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Medical device startup: Partnership vs LLC vs S-Corp

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Posts: 36
Eminent Member
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If you are an entrepreneur willing to build a U.S.-based medical device company that can exist for decades, what would be a good choice? Partnership vs LLC vs S-Corp. 

Posted : 16/10/2022 2:43 pm
Posts: 40
Eminent Member

I think it would be good to start an S-Corp because of the legal protections in place. The partnerships seem like they could get messy on a personal level very easily. I would be worried about partners having major differences in opinions down the line and only very messy ways of resolving the disagreements that would lead to the destruction of the company. I feel like it would be easier to compartmentalize tasks in the corporate model. I have very little experience with these types of things so I would like to hear from someone who has worked at multiple kinds of companies to hear what they think works best for a biomedical device company. Maybe it depends on the scale of what you are producing.

Posted : 16/10/2022 4:29 pm
Posts: 39
Eminent Member

Echoing ag2357, I would not be inclined to incorporate as a partnership. Having a partnership can lead to personal issues between the partners making their way into the company. I am more inclined to make a LLC vs. a S-Corp. This would be a personal preference, as I would like to have control over the managing board and feel like having a conference of managers engaged with different aspects of the company makes for the best decision making. That being said, if the volume of product being made is sufficiently high, the advantages of an S-Corp in raising money for equipment / scaling personnel may outweigh the aforementioned advantages of a LLC.

Posted : 16/10/2022 4:56 pm
Posts: 79
Trusted Member

I agree with @ag2357 that creating a medical device company as an S-corp is the better choice. The worst choice, in my opinion, would be choosing a partnership. This is primarily due to medical device companies being likely targets for lawsuits and if your company is a partnership then you would personally be at risk of being sued. Further, the actual process of developing a medical device and selling it on the market is very capital intensive. Which is why if you have a S-corp you would be able to raise funds through selling shares or getting loans and grow the company quickly. In addition, as opposed to a LLC, a S-corp has a management structure that allows for efficient decision making, easy addition of employees, and efficient assignment of roles and responsibilities. 

Posted : 16/10/2022 5:22 pm
Posts: 78
Trusted Member

I agree with the posts mentioned above that in founding medical device start-up, between a partnership or S-Corp, the S-Corp would be the way to go. However, I think that the best way to do this would be to actually create an LLC at the start to have more control over the board as mentioned by a previous comment. Once the LLC actually takes off and the product created begins to bring in high profits, the company should be converted into an S-Corp given that you want to maintain the business as a US business. Doing it this way would still require a lot of trust in your partners as the beginning stages would be an LLC.

What do you guys think? For biotech/medical devices, is an S-Corp better? Or should a C-Corp be considered when profits increase with success of the company?

Posted : 16/10/2022 9:00 pm
Posts: 78
Trusted Member

@sm2744 I could see an S-Corp organization being difficult for biotech/med device organizations simply because S-Corps are more limited in scope than a C-Corp. S-Corps are restricted on how many owners they can have, are not publicly traded, cannot have ownership outside of the United States, and usually cannot be owned by other business entities. Producing and selling scientifically viable medical devices is a huge endeavor requiring lots of funding and personnel with a wide range of skillsets. With the amount of research, planning, and investment in production facilities required to meet regulatory requirements, it may be difficult for an S-Corp to obtain the necessary money to make all this possible. 

Posted : 16/10/2022 10:15 pm
Posts: 25
Eminent Member

@sm2744 I think if you plan on basing the corporation in the US an S-corp is more viable, but a c-corp would be more effective if you wish to expand. Considering that all the shareholders must be from the US in s-corps, it leaves little room for more prominent 'foreign'(considered from a US denizen's perspective) shareholders to give their input on your start-up. I think taking insight from other foreign companies, start-up heads/managers is very valuable considering the different and vast bio-medical device market in foreign countries such as Japan, China, India, Korea, etc. it would be interesting to have their perspective, or a significant role in your start-up to make it more versatile to your clients.

Posted : 16/10/2022 11:24 pm