Managers and the Legal Environment 7th Edition by David Madsen, Constance Bagley

Exercise 10

Ernie Jameson is a design engineer with a proven track record in the field of electronic musical instruments. He recently designed a new VLSI (very large scale integrated) chip. This chip is meant to be the heart and soul of a digital sampling keyboard to be called Echo. Jameson believes the Echo will set a new industry standard. He wishes to organize a business enterprise to build and market it. He has a meeting with his lawyer and conveys to her the following bits of information:
a. It will take approximately two years to turn the VLSI chip into a marketable product.
b. Jameson has more than $200,000 in savings from previous ventures. He does not want any of that money at risk in this new venture. However, he wants a part of the ownership; he is unsure what percentage he wants.
c. Currently, five private investors are willing to put money into this venture. Only two of the five want to play an active role in the enterprise. Jameson is willing to give these two some limited control.
d. Jameson knows that he is not qualified to manage the new endeavor. Nonetheless, he wants a significant say in how it proceeds.
e. Five more investors could be attracted to this project, but only if they could be guaranteed some fixed return on their money or could realize immediate tax benefits from investing.
f. Jameson would like Bernie Lord, a manager much in demand in the electronics field, to be his CEO. It would take significant incentives to attract him to the enterprise.
Jameson is not committed to using any particular type of business organization; he is interested in weighing the alternatives. What possible types of business organizations could accommodate the needs of the various players? What are the advantages and disadvantages of each alternative? Which one should Jameson choose?