Assignment Instructions

For three years, John has run a small coffee shop as a sole proprietor. He is not a particularly skilled cook - he serves coffees and teas that he "makes" on site, as well as a selection of snacks and pastries that he purchases from a local bakery and food distributor. But he is ambitious, and John would like to expand beyond such a simple business. He knows Ringo - a skilled chef who is unhappy working at a "box" family restaurant - would like to have control over his own kitchen and have a free hand in creating an interesting menu featuring dishes that he would cook. John would like to join forces with Ringo to form a bistro-style restaurant venture (assume John would close his coffee shop and Ringo would leave his current chef job). John also has a business acquaintance named Paul; Paul owns desirable retail space on the main shopping street of their city that could be converted into a restaurant.

Option #1

Assume you are advising John. Given the background information, which of the following business structures would you advise him (them) to use in order to operate the new bistro?

a) A sole proprietorship owned by John (Ringo being an employee)

b) A partnership (John and Ringo OR John, Ringo, and Paul)

c) A joint venture (among John, Ringo, and Paul) d) A corporation (owned by John, Ringo, and/or Paul)

Explain your answer. Please note that any of the four suggested structures are possible - no one structure is absolutely correct.

Option #2

Let's assume that John decides that, despite good reasons for other structures, he will incorporate the business and operate the bistro as "Strawberry Fields Bistro Inc.".

Paul does not want to be active in the business; consequently, John and Ringo will be the sole two directors. John is appointed as the "Chief Operating Officer" and Ringo is appointed as the "Head Chef". They are each paid a salary since they are officers/employees of Strawberry Fields Bistro.

Paul is issued 100 preferred shares (the preferred shares are non-voting, with a right to a dividend).

John and Ringo are each issued 100 common shares (the common shares have voting rights, with no right to a dividend).

Assume you are advising Paul. Is this corporation structure (as described in the Option #2 narrative) favourable for him? Why or why not? Explain your answer.