ch.7 - preparing the proper ethical and legal foundation

Question 1

• Lead by example
• Establish a code of conduct
• Ethics Training Program

Answer 1

Strong Ethical Culture

Question 2

a formal statement of an organization’s values on certain ethical and social issues.

Answer 2

Code of Conduct/Ethics

Question 3

Situation that involves doing something that is beneficial to oneself or the organization, but may be unethical.

Answer 3

Ethical Dilemma

Question 4

• Selecting one early
• Intellectual property (patents, copyrights, and trade secrets) : needs to know how to work with this.

Answer 4

Choosing an attorney

Question 5

Written document that deals with issues such as the relative split of the equity among the founders of the firm, equal compensation, how long founders will remain with the firm.

Answer 5

Founders’ Agreement

Question 5

• Nature of the prospective business
• Identity and proposed titles of the founders
• Legal form of business ownership
• Provisions for resolving disputes
• Buyback clause: buy to get out.

Answer 5

Include on Founders’ Agreement

Question 6

• Always have written agreements

Answer 6

To Avoid Legal Disputes

Question 7

Legal agreements that many firms ask their employees to sign

Answer 7

NDA and Noncompete Agreement

Question 8

• Business : need local, state, and/or federal licenses and permits to operate.
• Federal : sometimes businesses need to operate.
• State : three different categories: business registration requirements, sales tax permits, and professional and occupational.
• Local : two categories: operate a certain type of business and permits for engaging in certain types of activities.

Additional requirements:
Doing Business as (DBA)- for a fictitious name, state.
Employee Identification Number (EIN)- businesses that do not have employees, are required to obtain one, IRS.

Answer 8

Obtaining Business licenses and permits

Question 9

• Sole Proprietorship
• Partnership
• Corporation
• Limited Liablity Company (LLC)

Answer 9

Form of business ownership

Question 10

• The cost of setting up and maintaining the legal form
• The extent to which personal assets can be shielded from the liabilities of the business
• Tax considerations
• The number and types of investors involved.

Answer 10

Issues in choosing a legal form of business ownership

Question 11

• simplest form of business entity
• form of business organizations involving one person, and the person and the business are esentially the same
• all debt + profit is all yours
• trust is not high here
• liability on the owner’s part is unlimited

Answer 11

Sole Proprietorship

Question 12

• two or more people start a business, they must organzie as one…
• organized as either general or liability partnerships.

Answer 12

Partnership

Question 13

form of business organization where two or more poele pool their skills, abilities, and resources to run a business.
- liability is unlimited.

Answer 13

General Partnership

Question 14

• modified form of general partnership
• includes two classes of owners: general partners and limited partners.

Answer 14

Limited Partnership

Question 15

a separate legal entity organized under the authority of a state.
- C chapter or S subchapte

Answer 15

Corporations

Question 16

separate legal entity that, in the eyes of the law, is separate from its owners.
- shields its shareholders, from personal liablity for the debts of the corporation.
- taxed as a separate legal entity
- subjected to double taxation.
- raising capital is easier

Answer 16

C Corporations

Question 17

• combines advantageds of a partnership and a C corporation
• not subjected to double taxation
• owners are not subject to personal liablity for the debts or behavior of the business.
• Standards have to require: cannot be subsidiary of another corporation + shareholders must be US citizens
• only have one class of stock issued and outstanding
• it can have no more than 100 member
• all shareholder must agree to have the coproration formed

Answer 17

S Corporations