Business Case Study - Asad and three business associates

Saudi Electronic University Business Case Study

SAUDI CONSTRUCTION CASE STUDY PART 1:

Asad and three business associates have decided to start a business: Saudi Construction. They will do work for oil companies in Saudi Arabia at first, but he hopes the firm will grow within two or three years to gain heavy construction contracts throughout the Middle East. Asad wonders whether he should form a corporation, a partnership, or maybe a limited liability company under Saudi Companies Law.

Asad believes they will initially need about $10 million in capital to run the business and have sufficient financial reserves to do large-scale projects. After two years, they will need an additional $20 million in capital.

Asad will be in charge of business operations. He realizes they need a business plan that will address how to value the corporation in order to raise the necessary capital in two years. It also needs to address how Saudi Construction can legally protect its assets in an industry where lawsuits are a common hazard.

Meanwhile, his associates have pressured Asad to kick-start the business by signing a couple of lucrative contracts right away; they tell him he shouldn’t worry about the administrative paperwork. They say that nobody ever looks at the paperwork once a business is formed and it’s no big deal.

ACTION ITEMS

In at least a two-page paper, fully respond to the following:

• Asad has hired you as his business consultant to help him make good decisions. Give him advice on his questions:
  • What are the advantages and disadvantages of forming the business as:
    • a corporation?
    • a partnership?
    • a limited liability company?
    • What is his potential liability as an individual and what can he do to limit his risk?
    • What issues might arise from following his business associates’ advice?
    • What other factors should he take under consideration?
  • In helping Asad with the business plan, explain:
    • How he can value his business
    • What the business can do to reduce its risk
    • How the owners can limit their liability
    • What the business should (and should not!) do to protect against lawsuits
    • What factors he must consider on how to raise capital
    • What mix of capital the business should have