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

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. © In this chapter we study Issues related to leaving your current employer to start your own company How to choose an appropriate attorney and accountant Issues related to the legal form for your business Shareholder relationships Insurance and issues related to selling stock to investors

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

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

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. © Choosing an attorney and accountant Attorney Choose specialized Accountant Hire early Choose local

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. © Choice of legal form Forms availableBrief 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, Entrepreneurship, New York: Wiley. © Comparative table of entities Forms available ControlLiabilityTaxation Administrative obligations Sole Proprietorship Owner has complete control Unlimited personal liability Not a separate taxable entity Only those applicable to all businesses PartnershipPartners share control Joint and several unlimited personal liability Not a separate taxable entity Only those applicable to all businesses 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 Some additional Limited Liability Company Members share control or appoint managers Limited personal liability Not a separate entity unless affirmatively chosen Some additional

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. © Comparative table of entities Forms available ControlLiabilityTaxation Administrative obligations Sole Proprietorship Owner has complete control Unlimited personal liability Not a separate taxable entity Only those applicable to all businesses PartnershipPartners share control Joint and several unlimited personal liability Not a separate taxable entity Only those applicable to all businesses 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 Some additional Limited Liability Company Members share control or appoint managers Limited personal liability Not a separate entity unless affirmatively chosen Some additional

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. © Comparative table of entities Forms available ControlLiabilityTaxation Administrative obligations Sole Proprietorship Owner has complete control Unlimited personal liability Not a separate taxable entity Only those applicable to all businesses PartnershipPartners share control Joint and several unlimited personal liability Not a separate taxable entity Only those applicable to all businesses 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 Some additional Limited Liability Company Members share control or appoint managers Limited personal liability Not a separate entity unless affirmatively chosen Some additional

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. © Comparative table of entities Forms available ControlLiabilityTaxation Administrative obligations Sole Proprietorship Owner has complete control Unlimited personal liability Not a separate taxable entity Only those applicable to all businesses PartnershipPartners share control Joint and several unlimited personal liability Not a separate taxable entity Only those applicable to all businesses 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 Some additional Limited Liability Company Members share control or appoint managers Limited personal liability Not a separate entity unless affirmatively chosen Some additional

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. © Comparative table of entities Forms available ControlLiabilityTaxation Administrative obligations Sole Proprietorship Owner has complete control Unlimited personal liability Not a separate taxable entity Only those applicable to all businesses PartnershipPartners share control Joint and several unlimited personal liability Not a separate taxable entity Only those applicable to all businesses 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 Some additional Limited Liability Company Members share control or appoint managers Limited personal liability Not a separate entity unless affirmatively chosen Some additional

Bygrave & Zacharakis, 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 Agreement Provisions to resolve voting deadlocks between owners Protection for investors against being left behind

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. © Legal and tax issues in hiring employees Employees as Agents of the Company Employment Discrimination Other Employment Statutes Employment Agreements Equity Sharing

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. © Insurance Property Liability Key Person Life Business Interruption Group Life, Disability and Health Insurance for Employees

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. © Insurance Property Liability Key Person Life Business Interruption Group Life, Disability and Health Insurance for Employees

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. © Insurance Property Liability Key Person Life Business Interruption Group Life, Disability and Health Insurance for Employees

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. © Insurance Property Liability Key Person Life Business Interruption Group Life, Disability and Health Insurance for Employees

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. © Insurance Property Liability Key Person Life Business Interruption Group Life, Disability and Health Insurance for Employees

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

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. © Chapter take-aways Pay attention to issues related to leaving your current employer to start your own company Choose an attorney who specializes in your industry and an accountant who specializes in your local area Pick the legal form that’s most appropriate for your business Manage shareholder relationships Get the right insurance Know when you don’t need to register stock sales