DMBA 610-BUSINESS ASSOCIATIONS
This is not a research project. The purpose of the assignment is to demonstrate your knowledge of and ability to apply the principles and theories discussed in the course materials.
Do not consult sources outside the assigned DMBA 610 course materials. Using sources that are not course materials may result in point deductions.
Question I: BUSINESS ASSOCIATIONS :
Imagine you are nearing the end of your Dual MBA program. One of your teammates, Carlo, who like you lives in the DC metro area, asks if you would be interested in pursuing your team project in
your marketing course “for real” when the program is over. After the final team chat you and Carlo have a long talk in which you discuss what would be involved in launching this particular
entrepreneurial idea. Soon, this endeavor is starting to look serious.
The product features both an app (software application) and a physical product that would require production and some unique marketing support. Coding is your specialty. Now that your MBA program
is nearly over you would be willing to invest your free time in the technical development, but serious money would be needed to develop the market for the product. Carlo’s specialty is marketing
and he recently received an unexpected bonus that he would be willing to invest. The third team member, Siri, has a CPA and is a whiz with the numbers; she has agreed to come on board to handle the
You’re excited; you’d like to sit down and start coding right away, but your instincts hold you back; you’ve heard stories about famous start-ups where the founders jumped in and later experienced
legal trouble. You want to get it right by determining the most appropriate legal form for the new venture before you begin.
You have contacted a lawyer, and you and Carlo have an appointment next week. You have made a list of these objectives to go over with her:
1. Carlo has $10,000 he could invest; beyond that he does not wish to place his personal assets at risk in this venture – down the line he wants to pursue venture capital for the project;
2. You will be creating intellectual property (the app) that you intend to transfer to the company as an asset (the valuation of this is to be determined, as well as your own cash contribution);
you also want to shield your personal assets from liability;
3. Siri will invest only $1,000 at this time and demands limited liability. Siri who is a military dependent, currently lives in Virginia but seems liable to be “deployed” anywhere the military
4. You, Carlo and Siri will be working for the business, but this is a “side business” for which none of you will be leaving your full time jobs at this time; and
5. You are a U.S. citizen and Carlo is a permanent resident (green card holder), but you do not yet know the citizenship status of Siri.
Two days before the lawyer meeting Carlo calls and says his business law knowledge is a little rusty so he located materials from DMBA 610 and he thinks the two of you each should come up with your
“best” and “second best” forms from a business perspective and compare notes before your meeting with the lawyer. This attention to detail is what made Carlo such a great teammate and someone you
would be eager to have as a business partner. You promise to call him back with a thoughtful response.
Prepare your response to Carlo. Support each item with principles and theories from the readings:
a) What are the primary considerations for the entrepreneur in choice of a legal form?
b) What are the advantages and disadvantages of each form in terms of the specific constraints and objectives?
c) Which one form would you choose and why? Which form would be your “second-best” recommendation and why?
d) Why is it valuable to have a legally astute management team making the decision about the choice of business entity, rather than leaving these decisions to the lawyers?