Question: Organizing a corporation and issuing stock Montel and Mike are opening a couture clothing boutique. There are no competing couture clothing boutiques in the area. They must decide how to organize the business. They anticipate profits of $500,000 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 $10 par common stock and anticipate an initial market price of $20 per share, how many shares will they need to issue to raise $2,750,000?