CASE STUDY: FORM OF BUSINESS OWNERSHIP

When Ann Whithey realizes that customers do not like the orange color of
popcorn, she started to run a business that produces and sells white popcorn.
She later decided to expand its business into other "smart foods" and get the
necessary funding from external investors, called the venture capitalists. In
1989, Ann decided to sell her company and started another business that
focuses on organic natural foods.

Ann was originally set up her business as a sole proprietorship. She devotes
her time to creative things than running the daily business operations and do
not attend sale meetings. The small size of Annie's Homegrown allows for
considerable flexibility and allows the company to throw new products to
market quickly. At the same time, because of the small size of the company,
the creditors ask Ann to personally guarantee the repayment of the loan when
the company obtains funding.

Due to the popularity of its products, Annie's Homegrown managed to expand

quickly. The company went public in 1996, allowing individual investors to put
their investment in the company, and providing funds to Annie's Homegrown
to support its growth.

Questions

1. What are the costs and benefits received if Anna Whitney decided to
keep the business small and did not expand it into a very large
business?
2. What conditions that caused Ann to expand the business by obtaining
equity capital?
3. Why does Ann would rather get funding through a loan than through
the issuance of shares?
4. When Ann requires funding in the early years of her business, she
relied heavily on the proceeds of the loan. In 1996, the company
obtains financing through the issuance of shares to the public. Why do
 you think Ann can obtain additional funds easily through a stock
offering in 1996 as compared with when she tries such strategy in the
early years of her business?
5. Do you think Ann will benefit from franchising her business? Why?