Business Expansion

Alfred and Beatrice operated a bookshop together, sharing profits equally.  They decided to expand.  Their friend Coco offered them $50,000 to help finance the expansion.  Accordingly, she agreed with Alfred and Beatrice that she would lend the money in return for $5,000 a year payable from sales less outgoings.  However, she was concerned that she might lose her money.  Hence Alfred and Beatrice also agreed that they would consult her on any major decisions and that she could inspect the books whenever she wanted to.  What is the relationship between Alfred, Beatrice and Coco?  Would your answer be different if the $5,000 per annum was to be paid out of profits?

The relationship between Alfred, Beatrice and Coco can be determined through the application of various business management laws and the idea of forms of business. Alfred and Beatrice are business partners in a bookshop business (Luftman 2014). The relationship between Beatrice and Alfred according to the laws under formation of business structures can be classified as partnership. This is because the two individuals share both the losses and profit as well as make decisions regarding the business. On the other hand, the third party who is Coco in this case is a financier to the business as she has got no shares in the business (Aaronson 2011).  Though Coco is involved in making of various major decisions in the business, she cannot be regarded as a partner. This is because she is not involved in the sharing of profits and losses within the business. Coco is a fancier to Alfred and Beatrice since the money is given back to her annually payable from sales less outgoing sales rather than profit.