Business Associations Problem leff comes to consult with you

Business Associations Problem leff comes to consult with you about an idea he has. He tells you that he does not have a lot of cash to pay but if you help him, he will compensate you with equity in the company He talks about a crazy website were individuals can buy and sell books online, something called Amazon. Knowing that the book industry is a multi-billion-dollar industry, you agree leffels you that he needs to form a business entity for his business idea. He wants a company that he can grow while still keeping a close eye on his investors Jef has big dreams that that company will one day be a multi-bilsion-dollar company that sells more than books Jeff wants the most lilability protection possible while still avoiding as much taxes as possible 1) Please tell me the two different types of Equity and what they mean? INo IRAC needed 2) What kind of relationship have you started with Jef? What type of authorityliest has leff given to you, please explain? (No IRAC needed 3) Please tell me which business entties would you recommend to Jeff, and why? if more than one. please explain the difference between them. (No IRAC needed)

Solution

1. There are basically 2 types of equities, i.e Owner & Private .

Owner Equity:   When starting a business, the owners invest in the business to finance various operations. As Business and businessman are two different persons accounding to separate legal entity concept of accounting. So it is called Owner Equity/ Fund.

Private Equity: Refers to investment in company that are not publicly traded and whose investors are typically large institutional investors like a private equity firm, a venture capital firm or an angel investor.

2. I have started to invest in Jeff\"s company as Private equity investor. So the relationship between Me & Jeff will be Joint holders or partners. Jeff has authorise me to invest in his company, participate in management by providing me voting rights against my stake & allow also to share profit of entity.

3. Entities Recommended: 1.Business Corporation 2. Limited liability Company 3. Partnership firm.

Business Corporation: A business corporation is formed for the purpose of transacting business in the broadest sense of the word, and these transactions are conducted to return a profit. Business & Businessman are separate.

Limited liability company: LLC\'s are extremely flexible and members need not, have limited liability.

Partnership firm:  partnership draws no financial distinction between a partner\'s personal and business finances. There are also inherent risks in partnerships. There are 3 types of partnership, i.e general, limited liability and joint venture.

As per my view as Jeff\'s expectation will be a multi-million dollar entity, Jeff shoud opt of either Business Corpoation or Limited Liability Company.

Thanks