John has been conducting a great business with a pie and pastie factory. He is now making $300,000 in profits each year but has a big income tax bill.
He would like to expand the business and needs $200,000 to buy more pie making machines.
He is not sure whether he should setup a company and issue 200,000 shares to his friends, or else setup a company with himself as the only shareholder and try to get a bank to lend $200,000 to it.
Boris, his friend, suggests that he could provide $200,000 but only if they form a partnership.
Boris suggests that future profits should be shared 40% to John and 60% for Boris as Boris is putting in a significant amount of capital.
Explain the advantages and disadvantages of these alternatives.
Your Answer should include references to legislation and case law.
