Reference no: EM133277532

Shirley and Vivian have been operating their advertising business as a general partnership.

Bolstered by their recent success, Shirley and Vivian intend to source aggressively for new clients and projects but are concerned that the rapid expansion of their business may give rise to risks. They propose to change the form of their business organisation so as to address this issue. Shirley and Vivian hope that the new business structure would also give them flexibility in raising finance, whether in the form of equity or debt from financial institutions or investors. At the same time, they are concerned whether the regulatory requirements of the new business form would be a burden.

Shirley and Vivian have spoken to potential investors. Most investors want to reap the benefits of the potential growth of the business but at the same time wish to retain the flexibility to exit their investment if the business turns south. Ideally, the investors should be given a consistent dividend distribution notwithstanding fluctuations in the performance of the business. Shirley and Vivian, on the other hand, want to restrict the voting rights of these investors.

1. Define a general partnership. Identify the risks to Shirley and Vivian associated with a general partnership.

2. Describe two alternative business forms that Shirley and Vivian can consider adopting to address the risks which you have identified in (a). Explain which alternative business form you would recommend to them, and the benefits and drawbacks of your recommendation. In your answer, you are expected to consider issues such as protection from personal liability, continuous regulatory compliance obligations, flexibility of fund raising, and taxes.

3. If Shirley and Vivian were to incorporate a company, discuss the types of shares that may be issued which will address the above respective considerations of Shirley, Vivian and the investors.