Elon Musk wants to start and own several new competing businesses. He wants to enlist several different owners to invest in and run each business. Elon wants limited liability for all owners but does not want to have formal board meetings or keep strict corporate structure. Which business organization is the best fit:

Cameron's Holiday Hint: Elon invests but does not manage.

Question

Elon Musk wants to start and own several new competing businesses. He wants to enlist several different owners to invest in and run each business. Elon wants limited liability for all owners but does not want to have formal board meetings or keep strict corporate structure. Which business organization is the best fit:

Cameron's Holiday Hint: Elon invests but does not manage.

BlackTom AI · Accepted Answer

Question restatement: Elon wants to start and own several new businesses, bring in several different owners to invest in and run each business, seek limited liability for all owners, but avoid formal board meetings and a strict corporate structure. Answer options: Limited Partnership, General Partnership, Manager-Managed LLC, Corporation, Member-Managed LLC.

Option 1: Limited Partnership. This structure has at least one general partner who manages the business and has unlimited liability, while limited partners contribute capital but do not participate in management and enjoy limited liability. It does not fit Elon’s desire to avoid formal corporate structure and board-like governance, and it still involves a managing partner rather than a true passive owner role for all investors.

Option 2: General Partnership. All partners typically share management responsibilities and face joint unlimited liability. This option contradicts Elon’s requirement for limited liability for all owners and his preference for not having formalized governance, making it unsuitable.

Option 3: Manager-Managed LLC. In a manager-managed LLC, members (owners) appoint managers to run the business, while the owners enjoy limited liability and can remain passive investors. This setup aligns with Elon’s goal of investors who contribute capital and do not actively manage, while preserving liability protection and avoiding a rigid corporate framework or mandatory board meetings.

Option 4: Corporation. A corporation involves a formal structure with a board of directors, officers, and regular formalities. It generally requires ongoing meetings, resolutions, and compliance burdens. Since Elon wants to avoid formal board meetings and strict corporate structure, this is not a good fit.

Option 5: Member-Managed LLC. In a member-managed LLC, all members participate in management. This directly clashes with the stated aim of having investors who invest but do not manage, so it does not meet Elon’s management preference.

Summary: Among the choices, Manager-Managed LLC uniquely satisfies the combination of limited liability for all owners, multiple passive investors, and avoidance of a formal board-driven corporate structure, while still enabling a structure where management is delegated to designated managers rather than all owners. The other options fail to meet at least one of these criteria: liability exposure (General Partnership), mandatory formalities and governance (Corporation), passive investor mismatch (Member-Managed LLC), or management complexity (Limited Partnership).

STRAT 3410-003 Fall 2025 Exam #3- Requires Respondus LockDown Browser

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