1. Entrepreneurship Chapter 11 Addressing Legal Issues and Managing Risk

2. Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. 2 Business Legal Structures Sole Proprietorship Partnership Corporation

3. Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. 3 Sole Proprietorship Most common type of U.S. business Owned by one person & ceases to exist if person dies or exits the firm Pros Relatively easy to start Fewer government regulations Owners can make quick decision Profits are held by the owner Cons May be difficult to raise funds for the type of entity Often long hours without help or companionship No way to limit personal legal & fiscal liability Odds of failure are high

4. Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. 4 Partnership Consists of two or more owners who make decisions together, share profits, losses, assets, & liabilities Partners Face unlimited liability in lawsuits Are fully responsible for all debts & contracts of any partner Bring different strengths & skills May disagree & destroy the partnership, friendship, & business Limited partnerships include some partners who are not liable & have no say in daily operations. Always have a formal Partnership Agreement!

5. Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. 5 Corporation A legal entity composed of stockholders under a common name Pros: Limited legal liability Money can be raised through issuing stock. Ownership can be transferred easily; new owner does not personally absorb corporation’s debt. May exist indefinitely Cons: Profits taxed twice; first as corporate income, then as personal income when distributed to shareholders Owner can lose control of company to stockholders if they gain more than 50% of stock. More expensive to start than sole proprietorship and partnership

6. Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. 6 Types of Corporations C Corporation—most common type, can sell ownership shares to anyone & use bonds to borrow money. Income taxed twice, once as corporate income & then as personal income when distributed to owners (dividends) Subchapter S Corporation—limits stockholders to 75; income taxed once, as personal income of owners Professional Corporation (PC)—used by doctors, lawyers, small groups of professionals Nonprofit corporation—tax exempt, mission is to improve society; may not sell stock or pay dividends Limited Liability Company (LLC)—combines features of partnership and corporation; good choice for small business owners seeking liability protection; income taxed once as personal income of owners

7. Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. 7 Comparison of Legal Structures

8. Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. 8 Not-for-Profit Organization 501(c)(3) nonprofit corporation in the United States Tax exempt legal structure Can receive charitable donations Cannot be owned/bought/sold May not issue stocks or bonds Mission driven: must be involved with trying to solve a problem for society Instead of Unit of Sale, uses Unit of Change to measure success and prove it is succeeding in mission

9. Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. 9 Contracts: Building Blocks of Business Formal written agreement between 2 or more parties Enforceable in court of law Contracts define the relationships in the production– distribution chain. Never sign a contract without having a lawyer examine it for you. Never sign a contract without reading & understanding every word. Be certain that it fully protects your interests.

10. Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. 10 A Good Contract Achieves the Four A’s 1. Avoid misunderstanding 2. Assure work 3. Assure payment 4. Avoid liability

11. Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. 11 Breach of Contract Breached when a signatory fails to fulfill it Injured party may then sue for breach of contract. A lawsuit is attempt to recover a right or claim through legal action. Other options aside from lawsuits Small claims court Arbitration A contract cannot substitute for trust. If you don’t trust someone, don’t expect a contract to protect you.

12. Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. 12 Intellectual Property Protection Trademark Service mark Copyright Electronic rights Patents

13. Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. 13 Trademarks & Service Marks Trademark = word, phrase, symbol, or design to set your product apart Service mark = same as trademark, but for a service Rights are reserved exclusively for owners. There are advantages to owning them on the U.S. Patent & Trademark Office Principal Register.

14. Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. 14 Copyright Protection for authors of original works of authorship For published & unpublished works Owner has the sole right to print, reprint, sell & distribute, revise, record, & perform the work. Endures for the life of the author/artist plus 70 years Copyright is automatic upon creation of a work & registration has advantages.

15. Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. 15 Electronic Rights Rights to produce someone’s work online Using artwork without permission, including a song, poem, or photo posted online = Internet piracy Electronic rights may also be protected.

16. Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. 16 Patents Protect Inventions You need a patent if: You have invented a product you want to market yourself or sell to a manufacturer. You believe someone else could sell the product by copying your invention. Patent application must include:  In-depth description of invention  Drawing of invention  Completed “Declaration for Patent Application”  Notarized statement from inventor  Filing fee to U.S. Patent & Trademark Office

17. Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. 17 Insurance System of protection for payment provided by insurance companies to protect people & businesses from having property or wealth damaged or destroyed Many kinds of insurance & almost anything can be insured Premium = amount paid for insurance Deductible = amount of loss or damage you agree to cover before insurance pays a claim A higher deductible  a lower premium

18. Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. 18 Small Business Insurance Workers’ Compensation Disability Commercial Fleet Property General Liability Product Liability Business Income Errors & Omissions Key Person

19. Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. 19 Protect Your Computer & Data Power surges & outages Computer viruses Disk failure

20. Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. 20 Disaster Recovery Plans Identify what you will do in case of fire or other catastrophe that makes access to your business impossible Communications Base of operations Priority activities Return to facilities

21. Entrepreneurship, 2 nd Edition Mariotti and Glackin with NFTE © 2010 Pearson Education, Upper Saddle River, NJ 07458. All Rights Reserved. 21 Licenses, Permits, Certificates License = right to engage in an activity for as long as the license is valid Permit = right to carry on a specific activity Certificate = official document that proves something