A business entity can typically adopt one among several alternative forms of organization with one of these being the limited liability company, which is the most fitting type of structure for this particular business. A limited liability company combines some of the aspects of sole proprietorship and partnerships with those of a corporation (Illinois Department of Commerce, 2018). For Tim’s Coffee Shoppe, this business structure is highly appropriate because as a singularly owned entity, it would allow Tim to separate his personal assets from those of the entity and its establishment is also relatively straightforward.
The fundamental benefit of this type of entity is that its owners have limited liability, which means that in case the business goes bankrupt, Tim will not be personally responsible for the businesses’ obligations (West, 2004). Thus, the café’s creditors cannot pursue Tim’s personal assets to recover the debts. Another advantage is that limited liability companies enjoy pass through taxation, which means that payment of tax obligations does not occur at organizational level. Instead, business incomes as well as losses are “passed through” to the owners of the entity and reporting then occurs on the business owners’ personal returns with any tax obligations settled at individual level (Berk, DeMarzo, " Harford, 2015). The benefit of this approach is that helps Tim to avoid double taxation, which would arise in the case of a corporation whereby owners are required to file individual returns while filing separate ones for the business. Another advantage of this business structure is that it permits flexibility in terms of the management structure. An LLC can establish whichever management structure it deems best for example management by the owners or by corporate managers, which is different from the rigidly structured corporations that must have a board of directors overseeing operations.
However, LLC’s have some potential drawbacks with one of these being the substantial formation and continuing expenses incurred by the entity. At the time of formation, LLC’s must file Articles of organization with their respective states of incorporation and pay the applicable fees, which may be a burden on Tim. Another disadvantage is that the business does not enjoy perpetual succession, which means that the death of the owner results in a winding up of the entity unlike the case with corporations, where the owners’ demise does not affect the continuity of operations because the business is a fully independent entity (Berk, DeMarzo, " Harford, 2015).
Before commencing operations, it is imperative for Tim to comply with a variety of state and federal laws, which govern the operation of restaurant businesses. One important state law is the Food Handling Regulation Enforcement Act, which is a state law in Illinois that regulates the operation of business establishments dealing in food items (Illinois General Assembly, 2018). Tim would have to comply with the requirements of the Act as relates to food handling before he is allowed to operate. Another important state law would be the Illinois Limited Liability Company Act, which is the law governing the registration and operation of the preferred business form. The Sanitary Food Preparation Act is another state law that would affect the operations of Tim’ coffee shop by dictating the minimum level of training on food handling he would need to possess to be allowed to commence operations.
Besides these state legislations, Tim must comply with various federal laws among them being the Fair Labor Standards Act, which stipulates employment conditions that must be fulfilled for example overtimes, minimum wages, and tips (Small Businesss Administration, 2018). Another key federal law would be the Occupational Safety and Health Administration (OSHA), which regulates matters related to the working conditions and safety standards of employees, which Tim would have to satisfy before being permitted to commence operations.
References
Berk, J. B., DeMarzo, P. M., " Harford, J. (2015). Fundamentals of Corporate Finance (3rd ed.). Harlow, Essex: Pearson Education Limited.
Illinois Department of Commerce. (2018). Starting Your Business in Illinois Handbook: A Comprehensive Resource for Entrepreneurs and Small Business Owners.
Retrieved from Illinois.gov: https://www.illinois.gov/dceo/SmallBizAssistance/BeginHere/Documents/Starting%20Your%20Business%20In%20Illinois%202016.pdf
Illinois General Assembly. (2018). Illinois Compiled Statutes. Retrieved from Illinois General Assembly: http://www.ilga.gov/legislation/ilcs/ilcs3.asp?ActID=1578
Small Businesss Administration. (2018). Stay legally compliant. Retrieved from U.S. Small Businesss Administration: https://www.sba.gov/business-guide/manage-your-business/stay-legally-compliant
West. (2004, October). LLCs: Is the Future Here? A History and Prognosis. Retrieved from American Bar Association: https://www.americanbar.org/newsletter/publications/law_trends_news_practice_area_e_newsletter_home/llc.html
