CHAPTER 7: LAW FOR THE ASPIRING ENTREPRENEURCHAPTER 7: LAW FOR THE ASPIRING ENTREPRENEUR

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CHAPTER 7: LAW FOR THE ASPIRING ENTREPRENEURCHAPTER 7: LAW FOR THE ASPIRING ENTREPRENEURLearning Objectives:

• Explore the Role of Law within Entrepreneurial and Small Business Environment

• Explain the Role of the Attorney• Discover Areas of Concern When

Leaving a Job• Determine Strengths and Weaknesses

of Legal Forms of Conducting Business2Chapter 7

APPROACH TO THE CHAPTERAPPROACH TO THE CHAPTER

• “Business-Stage” Approach• Early-stage formation is a dynamic time for

any business, with complex challenges in both legal and non-legal realms

• Extended exposure to topics elsewhere in the textbook

Chapter 7 3

LAW AND THE ENTREPRENEURLAW AND THE ENTREPRENEUR

Knowledge of the Law Serves to:– Minimize Risk– Improve Strategic Planning Process

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ENGAGING AN ATTORNEYENGAGING AN ATTORNEY

A. Role of the Attorney

1. Reduce risks and amount of exposure for risks

2. Provide strategic guidance

B. Finding Capable Legal Counsel

1. Importance of Finding an Attorney with a Background in Small Business/Entrepreneurship

2. Importance of Finding an Attorney with whom the Owner can Create a Solid Working Relationship

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ENGAGING AN ATTORNEYENGAGING AN ATTORNEY

C. The Attorney-Client Privilege

1. Nature of the Privilege

2. Parameters of the Privilege and How it can be Lost

3. Determining Who is the “Client”

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LEAVING EMPLOYMENTLEAVING EMPLOYMENT

A. Current Employees

1. Common Law Duties

a. General Duty of Loyalty

b. Duty to Act Reasonably

c. Duty Not to Solicit Clients and Customers of Current Employer

2. Contractual Duties

a. No-moonlighting Clause

b. Confidentiality Agreement

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LEAVING EMPLOYMENTLEAVING EMPLOYMENT

B. Former Employees

1. Common Law: Trade Secrets

a. Role of Trade Secrets

b. Definition of a Trade Secret

i. “Information with Independent Value,” and

ii. “Subject to Reasonable Efforts to Maintain its Secrecy”

2. Contractual: Agreements Not to Compete

a. Role of the Agreement Not to Compete

b. Enforcing an Agreement Not to Compete

i. Majority of State: Test of Reasonableness

ii. California: Forbids

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LEAVING EMPLOYMENTLEAVING EMPLOYMENT

C. Hiring Restrictions

1. Nature

2. Risks

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SELECTING THE APPROPRIATE LEGAL FORM

SELECTING THE APPROPRIATE LEGAL FORM

A. Preliminary Matters

1. Types of Legal Forms

a. Sole Proprietorship

b. Limited Liability Company

c. Corporation

2. Factors

a. Limited Liability

b. Income Tax Treatment

c. Control

d. Financing

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SELECTING THE APPROPRIATE LEGAL FORM

SELECTING THE APPROPRIATE LEGAL FORM

B. Limited Liability Company

1. History

2. Use

3. Characteristics

i. Limited Liability of Owners for Debts of Business

ii. Possibility of “Pass-Through” Income Tax Treatment

iii. Attraction of Angel Investors

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SELECTING THE APPROPRIATE LEGAL FORM

SELECTING THE APPROPRIATE LEGAL FORM

C. Corporation

1. Use

2. Characteristics

3. Characteristics

i. Limited Liability of Owners for Debts of Business

ii. “Entity” Income Tax Treatment

I. Importance

II. “Double Taxation” Notion

iii. Attraction of Venture Capital

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CHAPTER 7: LAW FOR THE ASPIRING ENTREPRENEURCHAPTER 7: LAW FOR THE ASPIRING ENTREPRENEUR

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