ENTR 3P98 Chapter 3: Chapter 3

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orangelouse874

16 Feb 2012

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Chapter 3 - ownership of an enterprise built to last. The higher performance seemed to be related to the different posture taken by these firms toward diversification and investment in training and development, and research and development. If a family business is going to preserve one of its intangible yet well-documented competitive advantages its propensity to manage with a long-term horizon investments in the ownership subsystem is essential. The design and execution of an appropriate ownership and control structure. The education, access to information, and engagement of shareholders. The creation of institutions that govern the ownership firm interaction. *represent one of the best opportunities to educate owners about their responsibilities and what the company and its management expect of shareholders. *allow for financial, business, and competitive information-sharing and communication on other issues critical to a family firm in a disciplined and proactive manner.

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Success Systems started on October 1, 2013 and has beensuccessful to the point that they plan to expand. The ownerbelieves that an additional $86,000 is needed and is investigatingthree funding sources.

a. The owner's sister is will ing to invest $86,000 in thebusiness as a common shareholder. Since the owner has about$129,000 invested in the business, the sister's investment willmean that the owner will maintain about 60% ownership and thesister will have 40% ownership.

b. The owner's uncle is willing to invest $86,000 in thebusiness as a preferred shareholder. He would purchase 860 sharesof $100 par value, 7% preferred stock.

c. The owner's banker is willing to lend $86,000 on a 7%,10-year note payable. The owner would make monthly payments of$1,000 per month for 10 years.

Required:

1. Prepare the journal entry to reflect the initial $86,000investment under each of the options, a, b, and c.

2. Evaluate the three proposals for expansion, providing thepros and cons of each option.

3. Which option do you recommend that the owner adopts? Why?

magentashark528

1. Which of the following describes most businesses in the United States?

A. Proprietorships

B. Partnerships

C. Corporations

2. Business structures where the ownership and management are separate, as with corporations, are likely subject to principal-agent problems. Which of the following may help reduce such problems and promote cost efficiency? Check all that apply.

A. Profit-sharing agreements with managers

B. Competition among firms for customers

C. Competition among firms for investment funds

olivecaribou144

"Equity" represents the owners' claims on the assets of thebusiness. Equity is comprised of investments made by theshareholders when the stock was issued to the public plus netincome retained in the corporation since its inception.

ENTR 3P98 Chapter 3: Chapter 3

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