Xu is a spine surgeon who has developed a prototype vertebrate replacement device. Xu is involved in many projects and does not have the time to further develop the device, although it has shown promise. Yazzie is a recently retired CEO of a major medical device company and is already bored. Thus, she is planning to launch a startup to complete development of and hopefully commercialize Xu's device. Xu will contribute the device and Yazzie will contribute $500,000. Yazzie would like Xu to be involved with the development of the device, but not with the overall direction of the business. Yazzie estimates that development costs (including obtaining FDA approval) will run at least $50 million. Fortunately, Yazzie has many contacts with venture capitalists and angel investors. Xu and Yazzie are both wealthy and have various investments that generate passive income.

 

Under which legal form should the business operate? Which federal income tax status should it go with?