1. Chapter 12 Legal and Tax Issues
Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. ©

2. Corporate opportunity doctrine
Look for another
opportunity
The company uses
the opportunity
Identify
the opportunity
Notify the
company
about it
The company doesn’t
use the opportunity
You can use
the opportunity
Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. ©

3. Consider when leaving a company…
You may be held liable for persuading people to leave the firm.
You may not be allowed to compete with your former employer.
Proprietary
information
Recruitment of
fellow workers
Non-competition
Make sure that the information you learned from your previous job is not protected before using it.
Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. ©

4. Choosing an attorney and accountant
Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. ©

5. Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. ©
Choice of legal form
Forms available
Brief description
Sole Proprietorship
Owned and operated by one owner who is in total control
Partnership
Two or more persons go into business for profit, as co-owners, sharing profits and losses
Corporation
Separate legal entity, with legal existence apart from its owners, the stockholders
Limited Partnership
One or more general partners, who conduct the business and take on personal risk, and one or more limited partners, who act as passive investors
Limited Liability Company
Owned by “members,” who either manage the business themselves or appoint “managers” to run it for them
Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. ©

6. Comparative table of entities
Forms available
Control
Liability
Taxation
Administrative obligations
Sole Proprietorship
Owner has complete control
Unlimited personal liability
Not a separate taxable entity
Only those applicable to all businesses
Partnership
Partners share control
Joint and several unlimited personal liability
Corporation
Control distributed among shareholders, directors and officers
Limited personal liability
Separate taxable entity unless subchapter S selection
Some additional
Limited Partnership
General partners control, limited partners do not
General partners: joint and several unlimited personal liability, limited partners: limited liability
Not a separate entity unless affirmatively chosen
Limited Liability Company
Members share control or appoint managers
Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. ©

7. Stockholder and operating agreements
Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. ©

8. Shareholder and operating agreement
Negotiating employment terms between you and the investor
Disposition of equity interests
Distribution of company profits
Redemption provisions
Each party’s
obligations
Redemption
Agreement
Cross-purchase
Provisions to
resolve voting
deadlocks
between owners
Protection for
investors against
being left behind
Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. ©

9. Legal and tax issues in hiring employees
Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. ©

10. Bygrave & Zacharakis, 2007. Entrepreneurship, New York: Wiley. ©
Insurance
Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. ©

11. Legal issues in the sale of securities to investors
Intra-state
offering exemption
Public placement
Two securities offerings that do
not have to be registered with
government authorities
Offering under $1,000,000
Private placement
Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. ©