Chapter 16 & 17- Intro to Entrepreneurship

LLC (Limited Liability Company)

*They are a legal entity* *No type of business form protects you fully* *Articles of Organization apply to all partners in LLC* 1. Members aren't responsible for debt. 2. Members ENTER OPERATING AGREEMENT to determine control. 3. Depending on the state, an LLC may exist indefinitely. 4. Raising capital comes from members or a loan. 5. Some states allow a single person to form an LLC. 6. An LLC can choose to be taxed as a sole proprietorship, corporation, or sole proprietorship. 7. The taxes AREN'T PAID BY THE OWNER ON BASIS OF INCOME RECEIVED. 8. The money you take out IS NOT taxed at your own rate.

For self employed artists/designers, who owns the work?

-Creator owns the material, but work for hire contracts state otherwise.

Work for hire concerning IPs

-Works created under a contract of employment or apprenticeship (Contract of Service) -Specially commissioned works (Contract for Service). For legal purposes, when a work is a "work made for hire," the author is not the individual who actually created the work. Instead, the party that hired the individual is considered both the author and the copyright owner of the work.

How to deflect vicarious liability for your business?

1. Actor is not an employee, but an independent contractor. 2. Actions were outside scope of agency/employee

3 characteristics of independent contractors

1. Behavioral: Contractor decides how work is to be done. 2. Financial: The contractor pays for their own expenses rather than the employer paying for them(Like bringing their own tools) 3. Relational: The independent contractor is there for a distinct term or period and the service they provide is not essential to the core operations of the business.

How to achieve the right level of paranoia?

1. Plan to do good(Be honest and get things right from the start). 2. Check w/a lawyer early on. 3. Recognize the predictable surprises early on. Your goal as an entrepreneur is to THINK ABT LIABILITY but your goal should be to think of it ahead of time, take the steps and time to prepare for it, & stop worrying because you did what you needed to do.

Cash Budgeting

A cash budget is an estimation of the cash flows of a business over a specific period of time. This could be for a weekly, monthly, quarterly, or annual budget. This budget is used to assess whether the entity has sufficient cash to continue operating over the given time frame.

Check the Box Taxation

A choice LLCs can make on their tax returns to be taxed as a corporation or a partnership.

Operating Agreement

A contract among LLC members outlining how the LLC will conduct itself.

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.

Co-insurance

A contract stipulation that requires a policyholder to carry insurance in an amount equal to a stated minimum percentage of the market value of the property insured.

Arbitration

A dispute resolution process held instead of course cases in which both sides present their case to a legal professional.

Mediation

A dispute resolution process held instead of court cases in which both sides present their case to a neutral third party who is not a judge. Unlike arbitration and court decisions, mediation decisions are not bending on the two parties.

Mediation

A dispute resolution process held instead of court cases to a neutral third party, which acts as a judge. Mediation decisions aren't binding on 2 parties. It can be used with the government, is the least expensive, and generally faster than the other 2 methods. -FULL RANGE OF APPEALS!

Sarbanes-Oxley Act (SOX)

A federal law describing the steps publicly traded businesses must take to protect and provide their key financial data.

SOX

A federal law describing the steps publicly traded businesses must take to protect and provide their key financial information. Purpose: To make financial activities of the business more visible to the shareholders, government, and public.

Retainer

A fee paid by client to engage attorney's services. It is a work-for-hire contract. The client pays in advance with the professional work to be specified later.

Litigation

A formal dispute resolution method that operates using the court system, typically with a lawyer representing each party.

Patent

A grant given by the U.S government to an inventor for an idea that's new, useful, & non-obvious, giving the inventor the exclusive right to make, use, or sell their idea. Patents are a right granted to an inventor that allows them to EXCLUDE all others from making, using, or selling their invention FOR 20 YEARS. In the U.S. the U.S. Patent and Trademark Office reviews and approves patent applications, which provide protection against others stealing their idea. -Patentable ideas MAY BE KEPT AS TRADE SECRETS if the useful life extends the period of protection the patent extends.

Capital Lease

A lease in which at the end of the lease period the asset becomes the property of the lessee, possibly with an additional payment.

Lease

A lease is a contract outlining the terms under which one party agrees to rent an asset

Operating Lease

A long-term rental in which ownership of the asset never passes to the person paying for the lease.

Flat Fees

A method of billing for lawyers in which a fixed amount is paid for a certain task.

Hourly Fees

A method of payment for attorneys.

Internal Control

A set of rules and procedures that work to limit the opportunity for employee theft or malfeasance.

Seperation of Duties

A type of internal control that separates the physical control of an aspect from the person accounting the asset.

Hold Harmless

A type of waiver in which a party agrees not to hold another party responsible for certain events.

Which of the following explains the difference between limited partnership and general partnership?

A: In general partnerships, no government permission is required for the setup and maintenance of business, unlike limited partnerships. "In limited partnerships, all partners are equally liable to the firm's debt unlike general partnership," IS FALSE! In limited partnerships, the investors are only liable for the amount they invest. But general partnerships do have equal liability. "In limited partnerships, partners incur single taxation on earnings, unlike general partnerships," IS FALSE. Single Taxation occurs for both. "In general partnerships, whenever the mix of partners is changed, that partnership is dissolved, unlike limited partnerships," IS FALSE. Partnerships vary dramatically.

Articles of Partnership

Agreement between the partners of a firm on matters pertaining to the formation and operation of the partnership.

Joint Venture

An agreement between two or more entities to pool resources in order to complete a project.

Deductable

An amount of money that will not be paid by an insurance company.

Which of the following is a benefit of leasing?

An asset can be leased at a very low down payment.

Inventory Valuation

An inventory valuation allows a company to provide a monetary value for items that make up their inventory. Inventories are usually the largest current asset of a business, and proper measurement of them is necessary to assure accurate financial statements.

Contingency Fee

Attorney's fees dependent on outcome of the case. It's those "I don't get paid unless you get paid!"

Benchmarking

Benchmarking is the process of measuring key business metrics and practices and comparing them—within business areas or against a competitor, industry peers, or other companies around the world(Benchmark values)—to understand how and where the organization needs to change in order to improve performance.

Today the biggest risk to most businesses comes from _____.

COMPUTERS

Kevin has taken an apartment on lease for five years with a monthly rental of $3,500. At the end of five years, Kevin will be the legal owner of the apartment after an additional payment of $80,000. This type of lease is an example of a(n) _____ lease.

Capital

Capital budgeting is the process a business undertakes to evaluate potential major projects or investments. Planning the eventual returns on investments in machinery, real estate and new technology are all examples of capital budgeting.

Capital Budgeting

_____ refers to the process of deciding among various investment opportunities to create a specific spending plan.

Capital budgeting

Tort

Civil Wrong

Coverages

Contractual provisions of insurance policies that specify what risks the insurance company is assuming.

Copyright(For Brochures, Sales Materials, publicly visible pages on website, for catalog, Interactive web elements)

Copyrights involve the EXPRESSION of the idea and not the idea itself. -Governments CANNOT CREATE copyrights, but they can be registered with the federal governments. -Copyrighting for new works last the creator's life plus 70 years. -If work for hire, the copyright lasts 120 years or 95 years from publication. -

Plant Patents

Cover new strains of living matter for 20 YEARS.

Utility Patents

Cover processes and functions and last 20 YEARS

Design Patent

Covers product look and essential parts for 14 YEARS.

Optimum Stock

Designating the exact amount of inventory a business requires to fulfill routine demand without the occurrence of stock out. Maximum profitability w/lowest storage costs.

Articles of Organization

Documents setting forth information about a limited liability company that is filed with the state to establish a LLC

Pass Through (Taxation)

Earnings of the business are distributed to the business owners and those owners pay individual tax on the earnings.

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.

Which of the following is a statistical technique that determines the size of inventory that a business must hold to minimize total inventory cost?

Economic Order Quantity (EOQ)

Factoring Recievables

Factoring uses an intermediary, a factoring company, that buys your invoices and advances money against them. Once your customer buys your service or product, an invoice is sent. The invoice works as a collateral(In lending agreements, collateral is a borrower's pledge of specific property to a lender, to secure repayment of a loan). When a seller sends its customer an invoice, the factoring company pays the seller between 70% and 85% of the invoice's value immediately. Once the client pays within 30-90 days, the transaction will close. This is perfect for companies with limited cash flow PRIMARILY BECAUSE of slow paying/in debt clients.

Finding the right information, negotiating the specific outcome you want, and______ are the 3 most applicable aspects of business law.

Filing- Taking care of paperwork associated with it.

When can the business be held liable for the employee's actions?

If management directs, encourages, knows of, or in some cases, should have known of criminal behavior of others in the organization, company and management can be held liable.

Trade Secret(For business materials like customer lists, price list of materials, investors/funding sources, internal code of website)

If not patent-able, then the company's only protection is a trade secret. If a competitor would pay for this piece of information then it's a trade secret. Steps to ensure trade secrets: 1. Ensure trade secrets are really secrets. 2. Use Warning Labels. 3. Restrict Physical Access. 4. Get Confidentially Signed Agreements. Wrongful acquisition of a trade secret is a TORT and may involve criminal violations if trespassing or bribery is involved. Before sharing information on a new idea to obtain financial/marketing assistance the idea must FIRST BE PROTECTED BY A TRADE SECRET OR PATENT. There's many sketchy companies who steal ideas while offering help.

Feedback

In marketing, feedback refers to the information that comes directly from customers regarding their satisfaction or dissatisfaction with a product or service. Feedback allows businesses to keep track of their success. It also allows them to make any necessary improvements to increase their success.

Vicarious (indirect) Liability

Indirect liability or responsibility for the actions of another.

Which of the following is the largest current asset that most manufacturing, wholesale, and retail firms generally have?

Inventory

Walter Bradham, the owner of Bradham Corporation muddled his personal finances with his business accounts. Following a suit into the financial irregularities at Bradham Corporation, a court subjected the Corporation to the decision of piercing the veil. Which of the following course is the court most likely to take in this case?

It will dissolve the corporation into a sole partnership under Bradham. Piercing the veil: The dissolution of a corporate form, making it back into a sole proprietorship or general partnership, if the court finds the owner has carelessly mixed up personal and business assets or finances.

Axion Inc. is a small business started by Robert. As the business grew, he decided to implement new company policies that would ensure that his employees are not encouraged to set up competition against Axion. Which of the following techniques should he adopt to achieve this?

Negotiate contracts with key employees that limit their freedom to go into competition

The process of transforming materials, labor, and energy into goods or services is termed as _____.

Operations

Waiver

Part of a contract in which a party intentionally gives up legal rights or claims.

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.

Nonecompete 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 particular time.

Defendant

Person or entity being sued

Plaintiff

Person or other entity filing a lawsuit

The 6 major factors that determine ANY TYPE of BUSINESS ORGANIZATION's success are:

Personal Liability of owner, Taxation, Complexity and Costs, Control of the Business, Continuity of the Business, & Ability to Raise Capital.

Independent Contractors

Persons working to achieve a certain goal without being subjected to substantial controls by another.

4 steps of negotiation

Prepare, Position, Propose, & Pounce. Endgoal is feeling like you & other side feel like they got what they wanted.

_____ is the ratio measure of how well a firm does in using its inputs to create outputs.

Productivity

Arbitration

Sets disputes instead of going to court with a private judge. Arbitration gives up the right to sue if you don't like the decision. For that reason, arbitration agreements can be written into contracts.

Grace Period

The U.S provides one year of protection for any new idea, product, or service. You have one year to file for a patent. America also has a first to file act, so its best to file w/your attorney before talking.

Insurable Value

The amount of an asset for which a company will write an insurance policy.

Brendon wants to sue Fitness Ace, a leading provider of fitness equipments, for negligence. He approaches Arthur Bailey Group, a law firm, which has good experience in handling product liability claims for victims of exercise equipment failure. Which of the following would be true if the attorney charges Brendon using a retainer?

The attorney would take a monthly fee and have additional charges if circumstances change.

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.

just in time inventory

The practice of purchasing and accepting delivery of inventory only after it has been sold to the final customer is termed as _____.

Which of the following is an advantage of corporations?

They are better equipped in raising large amounts of money.

Sole professorships aren't considered as separate, legal entities from the owner. T/F?

True. Everything is dependent on the owner of the sole proprietorship. If the owner dies, the proprietorship dies too.

Which is typically the best type of business entity?

Unless there's a compelling reason otherwise, the LLC is the best entity because of ease setting up, limited liability of owners, & flexibility of taxation.

When do trade names exist?

When ANYTHING other than the owner's name is used.

An example of tort?

You were hit by someone in a car crash. The tort issue is that your rights to travel down the road were impaired by the offender's wrongful actions.

Trademarks(For Business Name, Logo, & Hashtags)

can be of significance as they identify certain goods. Some words or groups of words, such as WW® can be both trademarks and service marks. •Once established, an owner of the mark can keep others from using a similar or identical mark to identify similar or identical goods. •Infringers can be pursued for 10 years and renewing the trademark can extend it another 10 years. Check to see what marks are already used before selecting your mark! Consider getting common misspellings of name along with my[business name], [business]online.

Procedure is a

series of steps and activities required to complete a process.

Economic Order Quantity (EOQ)

the optimal order size to minimize the sum of ordering, carrying, and stockout costs.

Today the biggest risk to most businesses comes from _____.

using computers