PROMPT

Suppose you decide (as did Steve Jobs and Mark Zuckerberg) to start a company. Your product is a software platform that integrates a wide range of media devices, including laptop computers, desktop computers, digital video recorders, and cell phones. Your initial market is the student body at your university. Once you have established your company and set up procedures for operating it, you plan to expand to other colleges in the area and eventually go nationwide. Someday, hopefully, sooner rather than later, you plan to go public with an IPO and buy a yacht and take off for the South Pacific to indulge in your passion for underwater photography. With these issues in mind, you need to answer the following questions for yourself and potential investors.

1.) What is an agency relationship? When you first begin operations, assuming you are the only employee, and only your money is invested in the business, would any agency conflicts exist? Explain your answer.

2.) If you expanded and hired additional people to help you, might that give rise to agency problems?

3.) Suppose you need additional capital to expand and sell some stock to outside investors. What type of agency conflict might occur if you maintain enough stock to control the company?