Martina Bavros operates a gift and framing shop as a sole proprietorship. Shefounded the business 11 years ago when her last child started school. From a small,part-time operation, Fancy Framed has grown into a successful business with morethan $750,000 in revenue last year, partly from charges for framing services done inthe shop and partly from sale of frames, matting and other supplies. Martina boughtthe building housing the shop several years ago and collects rent from businessesoccupying the building's two other storefronts. She has about $100,000 equity in thebuilding and about $150,000 outstanding on the mortgage. Her monthly cash flow iseasily enough to service the mortgage, maintain her inventory, keep the store running,and draw a decent living for herself.

Martina has several part-time workers (students from a near-by art school),and her nephew Stefan and older daughter Rose have helped out with the business forthe past several years. Stefan (age 30) has kept his full-time job as a purchasingmanager at a local manufacturing company but has considered working full-time forFancy Framed, especially since it has grown so well. He has about $10,000 insavings. Rose (23) recently graduated from college and has been working as amanagement trainee for a large department store; she has about $1000 in savings. Shewould like to come back home and help her mother expand the store's line of giftmerchandise and frames. Martina wants to bring Stefan and Rose into the businessand to establish an ownership interest in it for each of them. "The store has reallygrown since I first started it as a part-time business," she says. "If I had more managerial help, I'm sure we could grow even faster. Right now the primaryconstraint on growth is my time: there's only 24 hours in a day, and I can't doeverything myself."

Martina knows she has to reorganize the company to protect the money andproperty she has accumulated but also to provide for additional owners. She wants tokeep control of the businessuntil she's closer to retirement in 10 or 15 years, buteventually she would like to turn control over to Rose. She plans to establishownership interests for Rose and Stefan immediately but wants to remain the majorityowner.

QUESTIONS;

1. How should the business be structured - what form and allocation of ownership among the three principals - in order to give each an incentive to work for the business's continued success and to protect the rights of each?

2. How should Martina provide for managementsuccession?

3. What factors should Martina consider in choosing a form of ownership for Fancy Framed?