a deteriorating bridge on a prominent public roadway needed repair. The city posted notices seeking proposals for an artistic bridge design and reconstruction. Davidson Masonry LLC—owned and managed by Carl Davidson and his wife, Marilyn Rowe—decided to submit a bid for a decorative concrete project that incorporated artistic metalwork. They contacted Shana Lafayette, a local sculptor who specialized in large-scale metal designs, to help them design the bridge. The city selected their bridge design and awarded them the contract for a commission of $184,000. Davidson Masonry and Lafayette then entered into an agreement to work together on the bridge project. Davidson Masonry agreed to install and pay for concrete and structural work, and Lafayette agreed to install the metalwork at her expense. They agreed that overall profits would be split, with 25 percent to Lafayette and 75 percent going to Davidson Masonry. Lafayette designed numerous metal sculptures that were incorporated into colorful decorative concrete forms designed by Rowe, while Davidson performed the structural engineering. The group worked together successfully until the completion of the project.
Answer the following questions, using the information presented in the chapter.
1. Would Davidson Masonry LLC automatically be taxed as a partnership or a corporation? Why?
Because LLCs are essentially just partnerships with limited liability for members, all partnership laws should apply. While there are certainly some differences between how LLCs operate relative to how partnerships operate, the similarities are sufficiently obvious that no new laws or operating rules need be created for LLCs, except with respect to the limited liability of LLC members. The law of partnerships has a long history, one that has created a solid body of case law that should be applied to LLCs, too.