Question

Jeff comes to consult with you about an idea he has.  He tells you that he does not have a lot of cash to pay but if you help him, he will compensate you with equity in the company.  He talks about a crazy website were individuals can buy and sell books online, something called “Amazon”. Knowing that the book industry is a multi-billion-dollar industry, you agree. Jeff tells you that he needs to form a business entity for his business idea. He wants a company that he can grow while still keeping a close eye on his investors. Jeff has big dreams that that company will one day be a multi-billion-dollar company that sells more than books. Jeff wants the most liability protection possible while still avoiding as much taxes as possible.

1) What kind of relationship have you started with Jeff?  What type of authority(ies) has Jeff given to you, please explain? (No IRAC needed)

Answer 1

Business relationship refers to the connection of owners with the stakeholder of the company. For example relationship between owner and shareholder. Business's success depends on various relationship that owner makes. Since, Jeff has approached for money and he will also compensate the money by issuing equity. This means Jeff will issue equity and raise money from me. Therefore, I'll be a shareholder of the company. Hence, my relationship with the Jeff will be of manager-shareholder. Jeff will be the manger and I will be the shareholder as I have invested in the company.

NOTE : My relationship cannot be of partner. A partner is a part of partnership but here Jeff is deciding to start a company and hence there can be no partners.

If you have any doubt, ask me in the comment section please.