Question

4. Maria Martinez and her sister, Christina, are planning to operate a small day care center in a remodeled building. They've obtained a license, and have enough staff to handle up to 24 children. Christina doesn't plan to work at the center and hasn't incurred as many debts or responsibilities as Maria. Maria originally invested $24,000 in the business, and Christina invested $8,000. Maria wants to keep their taxes low, and she also wants to keep Christina's liability to the amount of her original investment. Which type of business arrangement would be best for them?

Answer 1

A limited partnership is the the best option. Christina would be a limited partner, which means her liability would be limited to the amount that she invested. Maria would be a general partner, which means her liability would be greater and she would have the power to make managerial decisions. This also generally means she would have a larger share of the company's profits.