Alberto, Billy Bob, and Cat are Mesa college graduates, and Alberto has come up

Question

Alberto, Billy Bob, and Cat are Mesa college graduates, and Alberto has come up wiht an idea for a new product that he believes could make the three of them very rich. His idea is to manufacture soft-drink dispensers for home use and market them to consumers throughout the World. Alberto's personal experience qualifies him to be both first-line supervisor and general manager of the new organization. Billy Bob is a born salesperson. Cat has little interest in sales or management but would like to invest a large sum of money that she inherited from her Aunt. What factors should Alberto, Billy Bob, and Cat consider in deciding which from of business organization to adopt?

Please explain within this format:

FACTS

ISSUE

LAW

DISCUSSION

CONCLUSION

Explanation / Answer

Facts - Alberto, Billy Bob, and Cat will have to do market research to understand the potential demand of their product soft-drink dispensers, the purchasing power of the target segment and the mode of distribution of their product. These facts will give them a clear idea about whether to go with the project or not.

Issue - The issue is that they are not experts in entrepreneurship and product development. There might also be some operational, financial and legal challenges that might face them in later part of product life cycle.

Law- As per law, they have to understand about their company structure and shareholding pattern. Also, the company should be registered with IRS for tax purposes.

Discussion - In this case, it will be better that the management and the ownership of the company is different because since all of them are friends, they might not be very professional while treating each other. Cat is not very interested in sales and management but is willing to invest her money in the company. Given this fact Alberto, Billy Bob who are managing and selling the product have to extra cautious about shareholder's (Cat's) money. Here Principle-Agent dilemma might take place which might hinder the performance of the organization.

Conclusion -Given the discussion and scenario above, it will be prudent to form a limited liability company with Cat as the investor and major shareholder. She might deploy an outsider director to make sure that the company is run professionally.

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