The Award Phase – You Decide
The Award Phase – You Decide
Unfortunately the catering business did not generate the expected profits therefore you are in the process of dissolving the business. You have no use for the high quality cooking equipment that was leased for the catering business. You assume the chefs will continue in the cooking business and can use the equipment. It would be all right with you if they took over the lease. You understand there is no charge to remove your names from the lease agreement. However, you think the best all around solution is to terminate the lease for the kitchen equipment.
You also do not think that the chefs deserve the capital because they caused the business to fail. You need to recoup as much as your investment as possible to open an alternative venture. You recently began to look at the possibility of opening a flower shop, although you have not yet done extensive planning for it. To do so you need capital. How will we split the $15,000 left in the investment? To be fair to our partners we will use the same capital distribution that was used at the beginning of the investment, Chris and Pat Smith, put $25,000 and the chefs put $10,000 up to total $35,000 for 100% of the shares.
Each share is worth $350, therefore we own 55. 5% of the company while the chefs own $45. 5%. We are down to $15,000 in working capital, which has to be split amongst the partnership. If we split this capital according to the ownership percentage, we should receive $8,325 and the chefs should receive $6,675. We do not think the chefs deserve this share because they caused the business to fail due to elaborate high-cost dishes being sold at a low-price. Also we will need capital for our new flower shop venture; therefore we will give the chef’s $3,000 and keep the remaining $12,000.
As negotiation leverage we will use the kitchen equipment lease agreement options. We cannot use the kitchen equipment in our flower shop, but it could be useful for the chefs to continue business. How to handle the lease on the kitchen space, which has 18 months more to run? We will need a rent space for our flower shop, and the store front of the catering business is large enough for us. The chef’s will want to keep the space because of the kitchen that is attached and the established business and customers who are familiar with the location.
Therefore we should offer them to amend the lease in their name only and they should pay the $500 cost for this amendment. This would be the best solution due to the dissolve of the business relationship and difference in management styles. How to handle the lease on the van, which has 18 months more to run? We can use the van leased for our flower shop deliveries therefore we will keep the van. We will remove the chefs names from the lease for the van and offer them that we will pay the $500 for the amendment cost.
To eliminate termination fees and to also redefine responsibility correctly for the van, this is the best option for our exit strategy. How to handle the lease on the kitchen equipment, which as six months more to run? All in all, you think it is better to leave the lease alone and just promise the chefs that you pay it rather than pay the fee for changing the names on the lease, terminating it, or paying the fee to assign it to them. You are concerned that if they took over the lease and then later could not make payments, you would still be responsible.
We cannot use the kitchen equipment in our new flower business, so this makes a good negotiation point for us. Since the chefs will continue in the cooking business we will offer them to amend the lease in their name only in return of getting more capital for our new business. They can keep the kitchen equipment lease in their name if they agree to be paid $3,000 from the capital. This would be the best solution due to the dissolve of the business relationship and the chef’s getting the kitchen space.
In conclusion for our exit strategy meeting with the chefs we will dissolve the business $15,000 in capital distribution; $12,000 will go to the entrepreneurs and $ 3,000 to the chefs. In regards to the well known store front, the chefs will take over the lease and pay $500 to amend the names. The van will go to the entrepreneurs and they will take over lease and pay $500 to amend the names. On the equipment the chefs will have immediate use for it and will take over the lease in conjunction with the kitchen space. We feel this is the most fair and best breakdown of the investment for both parties to move forward successfully.
University/College: University of Chicago
Type of paper: Thesis/Dissertation Chapter
Date: 5 October 2016
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