Assignment task: 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 information:
- It will take approximately two years to turn the VLSI chip into a marketable product.
- Jameson has more than US$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.
- Currently, five private investors are willing to put money into this venture, but only if they could be guaranteed some fixed return on their money.
- Jameson knows that he is not qualified to manage the new endeavor. Nonetheless, he wants a significant say in how it proceeds.
- 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.
Q1. Discuss BRIEFLY the advantages and disadvantages of each of the following two types of business organization for (i) Jameson; (ii) the five investors; and (iii) the CEO manager:
a. Limited Partnership; and b. Corporation.
(Note: Do NOT discuss other alternatives such as General Partnership, an S corporation or an LLC corporation.)
Q2. Which form of business organization should Jameson choose, Limited Partnership or Corporation? Give 3 compelling reasons for your choice.