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Ely
Ely, Counselor at Law
Category: Legal
Satisfied Customers: 99981
Experience:  Private practice with focus on family, criminal, PI, consumer protection, and business consultation.
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What's the best way to protect everyone in a new entity? I

Customer Question

Hi,
What's the best way to protect everyone in a new entity?
I wish to start a company with approx 10 'partners' from different states, each partner will invest approx 50K. The company will research gene therapies (longevity) and ultimately each partner will take part as (very willing) test subjects. The procedure itself will take place in Columbia. But something could go wrong. They and I need to be protected from each other and FDA as much as possible. I'm saying 'partner' because I know the FDA is not ok with a company selling such a untested and risky service. Essentially, I wish to duplicate BioViva- http://www.geekwire.com/2016/bioviva-liz-parrish-reports-progress-controversial-gene-quest-reverse-aging/ . But without the regulatory problems she is facing trying to sell the service.
Submitted: 7 months ago.
Category: Legal
Expert:  Ely replied 7 months ago.
Hello and welcome to JustAnswer. Please note: This is general information for educational purposes only and is not legal advice. No specific course of action is proposed herein, and no attorney-client relationship or privilege is formed by speaking to an expert on this site. By continuing, you confirm that you understand and agree to these terms. -What kind of corporate entity are you seeking to create - S-Corp? C-Corp? LLC? Etc?-Will there be shares, or not?-Are you filing for licensure with the FDA/other government regulation bodies for this? This is not an answer, but an information request. I need this information to answer your question. Please reply, so I can answer your question. Thank you in advance.
Customer: replied 7 months ago.
Hi Ely, I feel you did not read my question carefully.
1. I'm partially asking what kind to create. (I understand that after creation -will need internal agreements ex. Shareholders Agreement (if not doing a partnership like a LLP)).
2. Do not NEED shares.
3. Not filing anything with anyone. Just want to be left alone so that the owners can do self experimentation - and I won't get in jail.
Expert:  Ely replied 7 months ago.
Hello, My apologies. However your question was not clear as to whether or not you had already created the entity or not, or perhaps what kind of entity you "had your sights" on. I can provide some information, of course. The problem is that your question premises how to protect everyone, specifically yourself. The problem is that if you are going to be an active officer or director of the company, you are very likely going to be personally liable if the company does anything that the government considers criminal. There is simply no way around that. So what I can do is tell you how to best create a corporate structure that would limit liability civilly - but it is not likely to limit liability criminally (because there is no way to do that). Is this acceptable?
Customer: replied 7 months ago.
I understand the criminal point-- I guess what I'm asking is -if the entity were to be setup as a partnership would the FDA be unlikely to trouble me for 'selling' a risky service -or would they claim it's just a vehicle to avoid the 'selling' of the service. Is there any precedence that might enlighten?
Expert:  Ely replied 7 months ago.
Hello, Okay. You have to understand that regardless of what kind of corporate entity you set up, the prosecutor may still pursue you if you are an active member and engage in criminal activity (which in this case may be medical trials/activities without proper licensure or authorization). So much like directors/officers/managers at Enron, or Worldcom, or Lehman Brothers, etc, got criminally charged (in those cases under federal laws for corruption, fraud, etc), so can officers/members/directors of such a firm that engages in questionable medical research. So it does not matter which corporate structure you have. Now speaking about CIVIL liability, the best option is to have an LLC or a S/C-Corp. The problem is that even then, there is no 100% protection. See HERE. It does not matter if you are a partner in name or title or simply by association. The best way to lack liability is not to have your name on the corporate structure at all. However of course this is next to impossible if you seek some control. THERE IS ALWAYS A RISK OF PERSONAL LIABILITY when associating yourself with a corporate entity, regardless of what kind of entity it is. Even shareholders may be held liable if they have control/command positions. Please note: If I tell you simply what you wish to hear, this would be unfair to you. I need to be honest with you and sometimes this means providing information that is not optimal. Negative ratings are reserved for experts who are rude or for erroneous information. Please rate me on the quality of my information; do not punish me for my honesty. I hope this helps and clarifies. Please use the SEND or REPLY button to keep chatting, or please RATE when finished. You may always ask follow ups at no charge after rating. Kindly rate my answer as one of TOP THREE FACES/STARS and then SUBMIT, as this is how experts get credit for our time. Rating my answer the bottom two faces/stars (or failing to submit the rating) does not give me credit and reflects poorly on me, even if my answer is correct. I work very hard to formulate an informative and honest answer for you; please reciprocate my good faith with a positive rating.
Customer: replied 7 months ago.
well, yes, I'm not very happy with the answers. I feel the solution offered is pat, and you are sliding around my more difficult issue-- If a partnership - would the court likely treat as selling a service anyway? Pls site precedence.
Expert:  Ely replied 7 months ago.
Hello,
With all due respect, I am not sliding around your most difficult issue. Your question can be reduced to the following:
I am going to have a corporation that I control perform what is likely non-authorized, illegal medical procedures on people. What can I do not go "go to jail" (your words)?
The answer: Nothing.
While careful corporate structuring may prevent civil liability (there is never 100% certainty as the corporate veil may always be pierced), nothing is going to prevent criminal liability of an active SHAREHOLDER/DIRECTOR/OFFICER of a corporate entity engaged in illegal activity. Even if the procedure is done in Columbia.
I am not sliding around the issues. The answer is not pat. The answer is - as I explained - that no amount of corporate structure tricks is going to keep you 100% away from criminal liability if the company you control is experimenting on people without FDA approval in a third country. And, the corporate veil may always possibly be pierced for civil liability regardless of what kind of corporate stricture you have. Case precedent and statutory law citations baking my answer are in the link I provided.
If you are convinced that a type of corporate structure is going to give you immunity from civil/criminal liability, you have the right to believe this. However, I do not think I can provide an answer that states so and not feel that I am not doing you a disservice by misleading you.
I am going to opt out and open this up for other experts who may have some ideas.

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