Four friends went into business together operating a night market, holding big events in a local city every two weeks. Each of the friends
The post Finance BUSINESS FORMATION first appeared on COMPLIANT PAPERS.
Four friends went into business together operating a night market, holding big events in a local
city every two weeks. Each of the friends contributed $2,000 in cash for start-up capital, expecting a 25% interest in the company.
– Adam had the business idea and asked Betty, Camala, and Duane to be part of the business. Adam was unemployed at the time and was available to work on the events 100% of the time.
– Betty had a part-time job, but quickly decided to quit and work for the company full time.
– Camala was 6 months pregnant and was available to help when the company started but soon had the baby and plans eventually to go back to her job as an independent contractor.
– Duane had a full-time job and would only be able to provide limited support, mostly in marketing the events.
The friends used a generic online legal form to create an LLC as equal members but did not create an operating agreement because the state didn’t require one.
By the third event the markets had already become popular and were bringing in a lot of money.
Adam and Betty started to push “buyouts” on Camala and Duane, suggesting that Camala and
Duane were somehow bad friends to expect 25% of a company they were not going to work at.
Adam and Betty have now basically hijacked control of the company, blocked access to bank
accounts, business documents, accounting, and funds to anyone but themselves. Camala and
Duane have not seen a dime of the profits. Adam and Betty seem to only want to talk about their
original buyout offers of $5,000 for Camala, and $8,000 for Duane, with no ongoing ownership.
While the facts may vary, such casual business startups among friends or family are common.
This scenario demonstrates all the things that can go wrong without proper planning.
Question:
If these friends had come to you before starting the business, how would you have advised them?
Include in your analysis:
– What steps should have been taken before money changed hands?
– Is an LLC the best option? Some form of partnership? Other options? Explain your choice thoroughly.
– While the friends each initially contributed cash, how should they value the non-cash contributions of time and labor in determining ownership shares, distribution of profits, etc.?
– Was an operating or partnership agreement necessary? What should have been included?
Support your analysis with at least 3 scholarly sources other than the course materials, cited in-text and in a reference list. You must also integrate Biblical worldview analysis.
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