A new business venture requires $600,000 of equity capital from passive investors in addition to the $400,000 of capital that is being provided by the initiator of the project. The $600,000 will be raised by selling 30 units for $20,000 each. The 30 unit holders will participate in 60% of the venture’s profits. 

It is anticipated that business operations will begin on October 1, 2022. The entity will use a December 31 year end. Investors must contribute their funds on October 1, 2022. The equity capital of $1,000,000 will be used as shown below. 

The initiator is uncertain how to organize the new venture and is trying to decide between a separate corporation that will issue shares, and a limited partnership. 

Required:

Which type of entity will make it easier for the initiator to raise the $600,000 of equity capital from passive investors? Explain, using a single investor as an example.

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Working capital Equipment Start-up costs, staff training, and opening advertising Operating losses: 2022 (for the three-month period) 2023 $ 200,000 300,000 200,000 250,000 50,000 $1,000,000