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Three former employees of ChipeX, Inc. have developed a prototype for a new microchip to power the next generation of personal computers. There are four basic elements that need to be addressed to start a business formation.

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Running Header: Entity Selection Entity Selection Angela Calabaza Alex Liu Leo Martinez Steve Riedl University of Phoenix Online LEGAL ENVIRONMENT OF BUSINESS LAW/529 Gale Francis, Esq. August 21, 2005 Introduction Three former employees of ChipeX, Inc. have developed a prototype for a new microchip to power the next generation of personal computers. There are four basic elements that need to be addressed to start a business formation. There needs to be an idea/vision for the business, identify legal regulatory issues in creating a business, select professionals for business advice, and the legal entity choice that would be made for the business. Legal Entity Choice The idea of the organization is to develop manufacture and market the microchip that will power the next generation of personal computers. The new microchip is designed to perform better than the ones that already exist. A new corporation has to be formed. The main investment will come from venture capitalists provided they will take 51% of the ownership interest. All business operations will be controlled by the developers of the product. The manufacturing is expected within two years and the company should go public, or sell to investors within five years. Being the new idea, new product and new organization, the corporation has a competitive advantage over others (Course Syllabus). There are several legal entity business types: the C-Corporations, S-Corporations and Limited Liability partnership are some basic types and some other variations. Both Corporations and LLC offers protection to investors by limiting their liability during the downturn of the company such as high liability law suits and to protect their assets from the creditors during the bad business situations. ...read more.


This decision alone, will determine the bottom line. Is this state going to tax high, require that the company adhere to strict environmental rules, provide financial assistance, if not, is the state going to interfere and to what degree. Normally, the creation of this new corporation will be in the state that this business entity was created. But keep in mind that the role of the venture capitalists is to be considered and how their interest to this company is going to fit in. After all, the venture capitalists are taking a risk in providing funding for this new venture. The next issue to decide is the role of employees in the company. Of course, normally employees are paid for a service they render to the company; however, there are instances were an employee has experience and/or knowledge in a field that is needed by the company. Thus the company should provide a compensation package that would retain that service. Unfortunately, labor laws govern employers from local, state and federal laws. The next issue to deal with is real estate laws and regulations. This company is going to require space for research, manufacture and shipping space to create this new chip. Thus the questions is should the company be leasing or buying property for this function. The answer will be to lease on a short-term. Plus, with leasing, the property come in compliance with environmental laws. There may be toxic and non-toxic waste that must be properly disposed of. ...read more.


(The Legal and Regulatory Environment of Business) The ChipeX business plan calls for the selling he company to investors in five years. The time frame for development, growth and selling is somewhat short and thus creating a business form that will need to be redesigned in a short time is not efficient. Therefore, because the eventual plan is to sell ChipeX to investors in five years and because additional personal liability protection for the organizers, the corporate business form has been chosen for ChipeX. Going with the corporate form the organizers are choosing a form that will best match the long-range goals of the company, provide for personal liability protection and provide attractive benefits for ownership transfer in the near future. Conclusion In essence, the three former employees of ChipeX, Inc. in forming a business to develop, manufacture and market a microchip for the next generation of personal computers and with the investment that the venture capitalist will provided should seek the advise of professionals and be informed in the creation of this company. The intent is the chip company to go public, or they sell to investors, within the next five years. They choose to go with a corporate business plan because of the company's long-term goals, it provides for personal liability protection, and provide attractive benefits for the transfer of ownership in the future. Although they do not need to go through a lawyer to file the paper work for the corporation, the partners should obtain help from an accountant to watch out for investments and overhead. These decisions will help lead the company toward corporate success. ...read more.

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