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Background: Plenty-O-Plants (POP)
Addison, Benita, Cynthia, and Dante are all successful business owners who are friends or professional acquaintances in the business community. Addison has been the project manager for ten years for a construction company owned by a general contractor. Benita has been the Director of Marketing for a Mid-Atlantic-based carpet cleaning company with franchises on the East Coast. Cynthia owns a mid-sized, successful nursey focusing exclusively on exotic house plants. Dante owns a residential landscaping business.
The four recently attended a Chamber of Commerce presentation about “green” businesses. This spurred their interest, and they went to dinner following the Chamber event to discuss possible business opportunities. After several meetings, they decided to start a business together. The group decided that a plant nursery, landscaping, and design business would be a good fit for their professional experiences, skills, and interests. Therefore, they agreed to pursue the possibility of launching a Maryland-based service business that they would like to name Plenty-O-Plants (“POP”). The service would focus on offering environmentally friendly native plants in the area.
The four met several times with a business consultant to analyze market trends and demands in commercial landscaping and design and confirm whether POP would likely be a viable business. The market analysis showed an increased demand and need for their services environmentally responsible landscaping businesses in the region. Consequently, the group decided to move forward with their idea to establish and market POP.
The potential nursey owners recently attended a start-up business seminar sponsored by the local chapter of the Small Business Administration. Following the workshop, the owners began to define the nature and scope of the work necessary to prepare a plan for the start-up business. They realize this process requires time, thoughtful analysis, and clear guidelines.
They also recognize the need for professional business consultants, such as your company, to guide their start-up for POP. Consequently, the four have hired you to advise and guide them through the start-up process for POP.
Clean Owner Profiles:
Addison:
He wants an initial 30%-40% interest in POP but wants to limit his future capital commitment until he is certain the business is operating smoothly and profitably. He does, however, want the option to acquire others’ interests if they die or leave the business for any reason. He also wants to take out money from the business, in the form of salary, benefits, expenses, and/ dividends, as appropriate, as soon as POP has a healthy net profit margin.
Addison is most concerned about liability, and although he trusts the other owners as “straight shooters” and successful business persons, he is uneasy about working with a group of investors with whom he has no previous business connections. He wants to limit his liability in the business to no more than his capital contribution and prefers complete protection. If possible, he wants
Key Man Insurance
for the owners so all will have protection if one owner can no longer contribute to business for any reason.
Addison wants a managerial position so he can make decisions for day-to-day operations. He believes he is the best person to run the business as he currently manages large construction projects.
Benita:
Benita wants a 25% interest and prefers to minimize additional investments to protect her cash assets needed for her other businesses. Her main goal is to realize a return on her investment as quickly as possible.
Benita wants to minimize her personal liability and protect her interests in the event of bankruptcy or death of any of the other owners.
Benita wants to participate in long-term business decisions, and in major decisions about spending and organizational commitments, but she does not want to be involved in day-to-day business activities. She favors hiring a general manager to run the business, preferably one with commercial landscaping experience.
Cynthia:
Cynthia initially wants to invest up to 40% and is willing to invest another 5% because she knows start-up businesses often need more capital. She favors a larger, rather than a smaller, stake in the business. She wants to take out as much money as possible from the business, as soon as financially possible.
Cynthia r wants to minimize personal liability, as well as liability for the business. She realizes the future of the business is uncertain, and she wants maximum protection again all pitfalls.
Cynthia is willing to be involved in day-to-day business operations and has the time to do so because her other business is running smoothly with competent managers. She wants to play a key role, along with the other owners, in establishing the structure, business environment, and culture for POP. However, she believes that a skilled general manager with commercial landscaping experience would be optimal for the business.
Dante:
Dante is willing to commit to an investment of 51% interest in POP, but is agreeable to a lesser interest.
Dante wants to minimize his personal liability and prefers to limit it to his capital investment but is willing to negotiate.
With a maximum interest of 51%, Dante wants complete control over business operations; even with a lesser interest, he wants a strong managerial position. Dante wants all owners with a minority interest to be silent in day-to-day management of POP.
Background Facts You Need To Know: Addison, Benita, Cynthia, and Dante recognize an essential early step in creating Plenty-O-Plants (‘POP”) is to agree on a business organizational form and clarify the owners’ roles because each has different priorities, interests, and expectations about the business.
Businesses are created in one of several organizational structures or forms. Choosing a business structure involves several factors, including which structure is most favorable for the company and its owners.
The goal for POP is to minimize legal risks and liabilities, as well as tax liabilities, for the owners and the business. The owners understand a business organizational structure can achieve this goal and can define their managerial roles and responsibilities clearly to satisfy their interests and maximize their areas of expertise.
Addison, Benita, Cynthia, and Dante agree that weighing and balancing advantages and disadvantages for the company and its owners is the heart of the process of choosing a business structure. The owners have met privately to discuss their decision. They are now ready to meet with your consulting firm for further analysis, negotiation, and a decision regarding the POP business structure.
Instructions
To assist in this process, your supervisors asked you to assess several business structures and their characteristics, advantages, and disadvantages for POP. Those structures are:
Evaluate and synthesize this information, and do the following two things:
1.
Chart You Need to Prepare: Create a
comparison matrix
that shows the four types of business structures and compares and contrasts each type of business structure.
You may use the chart format in the hyperlink above, or create a similar chart, or create an excel chart.
The chart should include several areas for comparison, i.e., the procedure for formation, cost of formation, etc. The chart should consist of various types of liability for comparison.
The chart should be an in-depth and comprehensive comparison.
Ensure the pros and cons of each organizational structure are easily compared in the chart.
2.
Report
You Need to Prepare: Write a report to POP owners:
A. recommending a business structure for POP that best minimizes tax and personal liability for the new business and its owners
B. explaining and justifying your recommendation, specifically and in detail.
Tips for Formatting Report: The report should use the following format
Report
TO: ……
FROM: (your name)
RE: POP Business Structure
DATE:
1.2.
Tips for Formatting and Structuring Analysis:
