Elmer Johnson is a design engineer with a proven track record in the field of electronic musical instruments. He recently designed a new very large-scale integration (VLSI) chip. This chip is meant to be the heart and soul of a digital sampling keyboard to be named Echo. Johnson believes that Echo will set a new industry standard. He wishes to start a business enterprise that will manufacture and market the keyboard.
Johnson meets his lawyer, Grace, and conveys the following:
It will take approximately two years to turn the VLSI chip into a marketable product.
Johnson has more than $200,000 in savings from previous ventures. He does not want to risk any of his money on this new venture. However, he wants to be the owner of a part of his enterprise but is not sure what percentage of ownership he wants.
Johnson has been contacted by five investors who are keen to invest in his project, but only two of the five want to play an active role in the enterprise. Johnson is willing to give these two investors some limited control.
Johnson is aware that he is not qualified enough to manage the new enterprise. However, he wants to have the authority on how to proceed with the development and marketing strategy.
Five more investors would invest in this project if they get guaranteed fixed returns on their money or realize immediate tax benefits from the investment.
Johnson would like Barney Fife, a manager much in demand in the electronics field, to act as the chief operating officer (COO) for his enterprise. However, Fife would be interested only if the offer is highly profitable for him.
Johnson is not committed to using any particular type of business organization; he is interested in weighing the alternatives.
Which types of business organizations could accommodate the needs of the various players? What are the advantages and disadvantages of each type of business organization? Which one should Johnson choose? Why?