MANAGERIAL FINANCE

Chapter 3: Organizing and Financing a New Venture

Chapter 3 Mini Case 1: Interact Systems, Inc (Revisited)

Instructions: Please read the case below and answer question B-F. Note that the answer
is provided for question A.
Interact Systems, Inc. has developed software tools that help hotel chains solve application
integration problems. Interacts Application Integration Server (AIS) provides a two-way
interface between central reservations systems (CRS) and property management systems
(PMS). At least two important trends in the hotel industry are relevant. First, hotels are
shifting away from the manual booking of room reservations and electronic bookings will
continue to increase as more bookings are made over the Internet. Second, competitive
pressures are forcing hotels to implement yield management programs and to increase
customer service. By integrating the CRS and PMS through Interacts AIS, inventories can
be better managed, yields improved, and customer service enhanced.
All reservation traffic is routed from the CRS to individual hotel properties. This allows
Interact Systems to create a database that can be used to track customers and to facilitate
marketing programs, such as frequent stay or VIP programs, as a way of increasing
customer satisfaction. Interact forecasts application integration expenditures in the
hospitality industry to exceed $1 billion by 2012.
Greg Thomas founded Interact Systems in 2006 and developed the firms middleware
software and hospitality applications. He has twelve years of systems applications
experience and currently is Interacts Chief Technology Officer. Eric Westskow joined
Interact in early 2007 as President and CEO. Prior to that time, he worked in sales and
marketing in the software industry for over twenty years.

A. What are the advantages and disadvantages of having formed the company as a
corporation?
Answer:
An important advantage relates to investor liability whereby liability is limited to
shareholders investments. Although there is high time and legal cost associated with
organizing as a corporation, there is the possibility of attracting large amounts of equity
capital from venture investors and common shareholders. The corporate form of
organization also has an unlimited life and it is usually easy to transfer ownership.

low and answer question B-F. Note that the answer

ftware tools that help hotel chains solve application

tion Integration Server (AIS) provides a two-way
systems (CRS) and property management systems
he hotel industry are relevant. First, hotels are
of room reservations and electronic bookings will
are made over the Internet. Second, competitive
nt yield management programs and to increase
S and PMS through Interacts AIS, inventories can
d customer service enhanced.

CRS to individual hotel properties. This allows

hat can be used to track customers and to facilitate
tay or VIP programs, as a way of increasing
application integration expenditures in the
by 2012.

in 2006 and developed the firms middleware

e has twelve years of systems applications
hief Technology Officer. Eric Westskow joined
CEO. Prior to that time, he worked in sales and
ver twenty years.

estor liability whereby liability is limited to

here is high time and legal cost associated with
e possibility of attracting large amounts of equity
mmon shareholders. The corporate form of
and it is usually easy to transfer ownership.

MANAGERIAL FINANCE
Chapter 3: Organizing and Financing a New Venture
Chapter 3 Mini Case 1: Interact Systems, Inc (Revisited)

B. What other organizational structures whould have been appropriate and why?
Answer:
They could have organized as an s corporation. They could have done this because its
the same liability for the share holder. However they can only have 100 stock holders.

C. Could Interact Systems Qualify for S corporation status with the IRS? Why or why not?
Answer:

Interact can qualify as long as they keep business within the U.S., have less than 100
stock holders, and the stock holders must meet the IRS criteria.

D. Describe the intellectual property involved in Interact Systems' business model.

Answer:
The software created by Interact Systems is intellectual property. The software enables
hotels to integrate the crs and pms.

s corporation. They could have done this because its

older. However they can only have 100 stock holders.

r S corporation status with the IRS? Why or why not?

ey keep business within the U.S., have less than 100

ers must meet the IRS criteria.

Systems is intellectual property. The software enables

ms.

MANAGERIAL FINANCE
Chapter 3: Organizing and Financing a New Venture
Chapter 3 Mini Case 1: Interact Systems, Inc (Revisited)

E. What methods of protection are available for Interact Systems' intellectual property?
Answer:
They could either get a copyright for the software or you could possibly get a utility
patent.

F. What considerations are important in deciding whether to use an employment contract

for the newly hired CEO?
Answer:
If he will know information that competitors could use or if the CEO has incentive to
leave and start their own business in the same field I would deffinitly make them sign an
employee contract.

vailable for Interact Systems' intellectual property?

for the software or you could possibly get a utility

t in deciding whether to use an employment contract

ompetitors could use or if the CEO has incentive to

ss in the same field I would deffinitly make them sign an