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Question: Paige Clothing Company (Paige) helped form Apparel


Paige Clothing Company (Paige) helped form Apparel Media LLC, a company that will conduct e-commerce sales for Paige through a dedicated internet site. Two outside investors contributed $50,000 in start-up capital to Apparel Media as the sole owners of the company. Apparel Media’s governing contract stipulates the following:
∙ Paige is to be Apparel Media’s sole client, and Paige must approve any expenditures by Apparel Media.
∙ Apparel Media will receive a fee of 5 percent of all sales revenue generated through its e-commerce internet site up to a maximum fee of $30,000 per year. The maximum fee will increase by 4 percent per year.
∙ Paige and Apparel Media will pay 50 percent of the costs to maintain the internet site. How- ever, if Apparel Media’s fees are insufficient to cover its 50 percent share of the costs, Paige will reimburse Apparel Media for the loss.
Explain whether Apparel Media qualifies as a variable interest entity. Explain whether Paige should consolidate Apparel Media.

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