Rene's decision

In 2004, Rene opened his shop with only one full-time employee. Since then Rene has added two general partners and greatly expanded the operation. Over the past year, it has become obvious that the group could open another outlet. However, the partnership does not have enough money to fund this growth strategy.

Rene's banker has suggested that the company borrows Rs. 500,000 from the bank and pledges the firm's assets as collateral. The idea appears fine to the partners, although they are concerned about the risk involved. If the second shop does not do well, it could affect the success of the first shop by siphoning off funds to repay the loan and might therefore affect its brand.

Rene has been thinking about incorporating the business, selling stock, and using these funds for expansion purposes. He has not shared this idea with his banker because he wants to give it more thought. However, he intends, first of all, to talk it over with his partners in the coming week.

Questions

a) Discuss the advantages and disadvantages of having a general partnership as business structure.

b) What are the consequences for Rene to shift from a partnership to a company?

c) Discuss the main factors that must be considered by an entrepreneur when choosing an ownership structure for his/her business.