Peter wants to establish a company to carry out biomedical research. The company is not intending to declare profits or pass them on to members for a number of years, as all money from trading will be used for further research. The company is proposed to be on a small scale with about 10 specialist researchers. The company once registered, is hoping to raise $6 million over a 4 year period raising $1.5million every year from a select group of investors. It is projected that the capital injection every year will meet the company's research needs.
The company, once established, hopes to receive a government research grant of $5million provided it can show that the money will only be used for research and not for profit. Albright University has also indicated that it would be prepared to give an interest free loan for research purposes to the company once it is registered but provided the company can give the University some type of security.
Peter engages a consultant to prepare a business plan at a cost of $3,000, which he intends to submit to the government and to Albright University in support of his proposal. Peter tells the consultant that the company will pay the bill after it is registered.
Advise Peter of the following:
a) What kind of company should Peter consider setting up (considering the above facts)?
b) What steps is Peter required to take when raising capital from the public? Would your answer be different if Peter were to raise $6 million from the outset as partly paid shares and simply made calls on the shares as the need for capital arose?
c) Is Peter responsible for the cost of the business plan prepared by the consultant?
d) Advise Albright University what it should do to secure the interest free loan to the company.
The question belongs to Law and it discusses about the establishment of a biomedical company for research. There are certain conditions based upon which the company is to be established. These include profits not to be distributed among the investors, but shall be reinvested in the company. The company should also raise $6 million over a 4 year period.
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