Question

Which type of business organization(Sole Proprietorship Partnership, or Corporation) should Gemma and James should use to...

Which type of business organization(Sole Proprietorship Partnership, or Corporation) should Gemma and James should use to organize their business entity and why?

Gemma and James have pooled their savings to create a start-up company to develop and market an idea they conceived while students together at MIT. They obtained permission to use a college lab during late night hours a few nights a week during their last term before graduating to work on the project. Then they were able to move to James’ parents’ garage, which they keep locked.

Now they need more sophisticated resources. They have created a prototype robotic device, called "Phoebe," that will aid first responders in disaster relief by sensing and locating survivors remotely in areas unsafe for humans and dogs to navigate. Phoebe's ensors will locate living beings, scan vitals and assess level of trauma.

Gemma and James have mapped out both private and public, civil, and military, applications of their invention, plus continued R & D improvement into next-phase capabilities.

They have not shared their theory, the prototype, their documentation or any of the associated hard and soft technologies with anyone, but anticipate needing to do so to obtain a funding source.

They are concerned about others learning of their technology ahead of their chance to obtain IP protection and customers, because they caught a nosy ex-classmate of theirs, Clarence, hanging around their lab.

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Answer #1

Since there are two parties involved in this business who are sharing their resources and contributing equally in terms of knowledge sharing, financial and logistics sharing it would be apt for them to form a Partnership concern.

The partnership concern should be made through a written agreement in order to record all their objectives, contributions, expectations, liabilities and revenue sharing understanding to avoid future misunderstandings.

Having a formal written partnership agreement and a registered partnership firm would be ideal at this initial stage where the income is dependent on obtaining contracts.

Further, registering the firm will enable the partners Gemma and James to seek intellectual property rights or IPR for their designs and prototypes so that they can prevent eavesdroppers and spies like Clarence from stealing their intellectual property. Without the partnership firm registration they will have to obtain individual patents which can lead to complications and disputes between Gemma and James in the future as the patent holder may deny the other partner from using the IP in the future or seek royalty from the other.

The number of partners can be increased or decreased in the future giving flexibility. The life of the partnership would end upon termination of the agreement by any or both parties, and the death of one of the partners. In either case, the interests of the remaining partner would remain protected due to the partnership deed or agreement.

It is also easier to obtain bank loans and credit facilities for a registered firm.

Thus, it is best for Gemma and James to start a partnership concern with a written agreement and register their firm

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