Posted: December 30th, 2021
Andrew Gates and Larry Page just graduated from UC with a master’s degree in Information Technology. They want to set up their own server building company to help make networking of businesses run smoothly in their municipality. The servers will play a key role in telephony, internet and intranet connections in corporate organizations and other institutions in the Hilton area. They know from independent investment research that IT businesses are striving and very profitable in the State of South Carolina where they want to locate the business.Andrew and Larry know that before they can invest their time and other resources in the project, they must obtain financing, which means that they must raise money to pay for the investment cost and other operating expenses. Because the company might not be listed in any capital market right away, they might not be able to raise equity funding publicly. Therefore, they are considering raising long term capital from various sources includingbank/finance companies’,, and (IPOs).They learnt in corporate finance course they took two years ago the advantages and disadvantages of different forms of business organizations (mainly sole proprietorship, partnership, limited liability, and corporation). They are worried about the legal concept of and how it will affect their personal fortunes in the future in case the business fails. They are not very sure which form of business organization to set up to protect their personal liability and give them access to huge funding. Therefore, they are considering a partnership, a limited liability, or a corporation.A cash budget they prepared shows that $5 million seed money would be needed to hire programmers, buy computers, rent an office space, promote and market the business as well as to meet other business development expenditures. They have agreed to share profits and losses equally if they decide to form a limited partnership. The general partner will, however, be paid a fixed salary of $5,000 per month before taxes and other payroll deductions.
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