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13 Cards in this Set
- Front
- Back
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5 Initial Ethical and Legal Issues Facing a New Firm
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Ethically departing a former employer
Choosing an attorney Drafting a founders’ agreement Avoiding litigation Choosing form of business ownership |
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New firm Legal Issue 1: Ethically Departing a Former Employer
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Ethical Guidelines
How to Behave in a Professional Manner Give proper notice of an intention to quit Must perform all assigned duties until the day of departure If leaving to start firm in same industry, must not take information that belongs to the current employer Be sure to Honor all Employment Agreements Honor all nondisclosure and non-compete agreements entered into at the time of employment Nondisclosure Agreement: is a promise made by an employee or another party to not disclose the company’s trade secrets Non-compete Agreement: prevents an individual from competing against a former employer for a specified period of time |
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New Firm Legal Issue 2: Choosing and Attorney for the New Firm
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Considerations when Choosing and Attorney
Entrepreneurs should select an attorney as soon as possible The attorney should be familiar with start-up issues and should have experience To manage the finances, they will often work out payment plans with entrepreneurs Criteria to consider: Contact local bar and ask for a list of start-up specialized attorneys Interview several attorneys Select an attorney who can assist in raising money for the firm Double-check the attorney’s track record |
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New Firm Issue 3: Drafting a Founders’ Agreement (AKA shareholders’ agreement)
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What is a founders’ agreement?
Written document dealing with issues like: Relative split of equity among founders of the firm How individual founders compensated for cash or “sweat equity” put into the firm How long founders have to remain with firm for shares to fully vest Items to include in a founders’ agreement: Nature of prospective business Brief business plan Identity and proposed titles of founders Legal form of business Division of stock or ownership share for each founder ID of any IP signed over to business by any founder(s) Description of initial operating capital Buyback clause |
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New Firm Issue 4: Avoiding Legal Disputes
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Most disputes result from misunderstandings, sloppiness, or lack of legal knowledge
Steps an entrepreneur can take to avoid legal disputes: Meet all contractual obligations Avoid undercapitalization Get everything in writing Promote business ethics via codes of ethics and ethics training |
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Promoting Business Ethics in a New Venture
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Code of Ethics: describes firm’s general value system, moral principles, and specific ethical rules
Ethics Training Programs: formal programs teaching employees to respond to ethical dilemmas that might arise |
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Most Common Ethical Problems
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Most common ethical problems
Human resource ethical problems Example: job interviews; applications; resume “padding” Conflicts of interest Example: hiring/contracting with family members not qualified Customer confidence Example: Labor practices; handling recalls; resume verification; misrepresenting competitors Inappropriate use of corporate resources Example: taking paper and pens home from work |
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A Note on Customer Confidence
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Issues dealing with appropriate labor practices
Nike and Kathie Lee and sweatshops Handling issues requiring recalls Tylenol Lead in children’s toys Tainted food Employer responsibilities to customers in hiring employees The Washington Post George O’Leary Misrepresenting competitors Amway vs. Proctor and Gamble |
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Employee theft includes:
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Embezzling cash, taking office supplies/equipment, photocopies, phone calls, taking extended lunch breaks/personal time, etc
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Preventing Employee Theft
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Pre-screen people
Use interviews, trust tests, psychological tests, as appropriate and legal Effective prescreening has been found to reduce firm losses by as much as 70% Utilize prevention and detection methods to combat existing employee theft Surveillance cameras, financial controls, anonymous 800 numbers, informer drop boxes, etc. Handle all employees consistently Engage in ethics training 80% of employees admitting to stealing regularly, do not believe they are doing anything wrong Suggests misunderstandings of what constitutes ethical behavior Monitor ethics programs on a regular basis |
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New Firm Legal Issue 5: Choosing the Legal Form of Business
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Sole Proprietorship: involves one person; the person and business are the same; not a separate legal entity
Partnerships: when two or more people start a business General Partnership: two or more (general partners) pool their skills, abilities, and resources to run a business Limited Partnership: same as general but includes two classes of owners—general partners and limited partners Corporations: separate legal entity organized under the authority of a state C-Corporation: separate legal entity that, in the eyes of the law, is separate from its owners S-Corporation: subchapter S corporation combines the advantages of a partnership and a C corporation. Must meet certain standards to become S-Corp. Limited Liability Company: LLC combines the limited liability advantage of the corporation with the tax advantages of the partnership |
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4 Issues to Consider When Choosing Legal Form of Business Ownership
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The cost of setting up and maintaining the legal form of ownership.
The extent to which an entrepreneur can shield his or her personal assets from the liabilities of the business. Tax considerations The ease of raising capital |
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Summary of Advantages/Disadvantages Associated with Forms of Business Ownership
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Look at Comp. background!
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