1. Legal Issues in Entrepreneurship: Choice of entity Laura L. Hollis, JD Director, Gigot Center for Entrepreneurial Leadership Mendoza College of Business University of Notre Dame January 25, 2011

2. Laura L. Hollis, B.A.,J.D. Background and Credentials B.A., English, University of Notre Dame, 1983, J.D., University of Notre Dame, 1986 Associate, Meyer Capel Law Offices, PC, 1986 – 1987 General Counsel, Copyright Management, Inc., Nashville, TN, 1988-1991 Professor of Law, University of Detroit Mercy, Detroit, MI, 1991-1998 Of Counsel, Ave Maria Law School, Ann Arbor, MI, 1999 Professor of Law, Michigan State University, E. Lansing, MI, 1999-2000 Technology Entrepreneur Center, University of Illinois, 2000-present Adjunct Lecturer, Dept. of Industrial and Enterprise Systems Engineering, 2001-present Associate Director, Academy for Entrepreneurial Leadership, College of Business, 2005-2008 Clinical Professor of Business Administration, 2008-2010

3. Outline – Questions you need to answer I.Good advice? II.Ownership? III.Commercialization/Business model decisions? IV.Choice of entity? V.Types of IP protection?

4. I. Good advice? Get it early! Early advice often avoids later problems. A good attorney – find one who is interested in cultivating you as a paying client for later A good accountant, CPA or bookkeeper Best yet – someone who is both (tax attorneys frequently are CPAs) Don’t be “penny-wise and pound-foolish” Attorneys’ and accountants’ time is their stock in trade; don’t expect to get all of their advice for free

5. II. Key questions affecting choice of entity Did you develop this idea in conjunction with others? Have you agreed about authorship/ownership? Have you executed any kind of written agreement? Does anyone in your group have other legal obligations? If the innovation is yours, are you going to license its use to another entity, or commercialize it yourself? What do you think your expenses/income will be?

6. III. Choice of entity Sole proprietorship? Partnership? Corporation? (C corp, S corp) Limited Liability Company? Limited Liability Partnership? Others (Limited Liability Limited Partnership)

7. III. Choice of entity, cont’d Criteria to consider: Ownership vs. management Duration/existence/lifespan/future plans Ease of alienation Liability Taxation (Objectives?)

8. IV. Choice of entity, cont’d. Sole ProprietorshipPartnership Owner-managed Dies with owner Dissolves easily (death, departure, insanity) Sell entire company Difficult to sell interests Personally liable Single taxation CorporationLtd Liability Company Owners don’t manage Owners or managers Perpetual existence Shares easily sold Shares alienable, but not easily Limited liability Double taxation Single taxation

9. III. Choice of entity – some variations S corp Subchapter S of the IRC Taxed like a partnership 100 sh’s or fewer, U.S. citizens only Spouses and families treated as ONE sh

10. III. Choice of entity – some variations PC, SC or PSC professional corporation or professional services corporation L3C – low-profit limited liability company Allows profits plus socially-beneficial goals (profit must be secondary) Permits “program-related investments” (PRIs) (MI, IL, VT, WY, UT, LA, NC, ME) Taxed like an LLC (“pass-through”) “B-corp” – benefit corporation http://www.bcorporation.net/about MD, VT (CO, WA, NC, PA, NY, NJ, OR)

11. Other legal issues to be aware of Contract issues (employment, covenants not to compete, leases) Human resources (hiring and firing) Financial situation (including practical financial realities of business) Estate planning (including succession) Divorce (yes, you’d better think about it)

12. Questions and a final thought http://kidstube.com/play.php?vid=2923