Practice · 1.7 Organization, Roles, and Responsibilities

Bean & Brew's investor offer

Mina owns Bean & Brew as a sole proprietor. An investor offers $2 million to open ten more shops if the business becomes a corporation with the investor holding 60% of the shares. Mina's alternatives are to keep the business as it is, to take on her friend Jun as a partner with $150,000 of savings, or to convert to an LLC and borrow from a bank.

1. If Mina accepts the investor's offer, which of the following will be true?

AShe gains access to funding but cedes control to shareholders and a board, and the corporation — not Mina — controls profits and carries the debtsBShe becomes personally liable for the corporation's debtsCThe business cannot grow beyond its current sizeDShe keeps sole control of decisions and profits

2. If Mina takes Jun as a partner, which trade-off applies?

ANo change from a sole proprietorshipBControl passes to a board of directorsCMore funding than a corporation, no personal liabilityDControl and profits shared between the two partners, both personally liable for business debts, limited funding

3. Converting to an LLC would mainly give Mina

Aaccess to shareholders' moneyBprotection of her personal assets from business debts while keeping controlCa board of directorsDexemption from all taxes

4. Which option gives Mina the greatest ability to grow quickly?

AThe LLC with a bank loanBThe corporation with the investorCStaying a sole proprietorDThe partnership with Jun

5. As a sole proprietor, Mina currently

Areports to a board of directorsBdivides roles with partners by strengthChas no responsibility for financeDplays multiple roles, including CEO, marketer, product developer, financial manager, and operations manager

6. If the ten-shop expansion happens, Bean & Brew will most likely

Aorganize roles into specialized departments led by managers who report to executive leadersBeliminate the need for accountingCbecome a partnershipDkeep all responsibilities with Mina