For each of the hypotheticals, you should prepare an analysis for each situation explaining what business organization form the business should use. You should define and explain key terms and concepts. Your combined responses on the three business situations should be between about 1,000 and 1,500 words.
Business Situation No.1
Joe operates a local gardening and tree trimming business. Joe also does some light landscaping work for a few of his commercial accounts. Joe is very successful and has enough clients to keep him busy, along with at least three workers, working six days a week. Occasionally, a client rents a piece of equipment from Joe’s business. Clients sometime take their time paying for Joe’s services and, therefore, Joe is sometimes late paying his bills.
Joe’s capital is only about $25,000, most of which consists of his new $20,000 truck and his assortment of lawnmowers, chainsaws, edgers, and gardening equipment. Joe’s wife handles the books, yet is not involved in actual business operations. Should Joe continue to operate his gardening and tree trimming business as a sole proprietorship?
Business Situation No. 2
Maury and Sons is an oilfield-drilling contractor. Maury has been dead for years and Monty and Max, two of Maury’s grandsons now operate the business. Monty and Max each own 25% of the business (they acquired their interests from their deceased fathers, Fred and Barney). Two aunts, Wilma and Betty, own the remaining 50%. Wilma and Betty, each in their early 80s, have no children.
The business was originally a sole proprietorship. Maury brought Fred and Barney into the business, yet there is no formal partnership agreement. Wilma and Betty have never been actively involved in the business, yet were given their interests after Maury’s wife Mable passed away.
Monty and Max want to continue to expand the business and, eventually, sell the business to a “consolidator” (a company that buys local businesses, usually in exchange for a combination of stock, cash, and debt). Should Maury & Sons continue as a general partnership?
Business Situation No. 3
As a part of a course assignment, a group of graduate students from JSU have developed a prototype for a new microchip to power the next generation of personal computers. The students have received assurances from venture capitalists to provide whatever financing the students will need to manufacture the chip, provided they receive 51% of the equity. The venture capitalists do not want to interfere in the business operations and have agreed to allow the students to control the operations, provided certain financial objective are achieved. The students and the venture capitalists expect to begin manufacturing of the chip within two years. Based on outside evaluations, the chip should be a success. The students/venture capitalists expect to go public within five years.
What type of business entity should be formed by these graduate students to manufacture and develop the chip (and to conduct further research and development)? Consider whether more than one company should be formed.