Question:

What business structure would you recommend for this new business and why? Your answer should explain in detail how your recommended option is best suited to the needs of the business as a whole and the priorities and concerns of each group member. (If you recommend a partnership, specify which type of partnership and the status of each partner; if you recommend a corporation, specify if it is to be provincially or federally incorporated, a public or private company and the types of shares issued to each group member)

FACTS FOR QUESTION:

1. John, Richard, Mandeep, Julie and Shu-Lynn all completed a graduate certificate in Event Planning and Management six months ago.

2. Each was unsuccessful in finding a job in their field and for this and a variety of other personal reasons, they decided to launch their own business together.

3. Although they all know each other fairly well, John is the only one who is close friends with each member of the group. He is a natural leader and the person that the others turn to when difficult decisions have to be made. He is very ambitious and determined to see the business succeed. His primary motive for going into business with the others is that he lacks the funds to finance the business. He believes that if you have to do business with non-family members, it is critical to join with only people you trust.

4. Richard went to same high school and university as John and they have known each other for approximately nine years. He enrolled in the events program because he could not find a job after graduating with a BA degree and figured hanging 2 out with his best friend John for eight months was not a bad way to kill time. He is by far the wealthiest member of the group and will be making a $50,000 capital investment in the business. Mandeep will contribute $25,000 and the others $10,000 each for a total of $105,000. Richard does not need income from the business because he is the beneficiary of a trust fund set up by his parents. He is joining the business primarily because he thinks it will be fun to hang out with his college buddies. Richard is not too fussed about driving the direction of the business as he trusts John's judgment completely. However, he is concerned that as the richest member of the group, any financial obligations or legal liability incurred by the business might ultimately have to be paid by him alone from his personal assets (the others have stretched themselves just to put together their share of the business capital by borrowing money from their families).

5. Mandeep's primary motivation in joining the group is that he could not get a job and is being pressured by his dad to do something with his life. He is very frugal by nature and believes a cautious "go-slow" approach is the best for a fledgling business. After a recent discussion with his father (who is successful businessperson), he has become a little concerned that John and Richard are closer to each other than the others and the potential impact this might have on the business (e.g. block-voting on important business decisions, the potential for collusion and what might happen if the new business partners cannot get along and he needs an exit strategy to recover his capital investment). He is also anxious to ensure that each partner receive a share of business profits that reflects his/her relative capital investment in the business instead of an equal share).

6. Julie is the "social butterfly" of the group and has many contacts through her longstanding volunteer work with not-for-profit and charitable organizations. The consensus among the group is that if it were not for her contacts, the business would not likely survive its first year. However, the group is confident that using her connections as the initial foundation of the business, each member will contribute significantly to business revenue in the coming years. Julie is concerned that Richard appears to be treating the business like a hobby and is not likely to contribute in any significant manner after his initial capital investment of $50,000. Like Mandeep, she has kept her reservations to herself as she does not want the group to start off on the wrong foot.

7. Shu-Lynn is an international student from Hong Kong and is the hardest working member of the group. Although she does not have a lot of immediate prospects to get business, she believes she can contribute more than her colleagues to the future growth of the business by working her connections to the Hong Kong and Chinese communities in the GTA. If the business takes off, she plans on pitching a proposal to the group that they open a second office in Hong Kong (which she would like to head up).

8. Although the group has more than sufficient capital to pay for the business's first year expenses and business promotion costs, the majority of the group would like to be able to raise capital quickly if the business takes off to finance a rapid expansion into other major urban centres in Canada. (Mandeep is the lone holdout and favours a "go-slow" approach). 9. John is anxious to get started and does not want to spend a lot of time in lengthy or complicated processes to set up the business while Mandeep believes its more important to "get it right" at the very outset to give the business the best chance to succeed