smb300_chap018 _wk8
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Week 8 diTRANSCRIPT
Chapter 18
Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Legal Issues
Recognizing Your Small Business Needs
Learning Objectives
LO1 Know when you need legal information and how to get it.
LO2 Understand legal structures in setting up a new business.
LO3 Learn how to master the process of negotiating.
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Learning Objectives
LO4 Recognize potential legal liabilities for your business.
LO5 Know contract terms and when a contract is needed.
LO6 Understand the basics of intellectual property.
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You and the Law
There are always unavoidable risks In a 2002 poll, less than 1 in 10 small
business had been sued in the prior five years
It is easy to underestimate the number of laws that apply to small businesses
State laws applicable to small businesses are extraordinarily varied
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Selected Laws Applicable to Growing Businesses
18-5Table 18.1
You Need a Good Attorney
Usually with legal issues it is best to confront potential problems before they have a chance to get serious.
Timely decisions and action may avoid a problem altogether or may make solving the problem much easier and cheaper
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You Need a Good Attorney
Hourly fees– A basis for legal
charges in which the rate is based on a price per hour.
– Often lawyers will charge for fractions of an hour.
Flat fees– A method of
billing for lawyers in which a fixed amount is paid for a certain task.
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You Need a Good Attorney
Retainer – A fee paid by a
client to an attorney to engage the attorney’s services.
Contingency fee– Fee paid by a
client to an attorney for legal services that is dependent upon the outcome of a case.
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Can I Do This for Free?
Three elements to most aspects of business law:
1.Finding the right information, 2.Negotiating the specific outcome you want3.Taking care of the paperwork associated
with it
What can I do for free?
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Can I Do This for Free?
Free information available:– www.business.gov: the general business site– www.reginfo.gov: regulatory information
website– www.dol.gov: for labor laws– www.sba.gov: the Small Business
Administration site– www.business.gov/regions/states: state’s
offices
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Choosing a Business Name
Trade name or assumed name or a doing business as (dba)– The name under which a business is
operated.
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Choosing a Business Name
Assumed name filing or a fictitious name filing– Filing made with a state(s) in which the
business operates disclosing the trade name or assumed name of the business along with the owners of the business.
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Choosing a Business Form
Legal entity– A being, human or nonhuman, such as a
corporation, that is recognized as having rights and duties, such as the right to own property.
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Legal Forms of Start-Ups from the PSED
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Figure 18.1
Advantages and Disadvantages of Corporations
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Table 18.2
Advantages and Disadvantagesof Sole Proprietorships
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Table 18.3
Advantages and Disadvantagesof Partnerships
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Table 18.4
Choosing a Business Form
Articles of organization– Document setting forth information
about a limited liability company that is filed with the state to establish an LLC.
Articles of partnership– Agreement between the partners of a
firm on matters pertaining to the formation and operation of the partnership.
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Choosing a Business Form
Six major factors at play:– Personal liability of the business owner– Taxation of both the entity and its owners– Complexity and organizational costs in
setting up– Control of the business– Continuity of the business– Ability of the business to raise capital
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Choosing a Business Form
Single taxation– Earnings of the
business are taxed once with the owners paying the taxes.
Double taxation– Earnings of the
business are taxed twice with the business as well as its owners being subject to tax.
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Choosing a Business Form
Pass through (taxation)– Earnings of the
business are distributed to the business owners and those owners pay individual tax on the earnings.
Check the box taxation– A choice LLCs can
make on their tax returns to be taxed as a corporation or a partnership.
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Choosing a Business Form
Piercing the veil– The dissolution of a corporate form,
making it back into a sole proprietorship or general partnership, if the court finds that the owner carelessly mixed up personal and business assets or finances.
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Tax Rates
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Everything Is Negotiable, andNegotiation Is Everything
4 steps to structure a negotiation:– Prepare what you need to achieve– Position by putting your best foot
forward– Propose solutions that provide value and
balance– Pounce when agreement on any part of
the negotiation appears at hand
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Legal Liabilities
Vicarious (indirect) liability– Indirect liability or responsibility for the
actions of another. Independent contractors
– Persons working to achieve a certain goal without being subjected to substantial controls by another.
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The Independent Contractor Argument
To be an independent contractor the person has to display three characteristics:
1. Behavioral: The contractor solely decides how the work is to be done.
2. Financial: The contractor pays his own expenses directly
3. Relational: The independent contractor is employed for a project and the service the contractor provides is not central to the operation of the business.
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The Scope of Authority Argument
If employees make a decision requiring more authority than they really possess, the business can argue that it was not liable for the problem
Firm must fully train employees of the exact authority they possess
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The Scope of Authority Argument
Sarbanes-Oxley Act– A federal law describing the steps
publicly traded businesses must take to protect and provide their key financial information.
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Litigation vs. Arbitration vs. Mediation
Litigation – A formal dispute resolution method that
operates using the court system, typically with a lawyer representing each party.
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Litigation vs. Arbitration vs. Mediation
Arbitration – A dispute resolution process held
instead of court cases in which both sides present their case to a legal professional.
Mediation– the dispute is put to a neutral third party
who is not a judge.
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Litigation vs. Arbitration vs. Mediation
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Contracting
Contracts– agreements in which the parties
exchange promises Standard contracts
– company can just fill in the blanks as needed
Specialty contracts– unique contract terms, large dollar
amounts at stake
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Contracting
Noncompete clause– Part of a contract in which a person
agrees not to open a certain type of business or seek employment doing certain things in a particular area for a period of time.
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Contracting
Exculpatory clause– Part of a contract in which a party to the
contract states that he or she will not be responsible for certain actions.
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Contracting
Hold harmless– A type of waiver in
which a party agrees not to hold another party responsible for certain events.
Waiver – Part of a contract
in which a party intentionally gives up legal rights or claims.
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Contracting
Subcontract – A contract by which a new party agrees
to perform a duty that one of the original parties to a contract was already legally obligated to perform.
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Intellectual Property
Intellectual property– Property coming
from some sort of original thought; for example, patents, trade secrets, trademarks, and copyrights.
Intangible property– Property that has
no value of its own but that represents value, such as a stock certificate.
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Intellectual Property
Patent – A grant by the U.S.
government to an inventor for an idea that is new, useful, and non-obvious, giving the inventor the exclusive right to make, use, or sell his idea
Trade secret– Confidential
information within a company that gives that company a competitive advantage
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Intellectual Property
Copyright – Exclusive right
given to the creator of a literary or artistic work to make use of that work.
Trademark – Distinctive word,
slogan, or image that identifies a product and its origin.
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Intellectual Property
Design patent– A 14-year patent
for a new, original, and ornamental design for an article of manufacture.
Infringer – Someone who
uses intellectual property without the permission of the owner.
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