“Derek’s Shawarma” Feb. 25th 2011 ADM 1300M In partial fulfillment of the requirements of ADM 1300 Executive summery To: From: Date: February 25th, 2011 Subject: Derek’s Shawarma Problem: Derek and Sal needed to decide how to structure the ownership of their business. Alternatives: * Maintain the status quo * Choose the general partnership * Choose the limited partnership * Choose the public corporation * Choose the private corporation Facts considered: * Derek graduated from the Telfer School of Management at the University of Ottawa 13 years ago, and his specialization in management. Derek started his career in a middle management position at a firm in Ottawa; but Derek didn’t satisfy with his success in it. * Derek’s friend Sal wanted to keep busy in his retirement and he wanted to start a restaurant. * Derek had been a long-time resident in Ottawa; he was familiar with the local market, so he suggested a shawarma restaurant to Sal. Recommendation: I recommend Derek and Sal choose structure a private corporation. They can sell the shares of stock to just a few people. They have more money to start this business, they will also make more profits in the future owing to the great potential of this business.
Derek can use his knowledge of management in this business. Assumptions 1. Derek can quit from his job in order to do his own business. 2. Sal has the resources to run this business; he has enough money to hire employees, to start this business and to rent a space. 3. For the corporation ownership, Derek may need to put amount of money in the business, so that he can hold shares of stock. Statement of the problem Satellite problems 1. After working at a firm for a few years in Ottawa, Derek realized that he did not feel satisfied with success in the corporate world. 2.
Potential promotions were not enough to keep Derek inspired 3. Sal wanted to keep busy in his retirement. 4. Sal was interested in starting a small business. Primary problem To start a business, Derek needs to decide how to structure the ownership of their business. Implications Implications on personnel 1. Derek will feel upset every day and cannot have any motivation to encourage him to do a good job, which may become a prelude of losing the job. 2. Under the condition, Derek may lose his interests in life, begin to resent himself, and become have no confidence doing other things beside the work. . Derek cannot get profits from this business; in some ownership of business, he will even lose all of his assets. 4. Derek may begin to think whether he was really familiar with the food market in Ottawa, although he had been a long-time Ottawa resident.
5. Sal may lose some or even all of his money if they choose the wrong structure of the ownership in their business. Implication on organization 1. Sal will not make investments with Derek, because this failure of business will reflect Derek’s poor ability in management. 2. The restaurant will lose the potential clients who are interested in the hawarma and want to eat at the Derek’s Shawarma restaurant. 3. Failing to structure the ownership may cause many conflictions between Derek and Sal, which including: they cannot divide profits fairly; there will be no agreements to dissolve contradiction between them. 4. It could get harder to reorganize this business, because the first failure of business may leave a scar in their hearts. 5. The restaurant cannot make profits if Derek and Sal give up opening this business. Alternative solutions No. 1: Status quo The status quo is taking no action to fix problem but instead keep doing as is.
For Derek, status quo means staying at the firm in Ottawa. Although this will cost no money, and have less risk for Derek, it will make his life boring and make him have the negative attitude toward life. Derek said he did not feel satisfied with his success in the corporate world and the potential promotions were not enough to keep him inspired. pros| cons| It has no expense. Derek will keep his current income. | Derek will not feel satisfied with his success in the corporate world. | There is no risk as well as uncertainty. They have the normal life as before. | The potential promotions were not enough to keep him inspired. Derek can get a stable income to keep his life moving on. | They cannot make a lot of money if they don’t run this business. | Sal have a peaceful retirement, he doesn’t need to worry about his work. | | Although this is a no cost option in the short term, it will cost a lot in the long term. Derek will feel worse in his day-to-day work. Sal cannot keep busy during his retirement. Status quo will not solve the primary problem. Depending on compare pros with cons in the table, it’s better for them to run this business. Showing their talents in business will be an unforgettable experience in their lives.
So, this alternative cannot solve the problem. No. 2: The general partnership The general partnership means both Derek and Sal are actively involved in managing the firm and have unlimited liability. Sal not only financial supports the shawarma restaurant, but also participates actively in the business. This can decrease Derek’s pressure in management. Sal can know what is happening in his restaurant, can keep busy in his retirement, and he can make decisions in this business. pros| cons| Both of them can do their best to manage this business, they have the ability to grow by adding talent and money. Both of them have unlimited liability, it has high risk. | It’s easier to borrow funds than do sole proprietorships. | Lack of continuity, when either of them quit from this business, the business died. | It’s easy to organize; it just needs few legal requirements. | It’s difficult to transfer ownership. They cannot sell out without the other partner’s consent. | | It provides little or no guidance in resolving conflict between the partners. If they have different opinions, it’s hard for them to make decision. | Depending on the pros and cons, it’s not the best alternative for Derek and Sal.
Because this is the first time that Derek and Derek to start a business, any of his mistakes may cost all of their money. It’s a very high risk option. Also, there is no guidance for them to resolve conflicts; their relationship may be devastated owing to some different opinions. Although the general partnership has several pros, the cons will cause many serious problems. These serious problems may influence Derek and Sal’s day-to-day life. No. 3: Limited partnership Derek was coming out with a specialization in management from the University of Ottawa 13 years ago. He had the experience at a firm in Ottawa.
In addition, Sal has money, and wants to keep busy during his retirement. Limited partnership in this case means Derek just participates in the day-to-day management and Sal just invests in the business. The risk of limited partnership is lower than that in general partnership, because Sal has limited liability; his liability is limited to the amount he invested in the partnership. pros| cons| Both of them can do their best to manage this business, they have the ability to grow by adding talent and money. | One of them has unlimited liability, which takes a high risk. | It’s easier to borrow funds than do sole proprietorships. Lack of continuity, when either of them quit from this business, the business died. | It’s easy to organize; it just needs few legal requirements. | It’s difficult to transfer ownership. They cannot sell out without the other partner’s consent. | | It provides little or no guidance in resolving conflict between the partners. If they have different opinions, it’s hard for them to make decision. | Table 1 It is not the best option for Derek, because the cons are pretty much the same as the cons in general liability, but Derek does not need to take a very high risk in this business. This kind of ownership may bring them some troubles.
They cannot deal with the confliction between partners. So, it is not the recommended solution for Derek. No. 4: The public corporation In this business, if just one or two people invest the restaurant. The assets of this restaurant are limited. If they choose the public corporation, they can collect money from public. The shares of stock are bought by the general public and available for sale to the public. Most importantly, this structure is limited liability, so both of them don’t need to take a high risk in the business. If the business failed, the courts cannot touch their personal possessions. Pros| Cons|
They don’t need to take a high risk in this business owing to the limited liability. | They have to pay the corporate income taxes on the corporation’s profits, and the shareholders have to pay the income taxes. | Corporation is continuity, they don’t need to worry about either of them quit this business and they have to stop. | Corporations need legal help in meeting government regulations, because corporations are regulated by government. | It’s easy to raise money by selling shares of stock. | Their restaurant is a not famous; few investors will buy the unknown stock. | | The corporation needs to pay dividends to shareholders. Table 2 If they structure the public corporation ownership, they have to cost much extra money. Most importantly, their corporation is an unknown corporation, not like those famous corporations which can easily selling their shares of stock. If Derek and Sal cannot sell the shares of stock, the business cannot run any more. So, actually, this is a very high risk option. Usually, most new corporations do not start as a public corporation. Thus, Derek should choose other alternative. No. 5: The private corporation Derek can also choose the private corporation, which means the shares of stock are held only by few shareholders.
This is easier to form than the public corporation; they don’t need to sell the shares of stock to the general public, so the risk is much lower than the public corporation. They just need to sell the shares of stock to a few people. First, they can sell some shares of stock to the people who are familiar with them. “As the corporation grows and develops a record of success, it may issue shares to the public (“go public”) as a way of raising additional money. ” Pros| Cons| They don’t need to take a high risk in this business owing to the limited liability. They have to pay the corporate income taxes on the corporation’s profits, and the shareholders have to pay the income taxes. | Corporation is continuity, they don’t need to worry about either of them quit this business which make them have to stop this business. | Corporations need legal help in meeting government regulations, because corporations are regulated by government. | It’s easy to raise money by selling shares of stock. | The corporation needs to pay dividends to shareholders. | They don’t need worry nobody will buy their shares, shares of stock can held by only a few shareholders. | | Table 3
This is the best choice for Derek’s Shawarma. They might have to pay the double taxation, but they can earn more money when they run this business. In the long run, they can change the ownership to the public corporation which can bring more profits. So, this alternative has a great potential. This is the best choice to solve the primary problem and also the safest way to achieve success. Recommended solution After Derek and Sal choose the private corporation, Derek will satisfy with this business, he can be the boss of this corporation; he can use his knowledge of management to control this business.
Also, this business has a great potential promotion. To structure the private corporation is just the first step to achieve success, when their restaurant become more and more famous, they can change the owner ship of Derek’s Shawarma to the public corporation, which will help them raise money faster than before. Many people know this restaurant will buy the shares of stock. So Derek will always feel motivated in this business. Furthermore, Sal can participate in this business; he can follow Derek’s instruction to manage this restaurant, which keeps him busy in retirement. Sal’s dream also come true, which is he can own a small business.
Because they have just two people in the beginning, they can hardly to sell the shares if they choose the public corporation, which may make their business fail. Moreover, the unlimited liability is the major drawback of the partnership. After all, this is Derek’s first time to start a business; there will be so many uncertainties in the real business world; so, any of his mistakes may devastate the whole business, even his own life. However, in the private corporation, he won’t need to take such a high risk, because all of the shareholders just have the limited liability.
In addition, they just need a few people to hold the shares of stock. It’s much easier than sell shares to the public. In order to make their business famous, they need to hire a good cook, who is well trained. The cook must have rich experience and his own style of cooking. They should choose several dishes as their special dishes. This can give the “first-time” consumers an instruction. Moreover, the advertisement is also essential. If they think it is so expensive to put the advertisement on TV or newspaper. They can just print many leaflets to people through sending mail or spreading the leaflets on street.
When they have the first group of customers, those customers who think this restaurant is good will introduce their restaurant to other people. So the restaurant will be more and more famous in the future. Implementation Immediate action (Present – Six Months) 1. Derek and Sal should establish a written agreement about how to address ownership and, authority and leadership of the restaurant. They need to divide the total number of corporate stocks, list the shareholders and write the stock ownership. 2. To start this restaurant, they should register the company’s name first, to see whether this name is available to them.
Because they start this business in Ottawa, so they should obey the rules in municipal, provincial and federal. There are about 34 permits and licenses they should consider. If they want to expand their services, they need to apply more permits and licenses. 3. Purchase supplies and the equipment of restaurant, so they can run the restaurant. 4. Start Derek’s Shawarma, create foods and hire employees to make profit. 5. They need to think about how to compete with their rivals and devise a marketing campaign. Short term action (Six Months – One Year) 1. They should discuss the past six months business success or failures.
If it is success, they need to find out what they have done was benefit for their company, so they can continue doing those things. They also need to find out what they have done was harm for their company, and then they should stop those plans. If it is failure, they should sum up their experience so that they won’t make those mistakes in their next business. 2. They can see whether the location of restaurant is the good one. If the consumer resources are enough, they can stay and continue doing this business, if not, they should consider other location. Long term action (Beyond one year) 1. It will be necessary to hold an annual meeting.
In the meeting, they should through written agreements informally and talk about the firm’s performances in this year. 2. It will be also necessary to keep enough consumer resources and keep the number of consumers on roughly stable level by advertising and other ways, so they can get long term profits. 3. They should reevaluate whether the private corporation is success in this business every year. When the restaurant become famous in the community or the city, they should consider change the ownership to public corporation so that they can raise money easier. ——————————————– [ 1 ].
Concepts were taken from “Introduction to Business Management- Customer Edition for the Telfer school of management at the University of Ottawa” [ 2 ]. Ideas of pros and cons were taken from “Introduction to Business Management- Customer Edition for the Telfer school of management at the University of Ottawa” [ 3 ]. Ideas of pros and cons were taken from “Introduction to Business Management- Customer Edition for the Telfer school of management at the University of Ottawa” [ 4 ]. Fact was taken from “Introduction to Business Management- Customer Edition for the Telfer school of management at the University of Ottawa” [ 5 ].
Taken from “Introduction to Business Management- Customer Edition for the Telfer school of management at the University of Ottawa” [ 6 ]. Ideas of pros and cons were taken from “Introduction to Business Management- Customer Edition for the Telfer school of management at the University of Ottawa” [ 7 ]. Idea from “How to Start a Private Corporation” by Laura Acevedo http://www. ehow. com/how_6225772_start-private-corporation. html [ 8 ]. Information from Canada Business http://www. canadabusiness. ca/eng/