What Entity Do You Recommend?

[Owen]

Hello :D

Alright here's a small description of my business and its owners:
Two out of the three owners are under the age of 18. We are making a 3D printer, going to various cities, have booked booths at technology expos in the New England area, and will be showing off this printer this fall, seeking angel investing and venture capital. Now here's some general questions answered:

How is this business financed? We currently have funding from our own pockets. We plan to seek larger venture capitalists and angel investors when the printer's first prototype is completed.

What state is this company's office in? The company is currently ran in Maine. We plan to branch out to either New Hampshire or Massachusetts once larger funding is being invested.

How will these minors be able to operate this company? Since I have been studying business administration and management for almost six years, I would consider myself pretty knowledgable about this kind of field. Since I won't be 18 years old for about two and a half years, I plan to emancipate when investors have grown interest. The other minor will be 18 in less than a year.

Can this (product) cause harm to others? Yes. It could cause burns.

Hold up...if you're "so knowledgeable" how come you're asking random people on a forum for help? I'm guessing you all have a lot more experience than me. It's also the same reason I'd go to an accountant or an attorney for help.

How much money do you think you'll make within the next five years? Well, considering if the company receives enough investments within its first round, the prototype is completed within the expected time frame, and we don't get bought out or destroyed by a larger company, we hope to have profits of $500,000 USD or above.

How do you expect to pay back investors? Equity/Ownership of the company.

What entities are being considered? C-corp or an LLC.

Why don't you ask a lawyer or accountant Mr. Powerful Teenager CEO? Well, if you read the TEENAGER part, you can guess 95% of the money being spent is spent on the printer. You can also probably guess I don't make much money at the MINIMUM WAGE job I have now.

How old are you? Take a guess.

THANKS EVERYONE! I appreciate it :o

[Freelancier]

If you're not 18, you can't own stock, so a corporation is out. You can't register as an agent of an LLC, someone who is 18 would have to do it for you. You can just be a d/b/a for now, because you don't really have anything yet, so it's not really a big deal.

But here's the problem: you'd better have patents, because the 3D printer market is a race to acquire patents and then license them to generate revenue. If you don't have patents, you're not really worth an angel investing in. Sorry to break that news to you, but that's the first question they're going to ask: How many registered patents do you own for your technology?

[Owen]

If you're not 18, you can't own stock, so a corporation is out. You can't register as an agent of an LLC, someone who is 18 would have to do it for you. You can just be a d/b/a for now, because you don't really have anything yet, so it's not really a big deal.

But here's the problem: you'd better have patents, because the 3D printer market is a race to acquire patents and then license them to generate revenue. If you don't have patents, you're not really worth an angel investing in. Sorry to break that news to you, but that's the first question they're going to ask: How many registered patents do you own for your technology?

We actually are about to submit a patent that'll be under the 18 year old. Another question: do you think an investor would take us seriously?

[Freelancier]

Before submitting the patent in the 18-year-old's name, you should consult a patent attorney to make sure ALL of you are covered legally under the patent.

I really can't tell you if an angel would take you seriously. I know a VC would not until you had a patent they wanted. But angels don't have such strict standards for who they invest their money in. Your best bet is actually to talk with family members to see who wants to invest and do it in a way that you can control their return (e.g., they invest now, they get their money back + 50% if the company starts generating revenue, something like that).

[Owen]

Before submitting the patent in the 18-year-old's name, you should consult a patent attorney to make sure ALL of you are covered legally under the patent.

I really can't tell you if an angel would take you seriously. I know a VC would not until you had a patent they wanted. But angels don't have such strict standards for who they invest their money in. Your best bet is actually to talk with family members to see who wants to invest and do it in a way that you can control their return (e.g., they invest now, they get their money back + 50% if the company starts generating revenue, something like that).

I don't think they want to invest the amount of money we need in our first round ._. Also, why must it be so hard for kids to start businesses? :'(

[Freelancier]

why must it be so hard for kids to start businesses? :'(It's not hard for kids to start a business. It's hard for people with no large-scale successes in their background to convince someone who doesn't really know them to give them money. Two different things. The people who know you best aren't ready to give you money, so why would someone who doesn't know you at all want to give you money?

That's why having registered patents is the path to getting the money. At that point you have something that may have serious value and people will invest in that, but expect that they'll want to ride herd over you guys to make sure you do things the right way as fast as possible... which can get annoying sometimes.

[Paul]

............having registered patents is the path to getting the money. At that point you have something that may have serious value and people will invest in that, but expect that they'll want to ride herd over you guys to make sure you do things the right way as fast as possible... which can get annoying sometimes.

Exactly...Owen,

Don’t worry about your age right now. If the product is truly proprietary and marketable investors will be interested, HOWEVER they will no doubt want to install their own seasoned management or more likely just license the technology as Freelancier said.

Continue on with the patent; MOST important, and don’t worry about the form of entity yet. That can be structured later.

I recommend highly that you get someone who is older and at least a little familiar with investors and negotiations to accompany you to the trade shows for a bit of gravitas.

I have no clue about 3d printers but I am familiar, with financing and launching new products, licensing, patents etc (as are many others on here). How unique and/or proprietary is this technology anyway?

[RR151]

Hey Owen your venture sounds exciting.

A while back I meant a person that deals with the venture capital end of the business. He enlighten me to the first 5 questions that need to be answered before talking to any of these business people.

Product Launch Test Checklist,

1) Is there competition and can you get patent protection?

2) Is the technology unique, work and is it useful?

3) Is the rate of return at least at 20%?

4) Is the technology scalable?

5) Can it be launched in reasonable time frame?

[Freelancier]

He enlighten me to the first 5 questions that need to be answered before talking to any of these business people.
Those are excellent questions, because that's exactly what VCs want to know. Angels are a little bit less strict about the answers, but they'll want to know that you have a path to get to the answers so that their will investment pays off. Family is a lot less strict about the questions :)

[Harold Mansfield]

I would also expect anyone who gives a bunch of teenagers a lump sum of cash to either want to be in control of accounting 100% or to appoint some kind of manager over the funds. I seriously doubt anyone is going to invest money with you and let you run wild. I wouldn't. Talent and ingenuity aside, you're still teenagers with absolutely no life or money management experience.

So expect things like that to happen. It may not be fair to you, but generally the person with the money has some say on how it's spent. That's life for everyone.

[RR151]

I agree with Harold,

You need to develop your plan with the up most professionalism and expect the VC to have their MBA's in place with the purse strings in hand. It is possible and I have the worst memory and I might have some of the detail wrong.

But if my memory is correct the Google boys got their first $100,000.00 by visiting their prospective investor at his home. Their demonstration was mind numbing and he cut the check on the spot. The boys had the name Google but nothing else not even a bank account. The rest is history...RR

[Adel Landman Steyn]

You don't need a legal entity to conduct a business, although it may be advisable in some instances. Paul is right, you can really worry about that later.
Since I don't live in the U.S. my view is of limited use in this discussion, as I am not familiar with the specific intricacies of your legal entity types.
What I can say is that contract law has some "universal" principles.
Make sure that, at least among yourselves, you have clearly agreed and written down your expectations, especially with regards to patents. Remember that, although the 18 year old can transact on behalf of the partnership with others, there are limitations in terms of how much he / she can transact with the rest of you - as he / she is an adult and you are minors. This means that all of you should really be assisted by your parents in your dealings with one another. I can just imagine the nightmare if, after turning 18, one of the minors repudiates the contract.

[BIZDEV]

You're 15 yrs old and have been studying business administration and management for six years? How's that?
You need to consider that potential investors want to hear cold hard facts. Not spins or unverifiable assumptions. That will include a business plan that answers a lot more questions than the few you presented.

If you are skipping a visit to an attorney because you can't afford it, you're already setting yourself for heartbreak and failure. Don't waste time and resources on creating a business and/or product before getting the legal counsel that you need. First visits are often free and you can get quite a lot of good information.