Summary Chapter 7

Chapter 7
Preparing the Proper Ethical and Legal Foundation

Estabilishing a Strong Ethical Culture for a Firm

The ethics recources center concluded that the most important thing an organizationcan do to combat ethical misconduct is to establish a strong ethical culture.

Steps that an entrepreneurial organization can take to build a strong ethical culture:

1.      Lead by Example : this is the most important thing that any entrepreneur, manager, or supervisor can do to build a strong ethical culture in their organization.
For getting the strong ethical culture, the entrepreneur, manager, or supervisor can do:
- Communicate ethics as a priority
- Set a good example of ethical conduct
- Keep commitments
- Provides information about what is going on
- Support following organizational standards
Employees also have responsibilities. The most important things that employees can do to support a strong ethical culture in an organization are to:
- Consider ethics in making decisions
- Talk about ethics in the work (they) do
- Set a good example of ethical conduct
- Support following organizational standards

2.      Establish a Code of Conduct : a formal statement of an organization’s values on certain ethical and social issues.
The advantage of having a code of conduct is that it provides specific guidance to entrepreneurs, managers, and employees regarding expectations of them in terms of ethical behavior.
In practice, some codes of conduct are very specific. But other codes of conduct set out more general principles about an organization’s beliefs on issues such as product quality, respect for customers and employees, and social responsibility.
And in all cases though, codes of conduct are intended to influence people to behave in ways that are consistent with a firm’s ethical orientation.

3.      Implement an Ethics Training Program : this training teach business ethics to help employees deal with ethical dilemmas and improve their overall ethical conduct.
An ethical dilemmas is a situation that involves doing something that is beneficial to oneself or the organization, but may be unethical. Ethical culture are built through both strong ethical leadership and administrative tools that reinforce and govern ethical behavior in organization.

Dealing Effectively with Legal Issues

1.      Choosing an Attorney for a Firm: Selecting an attorney was instrumental in helping tempered mind, the company profiled in the opening feature, establish a firm legal foundation.

2.      Drafting a Founders Agreement: founder agreement is a written document that deals with issues such as the relative split of the equity among the founders of the firm, how individual founders will be compensated for the cash or the “sweet equity” they put into the firm, and how long the founders will have to remain with the firm for their shares to fully vest.

3.      Avoiding Legal Dispute: the result of misunderstandings, sloppiness, or a simple lack of knowledge of the law.
There are several steps entrepreneurs can take to avoid legal disputes and complications:
- Meet all Contractual Obligations
- Avoid Undercapitalization
- Get Everything in Writing
- Set Standards

Obtaining Business Licenses and Permits

1.      Federal Licenses and Permits

2.      State Licenses and Permits
This the step by step instructions for starting a business:
- Business Registration Requirements
- Sales Tax Permits
- Professional and Occupational Licenses and Permits

3.      Local Licenses and Permits
There are 2 types of categories:
- Permit to operate a certain type of business.
- Permit for engaging in certain types of activities.

Choosing a Form of Business Organization

The factors that are typically the most important in making a selection:
- The cost of setting up and maintaining the legal form
- The extent to which personal assets can be shielded from the liabilities of the business
- Tax Considerations
- The number and Types of investors involved.

1.      Sole Proprietorship: a form of business organization involving one person, and the person and the business essentially the same.
Liquidity: the ability to sell a business or other asset quickly at a price that is close to its market value.
here are the advantage and disadvantage of a sole proprietorship

2.      Partnerships

a.       General partnerships : a form of business organization where two or more people pool their skills, abilities, and resources to run a business.
Here are the advantage of a partnerships:
here are the advantage and the disadvantage of a general partnership

b.      Limited partnership: a modified form of a general partnership. It set forth the rights and duties of the general and limited partners, along with the details of how the partnership will be managed and eventually dissolved.

3.      Corporation : a separate legal entity organize under, the authority of a state.
There are organization C corporation and subchapter S corporations.
- C corporation : a separate legal entity that, in the eyes of the law, is separate from its owners.

- Subchapter S corporation : combines the advantages of a partnership and a C corporation.
These are the strict standards that a business must meet to quality for status as a subchapter S corporation:

4.      Limited Liability Company : a form of business organization that is rapidly gaining popularity in the United States.