Legal Questions Given the possible risk of lawsuits ba

Given the possible risk of lawsuits based on the internal bleeding side-effects of the scanning device, the entrepreneurs must select a business organizational form that guarantees limited liability. Consequently, the students cannot form either a sole proprietorship (there are five students) or a partnership, in which the partners' personal assets can be seized to settle partnership debts. In addition, a limited liability partnership only provides shelter for the personal assets of the limited partners, someone would still have to stand as the general partner. The students, therefore, must consider a C- or S-corporation or a limited liability company.

Limited liability companies are often used for entrepreneurial technological developments funded by venture capital (See Maizes, 575). However, an LLC cannot be publicly traded, which the students and venture capitalists foresee in five years. The students could get the same limited liability and tax advantages with an S-corporation, but they could then not have corporate members who were not U.S. citizens. Thus, eventually, it may be best for the students to form a C-corporation once the product is ready for market or they are ready to proceed with a public offering. But it would seem that for the development phase of the device, the LLC will provide them with the most organizational flexibility and personal-asset protection necessary for their development of both the device and investors.

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Category: Government - L