Assume that Herb’s business in the preceding problem case has been operating for a year and has made a profit. Herb has expanded by purchasing other leather products to sell. All the profit has been reinvested in the business. Herb has, however, paid off $2,000 of the loan to the bank. The bank is willing to renew the loan and even to increase it to $10,000 if Herb’s father cosigns again. Bill Williams would like to join the firm full time but has no money or credit to contribute. Herb and Bill think that if they had a salesman to visit men’s clothing shops and perhaps other retailers, they could increase their sales substantially. A mutual friend, George Robbins, has had sales experience and would be willing to join the business. He could invest $10,000. 

The workshop in the back of the shop is already too small. Herb would like to rent a loft or other low-rent space for belt production where there would be no interruptions and enough space for several workers. Herb would also like to have Bill supervise this operation. Herb estimates that minimum capital of $40,000 is necessary. What he owns in equipment, supplies, and inventory is worth $10,000 at cost, and he believes that the value of his going business is at least $10,000 in addition. His father is willing to invest $5,000 but wants no further liability. Uncle Joe is also willing to invest $5,000 on the same basis. What form of business organization is appropriate? How should it be capitalized?