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Client Memo-Research Paper

I met with a prospective new business client yesterday regarding a start-up venture. I promised that I would get back to the principals shortly regarding a proposal by the firm on the courses of action they should follow. You will be acting as the junior partner with me on this client, should they come with us. Consequently, I would like you to review the information that I got at my meeting and get back to me with your thoughts on the legal form of the business that we should suggest, keeping in mind the principals’ personal situation, the actual start-up and form of the business, ongoing operations and business strategy and any potential end plan for the business and/or the principals.

At the current time, there are four principals all of whom I met yesterday.
Carole Fishman, age 46, currently an anesthesiologist at one of the large Boston hospitals. She is married (20 years) to Mitchel Fishman, a recently retired (early/lay off) environmental engineer/consultant. They have three children, Mitchel, Jr. (age 18 and a marketing major at Bentley), Sharon (age 16 and a junior in high school), and Andrea (age 10 and in a private school for gifted children). Carole, while in the operating room, came up with an idea for a simple device (patent and approvals applied for) which exceptionally improves the performance and safety of the anesthetic being used. This was not part of her job but was more of an “ah ha!” moment while the surgeon droned on about something else (his golf game most likely). Mitchel has added some technical engineering expertise to the project. She believes that this device, which will initially be costly, could be marketed successfully in the US, and eventually world wide. While her expectation is that the demand for the devices would at first be low due to cost, no matter how successful, her initial goal is to provide a supplement to the family income to off-set Mitchel’s lost income and to ease the cost of college, private school, and maybe after that, fund a more comfortable retirement. She also noted that although demand may be low, there is a large potential profit in the device. Her husband and kids are very supportive of the project and Mitchel Jr. is already looking for a business internship and Sharon a summer job in whatever develops.
Hiram Abiff, age 59, currently the sole owner of Temple Consumer Goods, Inc.
(incidentally, a C corporation). He is married (5 years, second marriage) to Margie Abiff (age 35) and has two adult married children by his first wife (and three grandchildren— don’t ask him if you want a short meeting). Both children and spouses are working professionals and are doing (by his standards) OK. He met Carole during a preoperative
session for some minor surgery and was greatly impressed with her abilities and manner.

How to Back Her

He believes that she may in fact have a “breakthrough” product and is willing to back her for two reasons:

  1. He understands the attraction of the device and the personal and work ethic of
  2. He thinks there’s a buck in it.
    As to Hiram’s own business, it was an extremely successful personal care company
    before it sold all of its assets to Proctor & Gambol in a taxable exchange earlier this year.
    He does not want to liquidate the corporation at this time because of the second level of
    tax that would be imposed on him individually. Consequently, he has been advised by
    his regular accountant that he’d better do something with the money to avoid the
    Accumulated Earnings Tax or the Personal Holding Company Tax. Since he now views
    himself as a venture capitalist, he would like to use this corporate money to fund the
    start-up phase of the proposed business. He does not, however, want to be actively
    involved in the day to day operation but will insist on a seat on the governing board of
    whatever organization we may recommend.
    Henrietta DeSoto, age 32, currently Sr. VP at Boston Scientific. She is in a long-term
    relationship (11 years) with Joann Cochran, a highly successful litigator for a large
    Boston law firm. Neither have any children nor any other support obligations. Henrietta
    knows Carole through various conferences and meetings at Medical Conventions. Her
    expertise is in business operations/management and is looking for a new business to
    “grow”. She currently earns $225,000/year with options that have done all right but not
    outstanding. She has “sufficient” funds in relatively liquid investments and is not risk
    averse in seeking a new position.
    Steven Mark, age 25, currently unemployed by choice due to a sizable inheritance from
    his late Aunt Mabel ($30,000,000). He fancies himself a venture capitalist like Hiram
    Abiff but has zero business experience or expertise. He is casting about in the VC world
    hoping to be a big shot but really hasn’t a clue about anything. He is unmarried and
    otherwise unattached and enjoying a very high standard of living since his windfall. He
    connected with Carole when he looked into cosmetic surgery to make him more
    “appealing to the girls”.
    Carole had introduced Hiram, Steve and Henrietta to each other and met with them
    several times over the last month. They think they may have some synergy here that will
    translate into a successful business.
    In terms of a plan, they think, for now that the four of them can handle the business.
    Hiram made a commitment to invest $250,000 in the business for supplies and equipment
    and other start-up costs with a guarantee of an additional $500,000 for operating expenses
    and other contingencies should the need arise. Steve has made a similar commitment
    with an understanding that he has deep pockets and may be called upon for more.
    Carole will, of course, contribute the rights to the device and processes to the business.
    She will be the overall “in-charge” person (CEO). She plans to continue with her
    medical career, at least for the present time, but will have time for something less than
    day to day operations.
    Henrietta will actually run the business in every aspect (COO) except for the direction
    that Carole will provide with input from Henrietta, Hiram and, to a very limited degree,
    It is not clear how soon the business will become profitable. They do expect heavy
    expenses in the first year or two for equipment, marketing, government approvals, and
    operational items. In fact, unless this goes way beyond their expectations, the near term
    profit is comfortable but not necessarily astronomical.
    It is anticipated that their initial customers will be the larger hospitals, and then second
    tier hospitals in the United States and eventually, Japan and the Euro-market. Henrietta is
    thinking there may be a decent market (and marketing potential) in the specialty hospitals

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