ranchises in the future. Although they have enough to start the business now as
ID: 2406184 • Letter: R
Question
ranchises in the future. Although they have enough to start the business now as a partnership, cash flow wil be an issue as they grow. They feel the corporake form of operation will be best for the long term. They seek your advice. Requirement 1. What is the main advantage they gain by selecting a corporate form of business now By selecting the corporate form of business now, Jimmy and Bily wil O A. be able to transfer ownership without affecting the continuity of the company O B. avoid the double taxation that affects partnerships and proprietorships. O C. beneft from the ability to exercise mutual agency within a corporation Requirement 2. Would you recommend they initally issue preferred or common stock? Why? Requirement 3. If they decide to issue $2 par common stock and anticipate an inbial market price of $75 per share, how many shares will they need to issue to raise $3,000,000 They need to issue shares to raise $3,000,000.Explanation / Answer
1. Option A is the correct One because Ownership intrest in the corporation can be sold to third the third party without affecting the continuity of the operation. In partnership cannot be sold as whole, Insted each of its assest have to be transfered separately plus new tax identification numbers and new bank account is required/
2. I would Suggest to initally issue common stock rather then preference shares(prefered) because they have to be paid intrest every year ro basisi in the agreement and when the busniess is new you dont want fixed cash flow out of the business at the start may be later down the time.
3.If Company Issues 2 par value of shares and $73 as premium then
No of stoks to be issued =3,000,000/75
=40000 Shares are to be issued.
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