Entrepreneurs want to know if they need one or two corporations. It all depends!

QUESTION.
We sell a product under an S Corp we co-founded. Recently we recorded an audio book that relates to the product, and we are about to sell it. However, my business partner wants to sell it under the name of another corporation. She wants me to receive commission from it and I could have shares in the other corporation. She said that if someone were to sue our first company over the product, it wouldn't affect our income with the audio book. We have product insurance for the product. Does this sound like a smart thing to do?

AND part two: Do you know how we can find venture capitalists/investors?

ANSWER.
SCORE counselors are not supposed to dispense free legal advice as part of our counseling. We are more coaches than consultants. I have no problem taking a stab at your questions. But I'm just telling you for future reference.

Most of your questions involve "Choice of Legal Entity" issues. There is nothing wrong with having two corporations in order to limit liability. In fact, it is done all the time. For example, a taxi cab company might have 10 taxi cabs in its fleet. Each cab is a separate corporation or LLC. If one cab gets in an accident and gets sued for negligence, then only that one cab is at risk. The other 9 have no exposure. I'm not sure your business partner is setting up her corporation to minimize exposure. I bet she is setting it up so she can get more of the profits for herself. That's fine, but she doesn't have to set up a separate corporation to accomplish that. If you don't need a corporation, then it is cheaper to do without it. Most businesses don't qualify for venture capital. And the ones that do have to put together a stellar business plan in written form that will convince a venture capital firm that the business will make A LOT OF MONEY in a short amount of time given the proper capital infusion. See

Books on Venture Capital
Financing Your Small Business & Angel Investors
Figure Out How to Write a Business Plan

If you want to learn more about Choice of Legal Entity, then see

Learn a Little about Choice of Legal Entity

I recommend you contact your local SCORE chapter and set up a face-to-face counseling session with two volunteer SCORE counselors. Those meetings are free and very helpful to people trying to get a business started. They are great for troubleshooting a business plan. I hope my comments are helpful. Good luck! Regards, -Jeff

Jeff Lippincott
SCORE.org counselor
Princeton, NJ
scoreprinceton @ aol.com
www.scoreprinceton.org
www.jlippin.com