Chapter 12 Legal and Tax Issues Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. ©

Corporate opportunity doctrine Look for another opportunity The company uses the opportunity Identify the opportunity Notify the company about it The company doesn’t use the opportunity You can use the opportunity Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. ©

Consider when leaving a company… You may be held liable for persuading people to leave the firm. You may not be allowed to compete with your former employer. Proprietary information Recruitment of fellow workers Non-competition Make sure that the information you learned from your previous job is not protected before using it. Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. ©

Choosing an attorney and accountant Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. ©

Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. © Choice of legal form Forms available Brief description Sole Proprietorship Owned and operated by one owner who is in total control Partnership Two or more persons go into business for profit, as co-owners, sharing profits and losses Corporation Separate legal entity, with legal existence apart from its owners, the stockholders Limited Partnership One or more general partners, who conduct the business and take on personal risk, and one or more limited partners, who act as passive investors Limited Liability Company Owned by “members,” who either manage the business themselves or appoint “managers” to run it for them Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. ©

Comparative table of entities Forms available Control Liability Taxation Administrative obligations Sole Proprietorship Owner has complete control Unlimited personal liability Not a separate taxable entity Only those applicable to all businesses Partnership Partners share control Joint and several unlimited personal liability Corporation Control distributed among shareholders, directors and officers Limited personal liability Separate taxable entity unless subchapter S selection Some additional Limited Partnership General partners control, limited partners do not General partners: joint and several unlimited personal liability, limited partners: limited liability Not a separate entity unless affirmatively chosen Limited Liability Company Members share control or appoint managers Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. ©

Stockholder and operating agreements Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. ©

Shareholder and operating agreement Negotiating employment terms between you and the investor Disposition of equity interests Distribution of company profits Redemption provisions Each party’s obligations Redemption Agreement Cross-purchase Provisions to resolve voting deadlocks between owners Protection for investors against being left behind Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. ©

Legal and tax issues in hiring employees Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. ©

Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. © Insurance Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. ©

Legal issues in the sale of securities to investors Intra-state offering exemption Public placement Two securities offerings that do not have to be registered with government authorities Offering under $1,000,000 Private placement Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. ©