Entrepreneurship and smaill business management chapter 16

Entrepreneurship and Small Business Management Chapter 16 Addressing Legal Issues and Managing Risk... 16 Performance Objectives  Choose a legal structure for your business.. Business

Entrepreneurship and

Small Business Management

Chapter 16

Addressing Legal Issues and

Managing Risk

Ch 16 Performance

Objectives

 Choose a legal structure for your

business.

 Understand the importance of contracts.

 Recognize key components of

commercial law.

 Protect your intellectual property.

 Protect your tangible assets and manage risk.

Business Legal Structures

person with unlimited liability and

unlimited rights to profits

 Partnership—two or more owners

who make joint decisions and share

profits, losses, assets, and liabilities

 Corporation—legal entity composed

of stockholders under a common name

Sole Proprietorship Pros &

 Often long hours alone, without help or feedback from others

 No way to limit personal legal responsibility

 All profits are taxed personally

Partnership

 Partners:

 Face unlimited liability in lawsuits

 Are fully responsible for all debts and contracts of any partner

 Bring different strengths and skills

 Can support and advise each other

 May disagree and destroy the partnership, friendship, and business

 Limited partnership—one or more

“limited” partners are not liable and

have no official say in daily operations

 Have rights and responsibilities under the law

 May buy and sell property

 Enter into leases and contracts

Types of Corporations

 C corporation

 Most common type of corporate structure

 Can sell ownership as shares of stock

 Income taxed twice: as corporate income, and as

personal income when dividends are distributed to

shareholders

 Subchapter S corporation

 Has a limit of 75 stockholders

 Income taxed once, as personal income of owners

Types of Corporations

(continued)

 Nonprofit corporation

 Purpose is to improve society; all net profits go

toward advancing the mission

 Tax exempt; must follow applicable laws and

regulations to keep this status

 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

 Less rules on number/type of shareholders than S

corp.

Pros and Cons of

Corporations

Advantages

liability for shareholders

issuing stock

transferred; new owner

does not personally

 More expensive to start than sole proprietorships

or partnerships

 Subject to many government regulations

Comparison of Legal Structures

Starting a Nonprofit

Organization

 Remember, it cannot be bought and sold

like other businesses.

 Identify the organization’s mission, clearly.

 Define your unit of change.

 Determine how you will evaluate success.

 Analyze your financing strategy.

 A contract is:

two or more parties that is enforceable by law

defining relationships in the production–distribution chain

 Never sign a contract without:

word

Breach of Contract

a signatory fails to fulfill it.

of contract.

right or claim through legal action.

small claims court and arbitration.

Avoid signing a contract with someone you do not trust.

Uniform Commercial Code

(UCC)

 Directs a broad range of transactions, such as loans and contracts, for the purpose of consistency

 A recommendation for laws that U.S states can choose to adopt or modify

 Focuses on movable property rather than real (immovable) property

Agency Law

 An agent (third party) is authorized to act

on behalf of a principal (primary party) to

create a legal relationship with another

individual or business.

 Common agency relationships:

 Employment (employer, employees)

 Real estate (real estate agents)

 Financial services (stockbrokers, insurance

agents)

 Promotion (acting, music, publishing, sports)

Agency Law (continued)

 When you authorize others to act for you,

you can be legally bound by their actions.

 Means by which authority is granted:

 Implied authority (A level of authority is

considered necessary for the agent to do his/her job.)

assets to cash with a business closure

 Chapter 13: Individual Debt

Reorganization—consumer version of

Chapter 11

Protecting Intangible Assets: Intellectual Property

Trademarks & Service

Marks

 Trademark—word, phrase, symbol, and/or

design that distinguishes a product

 Service mark—word, phrase, symbol,

and/or design that distinguishes a service

 Rights are reserved exclusively for owners.

 File an application with the U.S Patent and

Trademark Office’s Principal Register for

added advantages.

 Protection for authors of original works

(songs, books, plays, art, etc.)

 For published and unpublished works

 Gives owner the sole right to print,

reprint, sell and distribute, revise,

record, and perform the work

 Endures for the life of the author/artist

plus 70 years

 Automatic upon creation of a work, but

registration is recommended

Electronic Rights

 The right to produce someone’s work online

 Internet piracy—using online works (songs,

poems, photos, etc.) without permission

 Strategies for protecting your work:

 Get buyer to define exactly what’s included

in the rights (online publication, CD-ROMs, etc.)

 Put a time limit on how long the buyer has rights.

 Ask for an extra fee each time your work is used somewhere electronically.

Patents Protect Inventions

 Three forms of patents:

 Utility (process or improvement)

 Design

 Plant (varieties of vegetation)

 You need a patent if…

 You have invented a product that you intend

to market yourself or sell to a manufacturer.

 You believe that someone else could successfully sell your invention by copying it.

Managing Risk with

Insurance

 Insurance—system of protection which

reimburses people/businesses when their property or wealth is damaged or

destroyed

you agree to cover before insurance pays

a claim

 A lower deductible = a higher premium

 A higher deductible = a lower premium

 Errors and Omissions

 Key Person Life Insurance

Other Forms of Risk

Management

 Protect your computer and data from:

 Hard disk failure

 Identify what you will do in case a fire or other catastrophe occurs that makes access to your business impossible.

Making a Disaster Recovery

Plan

 Communications: Identify who will get in

touch with employees, vendors, and

customers Maintain a detailed contact list

 Base of operations: Decide where people

should go if business location is inaccessible.

 Priority activities: Identify which business

activities are most essential/time-sensitive.

 Return to facilities: Outline a process for

regrouping and planning.

Licenses, Permits,

Certificates

 Permit—official document that gives the right to put on a specific event

 License—official document that gives the right to engage in an activity for as long as the license is valid

 Certificate—official document that verifies or proves something