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User:CheshireKatz/Planning/Charts

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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:

  1. Capital → Constrained
  2. Appreciation/Profits → Wide Open
  3. 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