Reference no: EM133218987

Question - Ming and Maeve are lifelong friends who have come to your firm to seek advice about setting up a cafe´ business together. They have done some research on the internet and have decided to set up their cafe´ as a Pty Ltd (Jazz Cafe´ Pty Ltd) company, with both of them taking on a role as director.

Ming, who has some experience with managing a cafe´, will be the managing director and CEO and Maeve will leave the day-to-day management decisions to Ming. Maeve wishes to contribute $150,000 in start-up capital while Ming will contribute $50,000. Maeve is concerned about risking her other personal assets.

The business will also need a bank loan of $200,000 with Eastbank Ltd, who registers an ALLPAP security interest on the PPSR as well as mortgage against the family home of Ming to support a personal guarantee that she has given as security for the loan to Jazz Cafe´. Maeve believes that there will be little profit during the first 2-3 years and so there probably won't be any dividends paid initially, however she wants to ensure that if the business is very profitable in the longer-term then she can obtain dividends in the future. Maeve trusts Ming (who has been her close friend for many years) but she also wants to protect herself if they have a falling out at some point. Ming is concerned about Maeve potentially selling her stake in the business at some future point and Ming losing control of the business that she is putting all of her energy into. Advise Ming and Maeve as to how they might structure the company's capital.