John has been conducting a great business with a pie and pastie factory. He is now making $300,000 in profits each year but has a big income tax bill.

He would like to expand the business and needs $200,000 to buy more pie making machines.

He is not sure whether he should setup a company and issue 200,000 shares to his friends, or else setup a company with himself as the only shareholder and try to get a bank to lend $200,000 to it.

Boris, his friend, suggests that he could provide $200,000 but only if they form a partnership.

Boris suggests that future profits should be shared 40% to John and 60% for Boris as Boris is putting in a significant amount of capital.

Explain the advantages and disadvantages of these alternatives.

Your Answer should include references to legislation and case law.