What do we learn?
a. Actions
founders can take to establish a strong ethical culture.
Ø Establishing
a Strong Ethical Culture for a Firm
·
establish a strong ethical culture for
their firms
·
Strong
ethical cultures don’t emerge by themselves but it takes entreprenurs who make
ethics a priority and organizational policies and procedures that encourage
ethical behaviour to make it happen
Ø Establish
a code of conduct
·
A formal statement of an organization’s
values on certain ethical and social issues.
·
The advantage of having a code of
conduct is that it provides specific guidance to entrepreneurs.
Ø Implement
an ethics training program
·
employees deal with ethical dilemmas and
improve their overall ethical conduct.
·
An ethical dilemmma is a situation that
involves doing something that is beneficial to oneself or the organization, but
maybe unethical.
·
ethical cultures are built through both
strong ethical leadership and administrative tools that reinforce and govern
ethical behaviour in organization
b. Describe
effective actions taken to deal with legal issues.
Ø Choosing an Attorney
for a Firm
·
Important
for an entrepreneur to select an attorney as early as possible when developing
a business venture.
·
Selecting an attorney was instrumental in helping tempered
mind.
Ø Drafting
a Founders’ Agreement
·
An important issues addressed by most
founders’ agreements is what happens to the equity of founder if the founder
dies or decides to leave the firm. Most founders’ agreements include a buyback
clause, which legally obligates departing founders to sell to the remaining
founders their interest in the firm if the remaining founders are interested.
Ø Avoiding
legal disputes
·
Are
the result of misunderstandings, sloppiness, or a simple lack of knowledge of
the law.
·
several steps entrepreneur can take to
avoid legal disputes and complications;
§ Meet all contractual obligations: includes paying vendors, contractors, and employees
as agreed and delivering goods or services as promised.
§ Avoid undercapitalizations: should raise the money it needs to effectively conduct
business.
§ Get everything in writing: much easier to resolve if the rights and obligations
of the parties involved are in writing.
§
Set
standards: set the
standards that govern employees behaviours beyond what can be expressed via
code of conduct.
c. Overview
of the business licenses and permits that start-up must obtain.
Ø Federal
Licenses and Permits
·
Most
business do not require a federal license to operate.
Ø State
Licenses and Permits
·
Business
Registration Requirements:
register
the business. Second, place the business on the radar screen of the tax
authorities, and last, make sure the business is aware of and complies with
certain regulation.
·
Sales
tax permits: must get
a permit from the state.
·
Profesional
and Occupational licenses and permits: there are laws that require people in certain professions
to pass a state examination and maintain a professional license to conduct
business.
Ø Local
Licenses and Permits
·
Building
permit: typically required if you are constructing or
modifying your place business.
·
Health
permit: normally required if you are involving in
preparing or selling food.
·
Signage
permit: may be required to erect sign.
·
Street
vendor permit: may be required for anyone wanting to sell
food or merchandize in city street.
·
Sidewalk
cafe permit: maybe requiired if tables and chairs
are placed in a city right of way.
·
Alarm
permit: required when you install a burglar or fire alarm.
·
Fire
permit :may be required if a business sells or stores
highly flammable material or hadnles hazardous substances.
d. Identify
the different forms of organization available to new firms.
Ø The
major differences among sole propietorships, partnerships, corporations, and
limited liability companies are the most common legal entities from which
entrepreneurs make a choice.
Ø Choosing
a legal entity is not a one-time event. As a business grows and matures, it is
necessary to periodically review wether the current form of business
organization remains appropriate.
Ø 4 legal entities:
1. Propiertorship
·
Form
of business organization involving one person, and the person and the business
are essentially the same.
·
Advantage of a sole propiertorship :
§ Creating
one is easy and inexpensive
§ The
owner maintains complete control of the business and retains all the profits.
§ Business
losses can be deducted against the sole propiertors’ other sources of income
§ It
is not subject to double taxation
§ The
business is easy to dissolve
·
Disadvantages of a sole propiertorship :
§ Liability
on the owner’s part is unlimited
§ The
business relies on the skills and abilities of a single owner to be succesfull.
§ Raising
capital can be difficult
§ The
business ends at the owner’s death or loss interest in the business
§ The
liquidity of the owner’s investment is low.
2. General
Partnerships
·
A
form
of business organization where two or more people pool their skills, abilities, and resources to run
a business.
·
Advantage of general partnerships:
§ Creating
one is relatively easy and inexpensive to a corporation or limited liability
companies.
§ The
skills and abilities of more than one individual are available to the firm.
§ Having
more than one individual are available to the firm
§ Having
more than one owner may take it easier to raise funds
§ Business
losses can be deducted against the partners’ other sources of income.
§ It
is not subject to double taxation
·
Disadvantages :
§ Liability
on the part of each general partner is unlimited.
§ The
business relies on the skills and abilities of fixed number of partners.
§ Raising
capital can be difficult.
§ Because
the decision making among partners is hsared, disagreements can occur.
§ The
liquidity of each partner’s investment is low.
3. Corporations
·
A
seperate
legal entity organized under the authority of a state. Corporations are
organized as either C corporations or subschpter S corporations.
·
C
corporations
is a seperate legal entity that, in the eyes of the law, is seperate from its
owners.
·
Advantage of corporations:
§ Owners
are liable only for debts and obligation od the corporation up to the amount of
their investment.
§ The
mechanics of raising capital is easier.
§ No
restriction exist on the number of shareholders, which differs from subschapter
S corporations.
§ Stock
is liquid if traded on a major stock exchange.
§ The
ability to share stock with employees throug stock option or other incentive
plans can be a powerful form employee motivation.
·
Disadvantage of corporations :
§ Setting
up and maintaining one is more difficult than for a sole propietorship or
partnership.
§ Business
losses cannot be deducted against the shareholders other sources of income.
§ Income
is subject to double taxation, meaning that is taxed at the corporate and the
shareholder levels.
§ Small
shareholder typically have little voice in the management.
·
Subschapter S corporation: combine the
advantage of a partnership and a C corporation. T
·
he subschapter S corporation does not
pay taxes: instead, the profit or losses of the business are passed through to
the individual tax returns of the owners.
4. Limited
Liability Company
·
A
form
of business organization that is rapidly gaining popularity in the United
States.
·
Advantages of limited liability company:
§ Members
are liable for the debts and obligations of the business only up to the amount
of their investment.
§ The
number of shareholders is unlimited.
§ An
LLC can elect to be taxed as a sole propietor, partnership, S corporation or
corporation, providing much flexibility.
§ Because
profits are taxed only at shareholder level, there is no double taxation.
·
Disadvatage of limited
liability company:
§ Setting
up and maintaing one is more difficlut and expensive.
§ Tax
accounting can be complicated.
§ Some
of the regulations governing LLCs vary by state.
§ Because
LLCs are relatively new type of business entity, there is not as legal
precedent available.
No comments:
Post a Comment