User:CheshireKatz/Planning/Charts

As requested by Prof Broderick:

Susie Starbucks	$50k	Business Expertise	Guaranty of Bank Loan	Guaranty of Lease Payments
Amalgamated	$100k	Antique Coffee Decoratives	Coffee Supplies	Management & Operational Assistance
Jeff	Goodwill	Day-to-Day Management

	Income	Distribution	Liquidation	Redemption	Conversion	Voting / Management
Susie Starbucks	1	2	5	2	5	1 (only major decisions)
Amalgamated	3	3	1	5	???	3 (assurance of supply contracts)
Jeff	5	4	3	n/a	???	1 (minor day-to-day)

I N C O M P L E T E

Susie Starbucks	For her $50k, PrefEquity Interest → Liquid Pref → 10% Accruing Dividend → Convertible into ComEquity	For her Guarantys, Warrant → To Purchase ComEquity at current FMV	For her Expertise, Nothing → Already in her interest
Amalgamated	For their $100k, Bond/Note → 10% Int Distributed Currently → Maturity date in 5yrs → Subordinated to Bank Loan	For their ($25K) Antiques, PrefEquity Interet	For their Supplies, Sale → Regular Price → Exclusive Supplier Agmt
Jeff	For his Labor, Employment K → 3 year term → Salary: 10%↓ Market Avg → Bonus: 2% of Revenue (so long as net loss < $25K)	For his Goodwill, ComEquity →

I N C O M P L E T E

Balance Sheet
Assets	Liabilities
CASH → $100K (Amalgamated) → $25K (Bank) → $50K (Susan) OTHER → $25K	NOTES → $100K (Amalgamated) → $25K (Bank) EQUITY → $50K (Susan) → $25K (Amalgamated)
Total = $200K	Total = $200K

Capitalization Table
	PrefUnits	ComUnits	Warrants(CU)	ComEquivs	% Interest
Susie Starbucks	50K		75K	125K	50%
Amalgamated	25K			25K	10%
Jeff		100K		100K	40%
	75K	100K	75K	250K

Susie looking for Pass Thru losses, Income, & LTCGs
Amalgamated (Foreign corp)
Jeff Income & LTCGs

...and now TAX CONSEQUENCES!

    S                 A                     J
(50K Cash)       (100K Loan)               (0K)        
                 ( 25K Prop)                      
Ba: 50K           Ba: 100K               Ba: 0K            
CA: 75K           CA: 100K               CA: 0K              

    \\               ||                   //
     \\              ||                  //      
                                           
                 L    L    C                       
                                           
Bank Loan $25K                                           
Ama Loan $100K
Antique $25K (704(c))

Latest[edit]

	Hatfield	McCoy
Contributions	Property of: $7.5m FMV - $6.5m Debt $1m	250k (Cash)
Capital Accounts	$1m (80%)	$250k (20%)
Equity	Pref ($1m liquid) Com (60%)	Pref ($250k) Com (40%)
Calc for $2.5m company	$1m + (60% of $1.25m) = $1.75m (70%)	$250k + (40% of $1.25m) = $750k (30%)
Calc for $10m company	$1m + (60% of $8.75m) = $6.25m (62.5%)	$250k + (40% of $8.75m) = $3.75m (37.5%)

"No profit" businesses though they increase in value:

Landlords paying themselves for services and repairs/renovations

Pro-sports teams

Companies developing drugs/medical devices

Equity Interests:

Capital → Constrained
Appreciation/Profits → Wide Open
Voting → Wide Open

LLC preferred structure to avoid restrictions on subchapter S Corps and require $1.1m in adjusted basis on Hatfield’s property to travel with him.

...and now TAXES with Vajtay!

Hatfield:

US Citizen

Depreciable real property

Sole proprietor

Doesn't like tax complexity

Dying

McCoy

US Citizen

Inheritance

100k Joint income

Young & not sick

EXHIBIT A
Property	FMV	Adjusted Basis	RemStr Line Deprec	Debt	Cashflow
New Jersey	$3.00m	$2.10m	10 yrs	$2.00m	$0.15m
Connecticut	$1.50m	$1.00m	25 yrs	$1.00m	$0.18m
Vermont	$1.00m	$0.90m	15 yrs	$0.90m	$0.10m
Massachusetts	$2.00m	$2.40m	29 yrs	$2.60m	$0.09m

          H                      M
       ($ Ct Prop)              ($0.25m)        
       ($ Ma Prop)                       
       ($ Vt Prop)
       ($ NJ Prop)
        Ba: $3.15m               Ba: $0.25m            
        CA: $1.00m               CA: $0.25m            

            \\                 //
             \\               //      


                 L    L    C                       


H Basis    6.40m
          -6.50m                                           
          +3.25m
          ------
  Adj Bas  3.15m

Hatfield ought to include a term in the agreement that requires his approval on sales of appreciated land and triggers distributions to him to pay the tax hit.

Recourse or non-recourse indebtedness? Individual borrower for business loan, almost certainly recourse debt. If it had been non-recourse, his liability would've been redistributed to