Sam has now decided to form his company, Smart Sports Ltd, and to issue 50,000 £1 ordinary shares at £1 per share. In addition, the company will take out a fiveyear loan for £18,000 from Green Bank. Sam will acquire 70% of the ordinary shares issued, his friends Dot and Dan will acquire 12% each, and his mother Betty will acquire the rest of the shares.

a) Who will be the owners of the new company, Smart Sports Ltd?

b) Will Sam be able to continue making drawings from the business once it is converted into a company?

c) If not, how do you suggest that Sam is rewarded for his efforts in the company?

d) How will Green Bank be rewarded for making the loan?

e) What would be the implications for Smart Sports Ltd if the loan raised a bigger amount and the company issued fewer ordinary shares than Sam is planning?

f) Ifin two years’ time, Betty sells her shares for a profit, will Smart Sports Ltd benefit from this profit?

g) Companies that make a profit can either pay it out as a dividend to shareholders and/or retain the profit in the business. What is the benefit to the company of retaining profits?