I. Various forms of organization available to Penelope, Mark and John
You could choose to be a partnership where all partners are equally liable for the actions of their other business partners. Because of the liability issues regarding partnerships you need to meet to discuss the administrative matters of the partnership and form a partnership agreement. An LLC isn’t the best option available for you guys due to filing requirements and fees that are due yearly. S corporation is a better option but they are also expensive to form and making certain ownership decisions could indeed void your S election which would cause huge problems.
II. What form of organization will be best?
The limited liability partnership would be the best form of organization due to its protection of each individual owner’s personal assets while providing the business adequate protection. Under this organization all partners will not be held liable for the actions of another partner especially if another partner is partaking in unethical behavior. Another benefit of the LLP formation is that each partner will have the authority to decide how they will each contribute to the business operations. Managerial duties can be divided equally or separated based on the experience and partners who have a can elect to not have any authority over business decisions yet still maintain ownership rights based on their percentage interest in the company. This gives each partner some flexibility in ownership should they want to take on a more reduced management role and a more ownership role in the future.
III. Tax consequences to transferring in cash/property/services
When transferring cash into a partnership no partner realizes a gain or loss and the contributing partner’s basis is equal to the amount transferred per IRC Section 721. Per IRC Section 724 when property is transferred into a partnership no gain or loss is recognized until the property has been sold or the contributing...