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principles of Finance a la shmoop the sauce kings 1.0 once upon a time

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there was a sauce these twin boys are the future sauce kings their bubby which [Man discussing sauce kings]

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is a Jedi named for grandmother had roasted so many pots of the sauce in the

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kitchen at a violent bubble that Artie and Bernie were certain its oils had

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penetrated the paint and were now permanently embedded in the drywall they [Sauce embedding into drywall]

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had cut onions and peeled garlic cloves for the sauce since they were 5 years

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old they had specific roles Artie was the one to organize shop prepare layout

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serve time and so on Bernie salted to taste even though they [Bernie tasting the sauce]

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came out of the same DNA Factory Bernie was physically about twice the size of

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Artie, Bernie knew food and smell and taste

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he was the artiste he was also the only one in the world other than Bubby who

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knew the exact ingredients and formula of the sauce Artie vaguely knew what it

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was but he was about the process Bernie was about the food well friends would [Friend appears at door]

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fight to be invited for dinner when bubby was cooking the sauce solved

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family arguments calmed nervous girlfriends and was rumoured to enhance

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the growth of hair had pavlov been there bells would have been ringing over veal [Pavlov ringing a bell]

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chops the sauce was magic Marky Minkelman visited one day with the meal

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finished he asked for the recipe when they laughed and politely said no Marky [Marky asking for recipe and people laugh]

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offered to pay for it and then insisted and then offered to pay a lot the demand

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made the room uncomfy well Artie Bernie and Bubby sent Marky packing with a

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gallon of sauce no recipe but in Artie's mind a bright light went off they had [Light appears above Arties head]

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something with only modest career aspirations and with both boys attending

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a local college Artie and Bernie began working 25 hours a week trying to figure

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out how to sell the sauce well Bubby looked at the concept as flattery a way

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of spreading her love of food and family meals all around the world it was her [Sauce squirted on map of world]

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recipe but she couldn't have been more flattered and energized

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to work with the boys the venture took 10 years off her life in a good way for

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a while the boys just barbecued rows and rows of chops in front of the house the [Chops roasting on a barbecue]

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smoke was a scented siren song lines were long the guys realized they needed

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a dozen barbecues and that they could fill a dozen neighborhoods or more but

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they couldn't afford the barbecues with the profits they were making maybe one

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barbecue a month assuming finals didn't kill them they

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needed capital well luckily one day a well schooled well-fed venture

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capitalist named Reid was standing in line he looked like a true connoisseur [Reid running away with a plate of chops]

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of the sauce he tasted juices drooled and he waited for closing time then he

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introduced himself hello fine fellows I would like to invest in you I think you [Reid approaching the twin boys]

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could have the best barbecue sauce in the world together with little capital

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we could make a fortune..well, Bernie was stunned and not hugely interested but he

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did want resources with which to experiment so he could create other

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varieties of the sauce could the flavor be applied to salads or hors d'oeuvres

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or chapstick what about chapstick and Artie was already trying to figure out

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the process who got paid what for what that is if Reid puts in a dollar what

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percent ownership of the company does that dollar buy him [Artie looking at barbecue profits]

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after gathering the basic information or doing his due diligence Reid made a

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formal offer to invest $500,000 for a 1/3 ownership in the sauce company...Artie

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and Bernie realized that this valued their existing veal chop stand in the

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barbecue and sauce formula behind it at a total of 1.5 million dollars..Artie and

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Bernie heard $500,000 and then a big buzzing sound in their ears their [Bernie hears buzzing sound and pokes finger in his ear]

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collective experience with finance involved numbers with a whole lot fewer

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zeroes so the concept of getting 500 grand was well foreign to say the least

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and Bubby said take money but Artie being the more cautious of the brothers

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said wait we should go say hi to uncle Hy and so they tripped off to Uncle

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Hy the family consigliere and day to day job lawyer Hy explained how they

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could set up this new company this notion of birthing a company involves

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the concept of entity what exactly is the legal

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form for how the sauce company will do business well the first in simplest form [Man discussing flavors of partnership]

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of a company, Hy explained is the sole proprietorship doesn't take much to

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establish almost nothing in fact you start a business by yourself and poof

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you fill out a form mail it in and you're a sole proprietorship you are the

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man but that won't work here because we have not one but three proprietors well

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next up in complexity he said is the partnership while partnerships are also [Uncle Hy discussing partnerships]

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simple to establish and you can have any number of partners greater than one

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The biggest problem is that you can lose everything even

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more than you put into the business say some yutz slips on a banana peel in a

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factory you own and are responsible for operating he sue's you and he wins he [Man celebrates in court]

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can go after everything everything you own even more than just literally taking

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away your key to the front door of the business you built yourself your house

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your car your savings and your little dog too this is the concept of unlimited

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liability well naturally the boys agreed that unlimited liability was something

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to be avoided so a partnership was out there had to be another way for this

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company to be established then Hy whispered two letters....L-P...A limited

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partnership as the name suggests involves partners whose overall risk is [Limited partnership definition appears]

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limited to whatever they invest in a partnership if they invest 100 bucks

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well that's the most they can lose hence the catchy word limited in there there

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are however some drawbacks with this approach because a limited partnership

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requires that the limited partners must be passive investors limited partners

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can't be involved with decisions and managing the partnership because if they [Woman appears at office window]

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do well then they lose that limited liability protection they are perceived

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legally to be unlimited partners and if the banana peel slipping lawsuit happens [Man slips on banana peel]

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well then they can lose everything since Artie and Bernie planned to be

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involved the limited partnership didn't seem to be the answer by the way a quick

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note to future wall street Wizards out there if you ever raise money for a [Boy raising money for a hedge fund]

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hedge fund or a venture capital fund you will raise it from passive investors who

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will be your yes limited partner you running the fund with the big

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swinging hat will be the general partner the LP's give you money and then they go

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play golf you manage the day-to-day dough reporting to them monthly or [Boy swimming in a pool of cash]

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quarterly so uncle Hy said there's another vehicle here to be driven the

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corporation the corporation has the benefits of limited liability and the

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shareholders or stockholders if you prefer are permitted to manage the

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business or at least be involved in it it's the best of both worlds and so the

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boys formed the sauce company Inc and Reid was its first investor capitalizing [Reid and boys celebrating opening of Sauce Company Inc]

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it with his 500 grand that sauce is really starting to cook here

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