Claire, Davain, Jackson are friends from university who decided to start a business to manufacture and sell

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Question:

Claire, Davain, Jackson are friends from university who decided to start a business to manufacture and sell everyday carry items for the Urban professional. The goods would resemble everyday carry items for hunters such as pocket knives but will be meant for the professionals living in cities. These include a smart watch known as “Talking Bird”, a multi-function wallet known as “Title and Registration”, a series of photography attachments for the mobile phone known as “You are a Tourist” and a series of bath soaps, scents and related products known as “Soul meets Body”.

The brains behind the products is Claire. Davain and Jackson assist by finding suppliers and putting the products together.

After their initial product development work, they now feel that they can go to market but discover that they would need to increase their capital. Nelson who is a close friend of Jackson agreed to invest capital into the business.

The four now seek your advice on which form of business they should undertake.

They have highlighted a few points for your consideration:

Initially, Claire, Davain and Jackson each contributed $10,000 to the business. These were mostly used up in product development. To start the business, Claire has agreed to contribute an additional $20,000, whilst Davain and Jackson agreed to contribute $15,000 each. Nelson has agreed to contribute $55,000;

Claire, Davain, Jackson will participate in the business and the running of all operations;

Nelson does not wish to be involved in the business and is concerned about exposure. He intends to continue work as a admin and does not want to be exposed to any law suit.

The friends operate and manage the business on their own. They will not be hiring any staff at the moment but anticipate that they would if the business picks up;
The friends also feel that they should channel all profits back into the business for the first two years;

They also anticipate that they will require raising finance in about 6 months after the commencement of their business; and The name of the business shall be called “Death Cab”.

Advise Claire, Davain, Jackson and Nelson on whether they should form a partnership or a private limited company. In your answer, you should:

identify the business organization of your choice with a brief description, the structure you are proposing, and discuss in detail three (3) factors which you consider are the most important factors to help them decide which form of business they should undertake.