Question

Imagine A Better Company LLC, which has six members. Five of the shareholders own 7 percent each. Jacinta owns the remaining portion of the company. A Better Company needs $250,000 for equipment, inventory, and working capital to expand into a new market. Jacinta does not want to give up controlling interest in the firm. What percent of her ownership can she sell and retain majority ownership? What would she be valuing the company at if she did so? Name three potential sources (specific types of investors/lenders) that might provide the equity or some form of debt.

Answer 1

Jacinta can sell up to 15% of her ownership and still retain majority ownership in A Better Company LLC. The company would be valued at $1,666,667 if she sells a portion of her ownership. Potential sources of equity or debt financing for the company's expansion include bank loans, venture capital firms, and angel investors.

Step-by-step explanation:

Jacinta, who owns the remaining portion of A Better Company LLC, wants to retain majority ownership without giving up controlling interest in the firm. To calculate the percent of her ownership she can sell and still retain majority ownership, we can subtract the ownership percentages of the other five shareholders (35%) from 50% (majority ownership). This means Jacinta can sell up to 15% of her ownership and still retain majority ownership.

To determine the value of the company if Jacinta sells a portion of her ownership, we need to divide the amount of money needed for expansion ($250,000) by the percentage of ownership being sold (15%). This gives us a valuation of $1,666,667 for the entire company.

Three potential sources for equity or debt financing for A Better Company's expansion could be:

1. Bank loan: A traditional source of debt financing where a bank provides a loan to the company with a specified interest rate and repayment terms.
2. Venture capital firm: A type of investor that provides equity financing in exchange for ownership in the company. They can also provide guidance and expertise to help the company grow.
3. Angel investor: An individual investor who provides capital and support to startups in exchange for ownership in the company. They often have industry experience and can provide valuable mentorship.