1. Entrepreneurship: Successfully Launching New Ventures, 2/e
Bruce R. Barringer
R. Duane Ireland
Chapter 7

2. Quick Facts National Business Ethics Survey in 2007
2000 American workers
Findings:
55% observed – violated ethical standards, policy or law
Of these employees observed the misconduct – 42% reported it

3. Top 10 most common types of ethical misconduct
Putting own interest 22%
Abusive behaviour 21
Lying to employees 20
Misreporting hours worked 17
Internet abuse 16
Safety violations 15
Lying to stakeholders 14
Discrimination 13
Stealing
Sexual harassment 10

4. New ventures must deal with important ethical and legal issues.
Ethic errors made early on can be extremely costly.
A tendency for entrepreneurs to overestimate their knowledge of the law.

5. 1. Establishing a Strong Ethical Culture
Lead by example
Leaders - make ethics and integrity a part of daily conversations and decision making (‘shura’ and open)
Supervisors who emphasize integrity
Peers who encourage to act ethically

6. Establish a Code of Conduct (Honour)
a formal statement of an organization’s values on certain ethical and social issues.

7. Google Code of Conduct: Table of Contents
Serve Our Users
Integrity
Usefulness
Privacy and Freedom of Expression
Responsiveness
Take Action
Respect Each Other
Equal Opportunity Employment
Positive Environment
Drugs and Alcohol
Safe Workplace
Avoid Conflicts of Interest
Personal Investments
Outside Employment and Inventions
Outside Board Memberships
Business Opportunities
Friends and Relatives; Co-Worker Relationships
Gifts, Entertainment and Payments
Reporting

8. Implement an Ethics Training Program
Educate business ethics to employees to deal with ethical dilemmas and improve overall ethical conduct.
An ethical dilemma - a situation that involves doing something - beneficial to oneself or organization - but may be unethical.

9. 2. Potential Payoffs

10. 3. Choosing a Solicitor Select a solicitor early
As early as possible when developing a business venture.
Critical - solicitor is familiar with start-up issues.
Intellectual Property
For issues dealing with intellectual property (patents, trademarks, and copyrights) - essential to use a solicitor who specializes in this field.

11. How to select a solicitor
Contact local bar association and ask for a list of solicitors who specialize in start-ups.
Interview / meet several solicitors. Check references.
Assist you in raising money for the new venture.
Has a track record of completing his or her work on time.

12. Talk about fees.
Trust your intuition - understands business area - think will feel comfortable spending time with.
Pay attention to details !!!
Learn as much about process of starting a business yourself as possible.

13. 4. Drafting a Founder / Shareholder’s Agreement
A written document - deals with issues:
Relative split of the equity among the founders – how individual founders will be compensated for cash or “sweat equity” they put into the company,
How long the founders will have to remain for their shares to fully vest.

14. Two important issues addressed:
What happens to equity if :
founder dies
decides to leave company.

15. Buy back clause
Most founders’ agreements - a buyback clause, which legally obligates departing founders to sell their shares to the remaining founders if interested.
Also specifies formula for computing the value to be paid (in RM).

16. Purpose of a Buy Back Clause
1. If a founder leaves - remaining founders may
offer the shares to a replacement person.
2. If founders leave because they are disgruntled
– it provides a mechanism – to keep shares in
the hands of committed people

17. Items Included in the Founder’s Agreement
Nature of the prospective business.
A brief business plan.
Identity and proposed titles of the founders.
Legal form of business ownership.
Consideration paid for stock or ownership share of each of the founders.
Identification of any intellectual property signed over to the business.
Description of the initial operating capital.
Buyback clause.

18. 5. Avoiding Legal Disputes
Most legal disputes - misunderstandings, sloppiness or a simple lack of knowledge of the law.
Getting bogged down in legal disputes - something an entrepreneur should work hard to avoid.

19. Several steps:
Meet all contractual obligations
Avoid undercapitalisation
Get everything in writing
Set standards

20. Meet all contractual obligations on time
Paying vendors, contractors, and employees as agreed
Delivering goods or services as promised
If not met, communicate to parties involved immediately.

21. Avoid Undercapitalisation
If a new business is starved for money – very likely to experience financial problems – lead to litigation.
Should raise enough fund – better overestimate
Should monitor growth to conserve cash

22. Get Everything in Writing x 3
Many dispute arises due to lack of written agreement or do not anticipate potential areas of dispute
Tempting to show business partners or employees that they are ‘trusted’ by downplaying the need for a written agreement
It’s a mistake

23. Disputes are much easier to resolve if the rights and obligations – in writing
Two important written agreements – majority of companies ask the employees to sign
Non disclosure
Non compete agreement

24. Non disclosure
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.

25. Set Standards
Set standards that govern employees’ behavior beyond what can be expressed via a code of conduct.
E.g. moonlighting, conflicts of interest, inappropriate use of company resources
Policies and procedures should be established to deal with these issues

26. When legal disputes do occur
Negotiation or mediation rather than more expensive and potentially damaging litigation
Mediation – a process in which a third party helps those involved reach an agreement
A simple apology
A sincere pledge – offending party - to make amend

27. 6. Choosing a Form of Business Organisation
Sole Proprietorship
Private Limited Company
Partnership
Public Limited

28. Cost of setting up and maintaining the legal form of ownership.
Extent to which entrepreneurs can shield personal assets from the liabilities
Tax considerations.
The ease of raising capital.

29. Sole Proprietorship
Simplest form of business entity.
Involving one person.
Not a separate legal entity - sole proprietor is responsible for all the liabilities of the business - significant drawback.

30. Just one business owner
Only Malaysian citizens or permanent residents can register.
Personal names or trade names can be used as business names
Application of business name form must be filled in before a business can be registered.

31. * Relevant authorities - Registrar of Business, reserves the right to reject any submitted name if it is deemed misleading or inappropriate.
* Certain names e.g. associated with government agencies or royalty (i.e. "national", "chartered" or "di-Raja") cannot be registered

32. Advantages of a Sole Proprietorship
Creating one is easy and inexpensive.
Owner maintains complete control - retains all of profits.
Business losses can be deducted against sole proprietor’s other sources of income (e.g lost 10k, gained 100k)
Easy to dissolve.

33. Disadvantages of a Sole Proprietorship
Liability is unlimited.
Business relies on skills and abilities of a single owner.
Raising capital can be difficult.
Business ends at the owner’s death or loss of interest.
Liquidity of the owner’s investment is low.
Low corporate image

34. Partnerships
If two or more people start a business - organized as a partnership, private or public limited company.
Can be organized as either general or limited partnerships.
A general partnership - two or more people pool their skills, abilities and resources to run a business.

35. A limited partnership - a modified form of general partnership
A limited partnership - a modified form of general partnership. The major difference between the two:
General partners - liable for debts and obligations of partnership
Limited partners - liable only up to amount of their investment.

36. Advantages of a General Partnership
Creating one is relatively easy and inexpensive.
Skills and abilities of more than one individual are available.
Having more than one owner may make it easier to raise funds.
Business losses can be deducted against partners’ other sources of income.

37. Disadvantages of a General Partnership
Liability on the part of each general partner is unlimited.
Business relies on skills and abilities of a fixed number of partners.
Because decision making among partners is shared - disagreements can occur.
Business ends with the death or withdrawal of one partner unless otherwise stated.
Liquidity of each partner’s investment is low.

38. Companies in Malaysia are governed by the Companies Act 1965, which protects the rights and interests of shareholders and investors, and provides regulations for the incorporation of companies, the formulation of company constitutions, management and closures.

39. Private limited companies cannot sell shares to the public - distinguished by the appellation "Sendirian Berhad", shortened to "Sdn Bhd" or "S/B".
Public limited companies source their capital by selling shares to the public - distinguished by the appellation "Berhad", shortened to "Bhd".

40. A private limited company - a minimum of 2 members and limited to 50 members (public limited companies have no member limit).
A minimum paid-up capital of only RM2 is needed to start a private limited company - public limited companies need a paid-up capital of not less than RM60mil (to be listed on KLSE Main Board) or not less than RM40mil (to be listed on the KLSE Second Board).

41. Revision