Kado is starting a new business. His major concern is to limit his risk and his liability, but he is also concerned with the ability of the company to raise capital. At some point, he would like to be able to sell partial interests in the business to other investors or perhaps to even take the company public, so he does not want to limit the number of potential owners. Which of the following entities would best suit Kado's needs?

Question

BlackTom AI · Accepted Answer

Question context: Kado wants limited liability, the ability to raise capital, and the flexibility to sell partial interests or go public, without restricting the number of owners. Now let's evaluate each option.
Option a: 'A C Corporation.' This choice aligns well with all stated goals. C corporations provide strong limited liability for shareholders, a well-established structure for raising capital through stock issuance, and the ability to have an unlimited number of shareholders, which facilitates eventual public offerings or partial sales to investors. Importantly, C corps are the standard vehicle for companies aiming to go public.
Option b: 'A S Corporation.' While an S corporation also offers limited liability, it has notable restrictions that clash with Kado’s goals: it is limited to 100 shareholders, all of whom must be U.S. citizens or residents, and it cannot issue multiple classes of stock. These constraints make it unsuitable for large-scale funding or going public, so it does not best fit the described needs.
Option c: 'A LLC.' An LLC provides limited liability and flexible management, and it can have many members. However, while an LLC can raise capital and grow, it is not typically used for public offerings or large-scale equity financing, and it doesn’t have the same established pathway to public markets as a C corporation. Therefore, it doesn’t fully meet the requirement to potentially go public.
Option d: 'A General Partnership.' A general partnership offers very limited liability protections, and the partners typically bear personal liability for business debts. It also lacks the formal structure, ease of raising capital, and capability to go public. This makes it the least suitable choice given Kado’s goals.
Overall, option a stands out as the entity that best satisfies the combination of limited liability, scalability in ownership, and readiness for capital markets and public offerings. It directly addresses the desire to attract investors, issue ownership interests, and potentially go public, without imposing an upper limit on ownership.

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