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Part II

Initiating Entrepreneurial
Ventures

Introduction to
Entrepreneurship,
Donald F. Kuratko
7
CHAPTER

Chapter 7
Legal Challenges to Entrepreneurial
Ventures

Chapter 7 Legal Challenges in Entrepreneurship Fall 2014

PowerPoint Presentation by Charlie Cook


The University of West Alabama

Chapter Objectives
1. To introduce the importance of legal issues to
entrepreneurs

2. To examine patent protection, including definitions


and preparation
3. To study trademarks and their impact on new ventures

4. To examine the legal forms of organizationsole


proprietorship, partnership, and corporation
5. To illustrate the advantages and disadvantages of each
of these three legal forms.
6. To explain the nature of the limited partnership and
limited liability partnerships (LLPs)
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Legal Challenges for


the Entrepreneurial Venture
Inception of the
Venture

The Ongoing
Venture

Legal
Concepts

Growth and
Continuity of the
Venture
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Major Legal Concepts & Entrepreneurial Ventures


I. Inception of an Entrepreneurial Venture

A. Laws governing intellectual property


1. Patents
2. Copyrights
3. Trademarks

B. Forms of business organization

1. Sole proprietorship
2. Partnership
3. Corporation
4. Franchise

C. Tax considerations
D. Capital formation
E. Liability questions

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Major Legal Concepts & Entrepreneurial Ventures


II. Ongoing Venture:
Business Development and Transactions
A.

Personnel Law

1. Hiring and firing policies


2. Equal Employment Opportunity Commission
3. Collective bargaining
B. Contract Law
1. Legal contracts
2. Sales contracts
3. Leases

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Major Legal Concepts and Entrepreneurial Ventures


III. Growth and Continuity of an Entrepreneurial

Venture

A. Tax considerations
1. Federal, state, and local
2. Payroll
3. Incentives

B. Governmental regulations
1. Zoning (property)
2. Administrative agencies (regulatory)
3. Consumer law

C. Continuity of ownership rights


1. Property laws and ownership
2. Wills, trusts, and ownership
3. Bankruptcy

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Intellectual Property Protection - Patents

PATENT
A Patent provides the owners with exclusive
right to Hold, Transfer, and License the
Production and Sale of the Product or Process.
The objective of Patent is to provide the holder
with the temporary Monopoly on his or her
Innovation and thus to encourage the creation
and disclosure of New Ideas and Innovation in
the Marketplace.
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Securing a Patent
Rule 1: Pursue patents that are broad, are
Commercially Significant, and offer a
Strong Position.
Rule 2: Prepare a Patent Plan in detail.

Rule 3: Have your actions relate to your Original


Plan.
Rule 4: Establish an Realistic Budget.
Rule 5: Evaluate the Patent Plan Strategically.
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TRADE SECRETS
Trade Secret

Business processes and information that cannot


be Patented, Copyrighted, or Trademarked but
makes an individual company unique and has
value to a competitor could be a trade secret.

Information Is Considered a Trade Secret:

If it is not known by the competition.


If the business would lose its advantage if the
competition were to obtain it.
If the owner has taken reasonable steps to protect
the secret from disclosure.

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Trade Secrets (Contd.,)


Examples of Trade Secrets:
Customer

lists
Strategic plans
Research and development
Pricing information
Marketing techniques
Production techniques

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Identifying Legal Structures


A legal structure that will best suits the

demands of the venture addresses:

Changing tax laws


Liability situations
The availability of capital
The complexity of business formation.

Three primary legal forms of organization


Sole

proprietorship
Partnership
Corporation
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SOLE PROPRIETERSHIP
Sole Proprietorship
A

business that is owned and operated by


one person. The enterprise has no
existence apart from its owner.
To establish a sole proprietorship, a
person merely needs
to obtain whatever
local and state
licenses are
necessary to begin
operations.
712
Chapter 7 Legal Challenges in Entrepreneurship Fall 2014

Sole Proprietorships (contd)


Advantages
Ease

of formation

Sole

ownership of
profits

Decision

making and
control vested in one
owner

Flexibility
Relative

freedom from
governmental control

Disadvantages
Unlimited

liability

Lack

of continuity

Less

available capital

Relative

difficulty
obtaining long-term
financing

Relatively

limited
viewpoint and
experience

Freedom

from corporate
business taxes

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PARTNERSHIPS
Partnership

An association of two or more persons acting as


Co-owners of a Business for Profit.
Each Partner contributes, Money, Property, Labor
and Skills, and each Shares in the Profits as well
as the Losses of the Business.

Articles of Partnership
Clearly

outline the financial and managerial


contributions of the partners and carefully
delineate the roles in the partnership
relationship.

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Partnerships (contd)
Advantages

Ease of formation

Direct rewards

Growth and
performance facilitated

Disadvantages

Unlimited liability of at
least one partner

Lack of continuity

Relative difficulty
obtaining large sums
of capital

Flexibility

Relative freedom from


governmental control
and regulation

Bound by the acts of


just one partner

Possible tax advantage

Difficulty of disposing
of partnership interest

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CORPORATIONS
Corporation

An artificial being, invisible, intangible, and


existing only in contemplation of the law.
Supreme Court Justice John Marshall
As such, a corporation is a separate legal entity
apart from the individuals who own it.

Forming a Corporation

Subscriptions for capital stock must be taken and


a tentative organization created.
Approval (a charter) must be obtained from the
secretary of state in the state in which the
corporation is to be formed.

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Corporations (contd)
Advantages

Disadvantages

Limited liability

Activity restrictions

Transfer of
ownership

Lack of
representation

Unlimited life

Regulation

Relative ease of
securing capital in
large amounts

Organizing expenses

Double taxation

Increased ability and


expertise

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Specific Forms of Partnerships And


Corporations

Limited Partnerships

Have two or more partners without responsibility


for management and without liability for losses
beyond their investment with the right to share in
the profits.

Such an Organization allows the right to Share


Profits with limited liability for the Losses.

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Specific Forms of Partnerships And Corporations


(Contd.,)

Limited Liability Partnership (LLP)

Allows professionals the tax benefits of a


partnership while avoiding personal liability for
the malpractice of other partners.

If a professional group Organizes as an LLP,


Innocent Partners are not personally liable for the
wrongdoing of the other Partners,

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Key Terms and Concepts


abandonment

limited liability partnership (LLP)

bankruptcy

limited partnership

Bankruptcy Act

liquidation

cancellation proceedings

partnership

claims

patent

cleaning-out procedure

Patent and Trademark Office

copyright

Revised Uniform Limited

corporation
debtor-in-possession

fair use doctrine

generic meaning

infringement budget

intellectual property right

limited liability company (LLC)

Partnership Act (RULPA)


S corporation
sole proprietorship
specification
trademark
trade secrets
unlimited liability

limited liability limited partnership

(LLLP)

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