Chapter 3

[Business Organization and Intellectual Property] Phil Young, founder of the Pedal Pushers Company, has developed several prototypes of a pedal replacement for children’s bicycles. The Pedal Pusher will replace existing bicycle pedals with an easy-release stirrup to help smaller children hold their feet on the pedals. The Pedal Pusher will glow in the dark and will provide a musical sound as the bicycle is pedaled.

Phil plans to purchase materials for making the product from others, assemble the products at the venture’s facilities, and hire product sales representatives to sell the Pedal Pushers through local retail and discount stores that sell children’s bicycles. Phil will need to purchase plastic pedals and extensions, bolts, washers and nuts, reflective plastic pedals and extensions, bolts, washers and nuts, reflective material, and a microchip to provide the music when the bicycle is pedaled.

A. How should Phil organize his new venture? In developing your answer, consider such factors as amount of equity capital needed, business liability, and taxation of the venture. Phil should organize his new venture as a corporation. The capital that is needed in order to sell the products he can raise from shareholders through common stock sales, or offerings. He can borrow capital from others and enter into contractual arrangements. He will have limited liability and won’t put his own personal assets in play. Taxation can be a bit difficult just because it would be double taxed, but with the amount of capital needed, and production wise it is better for him to begin with the corporation.

B. Phil is concerned about trying to protect the intellectual property embedded in his Pedal Pusher product idea and prototype. How might Phil consider protecting his intellectual property?

Phil can apply for a patent in order to protect the