Andrew Gates And Larry Page Just Graduated From UC With A MA

Andrew Gates And Larry Page Just Graduated From Uc With A Masters Deg

Andrew Gates and Larry Page just graduated from UC with a master’s degree in Information Technology. They want to set up their own server building company to help make networking of businesses run smoothly in their municipality. The servers will play a key role in telephony, internet and intranet connections in corporate organizations and other institutions in the Hilton area. They know from independent investment research that IT businesses are striving and very profitable in the State of South Carolina where they want to locate the business. Andrew and Larry know that before they can invest their time and other resources in the project, they must obtain financing, which means that they must raise money to pay for the investment cost and other operating expenses.

Because the company might not be listed in any capital market right away, they might not be able to raise equity funding publicly. Therefore, they are considering raising long term capital from various sources including angel investors, venture capital market, bank/finance companies’ long-term loans, crowdfunding, and initial public offerings (IPOs). They learnt in corporate finance course they took two years ago the advantages and disadvantages of different forms of business organizations (mainly sole proprietorship, partnership, limited liability, and corporation). They are worried about the legal concept of limited liability and how it will affect their personal fortunes in the future in case the business fails.

They are not very sure which form of business organization to set up to protect their personal liability and give them access to huge funding. Therefore, they are considering a partnership, a limited liability, or a corporation. A cash budget they prepared shows that $5 million seed money would be needed to hire programmers, buy computers, rent an office space, promote and market the business as well as to meet other business development expenditures. They have agreed to share profits and losses equally if they decide to form a limited partnership. The general partner will, however, be paid a fixed salary of $5,000 per month before taxes and other payroll deductions.

In order to make good and right decision, Andrew and Larry have approached you to help them understand the advantages and disadvantages of the various forms of business organizations and possible sources of funding for the business. Give 2 advantages and 2 disadvantages of each of the following forms of business organization to Andrew and Larry: partnership, limited liability, and a corporation. Ultimately, what form of business organization would you recommend Andrew and Larry to consider? Why? Based on your recommendation above, explain to Andrew and Larry if the following sources of raising long-term capital are appropriate for them: angel investors (angels), crowdfunding, venture capital, initial public offering, and long-term debt.

Paper For Above instruction

Starting a new business in the technology sector requires careful consideration of the most appropriate organizational structure to balance liability protection, capital access, management control, and operational flexibility. For Andrew Gates and Larry Page, two recent graduates with a master’s degree in Information Technology, selecting the right structure is crucial for long-term success, especially given their plans to seek substantial funding and to operate in a profitable, rapidly growing market in South Carolina.

Advantages and Disadvantages of Business Structures

Partnership

Partnerships are relatively simple to establish and offer the benefit of combined expertise and shared responsibilities. They allow for flexible management and straightforward taxation since income passes directly to partners, avoiding corporate taxes. However, they come with significant disadvantages including unlimited personal liability, meaning each partner is personally responsible for business debts and liabilities, and potential conflicts among partners which can hinder decision-making and affect business stability.

Limited Liability Company (LLC)

An LLC provides limited liability protection to its owners, shielding personal assets from business liabilities, which is a significant advantage for entrepreneurs seeking to protect personal wealth. Additionally, LLCs offer flexible management structures and pass-through taxation similar to partnerships. The drawbacks include more complex formation requirements compared to partnerships, higher administrative costs, and varying state laws that can complicate operation and compliance.

Corporation

A corporation offers the strongest liability protection, as shareholders’ personal assets are protected from business liabilities, which is critical for risk mitigation in technology ventures. It can raise significant capital through the sale of stock and has perpetual existence independent of founders’ involvement. The disadvantages include complex regulatory requirements, double taxation—where income is taxed at both corporate and shareholder levels—and less management flexibility due to regulatory and organizational formalities.

Recommendation

Given Andrew and Larry’s need for substantial capital, liability protection, and long-term growth potential, forming a corporation would be most advantageous. Corporations can issue shares to attract outside investors, including venture capitalists and angel investors, aligning with their goal of raising $5 million seed capital. The liability protection will safeguard their personal assets, and the corporate structure will facilitate raising sizeable funding through stock issuance.

Funding Sources Evaluation

• Angel Investors: Suitable for early-stage funding, angel investors can provide both capital and valuable industry experience, making them appropriate for startup growth phases.
• Crowdfunding: Effective for initial marketing and community engagement, crowdfunding can supplement other sources but may not generate the large capital needed for seed funding.
• Venture Capital: Venture capitalists seek high-growth startups and can provide large investments, making venture capital highly appropriate once the business demonstrates potential.
• Initial Public Offering (IPO): An IPO can raise substantial funds, but is typically viable only when the company has a proven track record, large market share, and stable income—possibly beyond their startup phase.
• Long-term Debt: Loans from banks or financial institutions offer capital without diluting ownership, but increase financial risk due to repayment obligations. Suitable if the company anticipates steady cash flows.

In conclusion, forming a corporation and seeking funding through angel investors, venture capital, and long-term loans appear to be the most aligned with Andrew and Larry’s aims for growth, liability protection, and access to large capital pools. Strategic planning and careful consideration of each funding source’s timing and requirements will be vital for their success in launching and expanding their server building business.

References

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