Steven Levine owns a lumber business, which he founded thirty years ago. His business, Emperor Lumber Company, has business offices at 200 West 14th Avenue, New York, New York; a lumber yard and mill in Atlanta, Georgia; and sells retail lumber to consumer customers. The business has been improving, and presently nets approximately 
450,000 per year before taxes. Levine has operated the business as a sole proprietor with seven full-time employees, including an employee-manager of the lumber yard, Rick Duffy. Levine’s son, Magic Levine, has been working with the business since he graduated from high school. Magic is presently 18 years old. In addition to his lumber business, Steven owns other investments and nonbusiness property that afford him approximately 100,000 per year in income.
Steven is exploring several possibilities for the direction of the business, and he is excited about the possibility of adding a retail hardware inventory to his retail lumber business. The addition of a hardware line would require approximately 650,000 in capital, the addition of a new store at another location, and hiring approximately ten to fifteen new employees.
Steven says he has the following alternatives: (1) he may continue the business alone and eventually give it or will it to his children; or (2) he may add his employee-manager as a partner to the business, with a contribution of approximately 300,000 in capital by the employee-manager; or (3) he may consider incorporating the business if you so advise.
If a partnership is to be formed, Steven would contribute the lumber mill valued at 500,000, timber lands worth 150,000, and inventory items worth approximately 120,000. The goodwill of the business is valued at approximately 250,000. In a partnership arrangement with Duffy, the employee-manager, Levine is willing to share profits fifty-fifty.
If a corporation is to be formed, Levine suggests that his son and his employee-manager join him as the directors of the business. It is extremely important to Levine that these three people maintain complete control over the business. Although his son does not have any individual capital to contribute, Levine would like him to maintain an ownership interest in the corporation.
Recognizing the need for capital to begin the retail hardware business, Steven has located three potential outside investors who will provide capital no matter what form the business assumes. These people include Donna Skibbe and Richard Conviser, each of whom will contribute or invest $150,000, and are interested in a minimum annual return of ten percent and capital appreciation. Neither Skibbe nor Conviser have any interest in management or control, but they insist on some sort of protection should they fail to receive their desired return on investment for any substantial period of time. A third investor, Stanley Chess, will contribute or invest up to $250,000 provided he receives a guaranteed fifteen percent minimum annual return. He is not concerned about control or capital appreciation. Levine is willing to meet all these demands, but Levine wants to be able to retire or redeem any business obligations that might make subsequent investment or acquisition of outside capital unattractive.
a. Prepare a memorandum on the advantages of incorporation or partnership for this business.
b. Prepare a skeletal structure for both a partnership and a corporation and a list of questions and issues you think would be appropriate to discuss with Levine during your second interview.
c. Draft all documents necessary to form a corporation for Levine’s business under your local corporation code.
