Preparing a Proper Ethical and Legal Foundation (Lec 07)

Question 1

List three initial ethical and legal issues that new firms face.

Answer 1

• Establishing a strong ethical culture
• Choosing an attorney (for dealing with IP’s, patents, copyrights)
• Drafting a founder’s agreement
• Avoiding legal disputes
• Obtaining businesses licenses and permits
• Choosing a form of business organization

Question 2

Describe three ways to establish a strong ethical culture.

Answer 2

Lead by Example - when an entrepreneur leads by example it builds a strong ethical culture

Establish a Code of Conduct - this is a formal statement of the organization’s values on certain ethical social issues

Implement an Ethics Training Program - this will help employees to deal with ethical dilemmas

Question 3

What are four benefits of establishing a strong ethical culture?

Answer 3

• Improved Brand Reputation
• Improved Customer Loyalty
• Improved Employee Commitment
• Potential Avoidance of Fines
• Better Access to Capital
• Decreased Vulnerability

Question 4

When should a firm select an attorney and how should they firm inform them?

Answer 4

• As early as possible when developing a business venture.
• The attorney should also be familiar with the start-up issues.

Question 5

How should you select an attorney and what qualities should you look for?

Answer 5

Create a selection of options by:

Contacting a local bar association.
Interview several attorneys

Qualities:
- The attorney should be specialized in start-ups in your area.

• Should be reliable and reputable.
• Affordable fees.
• Understands your business.

Question 6

What is a founder’s agreement?

Answer 6

A written document that deals with the issues such as:

• relative split of equity among the founders of the firm
• compensation of sweat equity
• how long the founder will remain with the firm

Question 7

List four things that should be included in a founder’s agreement?

Answer 7

• Nature of the prospective business.
• Identity and proposed titles of the founders.
• Legal form of business ownership.
• Apportionment of stock (or division of 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 how the founders will be compensated and how the profits in the business will be divided.
• Provisions for resolving disputes.
• Buyback clause.

Question 8

What are the steps to be taken to avoid legal disputes?

Answer 8

• Meet all contractual obligations
• Avoid undercapitalization
• Get everything in writing
• Set standards

Question 9

What kind if agreements do firms ask their employees to sign?

Answer 9

• NDA
• Non-compete agreement