Transcript Introduction to Criminal Justice After this lecture you

UNIT 4 • OPERATING A SMALL BUSINESS EFFECTIVELY
ADDRESSING LEGAL ISSUES
AND MANAGING RISK
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ENTREPRENEURSHIP: Starting and Operating a Small Business, 3/e
Steve Mariotti and Caroline Glackin
Class Name
Instructor Name
Date, Semester
Learning Objectives
After this lecture, you should be able to complete the following Learning Outcomes
1. Choose a legal structure for your business.
2. Understand the importance of contracts.
3. Recognize key components of commercial law.
4. Protect your intellectual property.
5. Protect your tangible assets and manage risk.
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Business Legal Structures
Sole Proprietorship
Partnership
Corporation
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Sole Proprietorship
Sole Proprietorship – a business owned by one person, who has unlimited
liability and unlimited rights to profits.
Most common type of U.S. business
Owned by one person & ceases to exist if they die or exit the firm
Advantages
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Relatively easy to start
Registration is relatively inexpensive
Fewer government regulations
Owners can make quick decision
Entitled to all profits of the business
Disadvantages
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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
All profits earned are taxed personally.
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Steps to Registering
Choose a name for your business.
Fill out registration form w/ name of business and your
name.
An official may conduct name search to make sure
name is not already being used in jurisdiction.
After registration, you will pay the required fee (fee
depends on the type of business).
May be asked to take form to a notary (a person who
has been authorized by the state to witness the
signing of documents).
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Partnership
Consists of two or more owners who make decisions
together, share profits, losses, assets, & liabilities
Partners
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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!
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Corporation
A legal entity composed of stockholders under a
common name
The corporate legal structure offers three key
advantages:
• Corporations may issue stock to raise money.
• Offers limited personal liability to its owners.
• Corporations can exist indefinitely.
Disadvantages:
• 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
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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
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Comparison
Exhibit 11 -1
of Legal Structures
Comparison of Legal Structures
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Tips for Entrepreneurs Who Want to Start a
Not-for-Profit Organization
501(c)(3) nonprofit corporation in the United States
Tax exempt legal structure. Like any business, a notfor-profit will need to generate revenue to cover its
expenses:
No individual can own a not-for-profit organization.
Nonprofits are mission driven.
Define your unit of change.
Determine how you will evaluate success.
Analyze your financing strategy.
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Contracts: Building Blocks of Business
Contract – an agreement between two or more parties
enforceable by law.
Working with an Attorney :
- Never sign a contract without having a lawyer examine it for
you.
- Never sign a contract without reading & understanding every
word.
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A Successful Contract Should Achieve the Four A’s:
1. Avoid misunderstanding
2. Assure work
3. Assure payment
4. Avoid liability
Boilerplate Language – a standard format for a specific
type of legal agreement.
Contingency – a condition that must be met in order for
something else to occur.
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Letter of Agreement
Sometimes you will not need a full, formal contract,
because the relationship is going to be brief or the
work and money involved are relatively minor.
Letter of Agreement – a document that puts an oral
understanding in writing, in the form of a business
letter.
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Breach of Contract
Breach of Contract - the failure of a signatory to perform as
agreed.
Signatory – An individual who has signed a contract.
Statute of Limitations – the time period in which legal action
may be taken.
Small Claims Court – a legal option for solving conflicts
involving less than a specified sum of money.
Arbitration – a method of dispute resolution using an
arbitrator to act as a decision maker rather than going
into court.
A Contract Is No Substitute for Trust
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The Uniform Commercial Code (UCC)
The UCC is a collection of business laws, adopted by
most states, that directs a broad spectrum of
transactions, such as loans, contracts, and the like.
It is not law; rather, it is made up of recommendations
for laws that states can adopt as written or with
modification or not at all.
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The Law of Agency
The agency law (principal-agent) is a vital area of
commercial contract law. Common agency
relationships include:
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Employment (employer, employees)
Real estate (real estate agents)
Financial services (stock brokers, insurance agents)
Promotion (modeling, acting, music, publishing, and sports agents)
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Bankruptcy
Bankruptcy – the legal process in which an individual
or business declares the inability or impaired ability
to pay debts as they come due.
Many companies, large and small, have filed for and
emerged from bankruptcy.
The Bankruptcy Reform Acts of 1978 and 2005 govern
the eight “chapters” under which bankruptcy may be
filed. Chapter 7, 11, and 13 generally applies to small
businesses, with Chapters 7 & 11 the most common.
- Chapter 11: Reorganization
- Chapter 7: Liquidation
- Chapter 13: Individual Debt Reorganization
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Protecting Intangible Assets: Intellectual
Property
Trademark – is any words, symbols, or designs,
that identifies and distinguishes the source of
the goods (products) of one party from those of
others.
Service mark – a design that identifies and
distinguishes the source of a service rather than
a product.
Rights are reserved exclusively for owners
There are advantages to owning them on the U.S.
Patent & Trademark Office Principal Register.
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Copyright
Copyright – the symbol © (the letter c in a circle)
and/or the word “copyright,” or the abbreviation
“copr.” and the current year, and name of the owner
of the 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
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Electronic Rights
Electronic Rights – the entitlement to reproduce
someone’s work online.
Using artwork without permission, including a song,
poem or photo posted online = Internet piracy
Electronic rights may also be protected.
Beware of contracts that include the following:
- Work-made-for-hire.
- All Rights.
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Patents
Patents – an exclusive right, granted by the government, to
produce, use, and sell an invention or process.
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Public Domain - property rights available to the public rather than held
by an individual.
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:
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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.
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Protecting Tangible Assets: Risk
Management
Insurance - System of protection for payment
provided by insurance companies to protect
people & businesses from having property or
wealth damaged or destroyed
Insurance Protects Your Business from Disaster
Premium - monthly cost of insurance
Deductible - amount of loss or damage a policy
holder covers before the insurer pays on a
claim.
- Lower deductable = Higher premium
- Higher deductable = Lower premium
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Small Business Insurance
Workers’
Compensation
Product Liability
Disability
Errors & Omissions
Commercial Fleet
Key Person Life
Property
Liability
Business Income
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How Insurance Companies Make Money
“How can an insurance company afford to pay
$150,000 to a restaurant owner whose business has
burned down, if that individual has only been paying
the insurance company $100 a month?”
Insurance companies employ experts, known as
actuaries, who calculate the odds of a particular
event actually happening.
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Protect Your Computer & Data
Because your computer is an electronic device, you
should protect it from the three primary occurrences
that can wipe out your data:
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3.
Power surges & outages
Computer viruses
Disk failure
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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
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Licenses, Permits, Certificates
Permit – an official document that gives a party the
right to put on a specific event.
License - an official document that grants the right to
engage in an activity for a specified period of time.
Certificate – an official document that verifies an
accomplishment or a level of expertise.
KEY TERMS
arbitration
bankruptcy
boilerplate language
breach of contract
certificate
contingency
contract
corporation
deductible
electronic rights
insurance
letter of agreement
license
limited partnership
notary
partnership
patent
permit
premium
public domain
service mark
signatory
small claims court
sole proprietorship
statute of limitations