Organizing a corporation and issuing stock Jimmy and Randy are opening a comic store. There are no competing comic stores in the area. They must decide how to organize the business. They anticipate profits of $550,000 in the first year, with the ability to sell franchises in the future. Although they have enough to start the business now as a partnership, cash flow will be an issue as they grow. They feel the corporate form of operation will be best for the long term. They seek your advice. Requirements What is the main advantage they gain by selecting a corporate form of business now? Would you recommend they initially issue preferred or common stock? Why? If they decide to issue $3 par common stock and anticipate an initial market price of $75 per share, how many shares will they need to issue to raise $3,000,000?

Question

Organizing a corporation and issuing stock

Jimmy and Randy are opening a comic store. There are no competing comic stores in the area. They must decide how to organize the business. They anticipate profits of $550,000 in the first year, with the ability to sell franchises in the future. Although they have enough to start the business now as a partnership, cash flow will be an issue as they grow. They feel the corporate form of operation will be best for the long term. They seek your advice.

Requirements

  1. What is the main advantage they gain by selecting a corporate form of business now?
  2. Would you recommend they initially issue preferred or common stock? Why?
  3. If they decide to issue $3 par common stock and anticipate an initial market price of $75 per share, how many shares will they need to issue to raise $3,000,000?

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