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CHAPTER 3: OTHER ORGANIZATIONAL FORMS FOR SMALL BUSINESSES 11
whole or in part.
whole or in part.
14 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
whole or in part.
Any business must meet requirements relating to—
• Business name registration.
• Occupational licensing.
• State tax registration.
• Health and environmental permits.
• Zoning and building codes.
consent, filing LLC articles of dissolution with the state, and forming the new firm.
G. PROTECTING INTELLECTUAL PROPERTY
There are aspects of intellectual property law that entrepreneurs should consider at the outset of any
business venture.
business. For nationwide protection, registration can be accomplished through the U.S. Patent
and Trademark Office (though first use may prevails).
b. Use of Symbols
To protect a mark, an owner should use the mark, use appropriate symbols in association with
• To protect trade secrets, companies may require employees with access to secrets to
agree in their employment contracts never to divulge them.
• A company may include a covenant not to compete in an employment contract to protect
VI. Financial Capital
Raising capital is critical to business growth.
A. LOANS
CHAPTER 3: OTHER ORGANIZATIONAL FORMS FOR SMALL BUSINESSES 15
A business can raise capital through a bank loan, a loan from the Small Business Administration, or
B. VENTURE CAPITAL
Most new businesses raise capital through exchanging certain ownership rights (equity) in the firm for
capital.
To attract outside capital requires a business plan that describes the company, its products, and its
anticipated performance. Key issues in negotiating the terms of investment include—
• Disclosure of trade secrets and a confidentiality agreement.
• The degree of ownership and control the venture capitalist will receive in exchange for the
1. Specialized Crowdfunding Sites
Crowdfunding Web sites offer partial ownership of start-ups in exchange for cash investments.
2. Less Regulation Encourages Crowdfunding
Under the Jump-Start Our Business Start-Ups (JOBS) Act, investing in start-ups is more accessible
16 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
the installation of telephones, utilities, and electronic equipment; amounts to pay for office and sales supplies,
taxes and licenses, professional fees, advertising and promotion, and living expenses for the partners for at
least the first three months. What are the rights and liabilities of the parties who provide these funds,
whether their source is a bank, a partner, or some other party? This and the next topic might also be
discussed after covering the materials on corporations.
4. After students have begun to realize what it can cost to start a business and what the rights and liabilities
are of the people who start it, ask them under what circumstances a lack of capital might be desirable (or at
least not a major obstacle) in beginning a business. A better mousetrap, more efficiency, creative marketing,
and hard work have served as a springboard for many successful enterprises.
Cyberlaw Link
Should online businesses adopt a limited liability form of business organization? Why or why
not? Which form of business organization would be best for a business that transacts deals only
online?
DISCUSSION QUESTIONS
investment in the firm for the debts and other obligations of the firm.
2. Why might the members of an LLC prefer to put the terms of their operating agreement in writing?
Generally, LLC members should protect their interests by forming a written operating agreement. If there is no written
agreement covering an issue in dispute among the members, the state LLC statute will govern the outcome.
entity for tax purposes but limits the personal liability of the partners.
4. Should fraud be required to pierce the veil of an LLC? Probably not. A showing of fraud or an intent to
defraud is not necessary to pierce a corporate veil. Fraud may initiate a suit to disregard a corporate fiction, but it is
not a prerequisite. If an LLC has caused damage and has inadequate capitalization, co-mingled funds, diverted
whole or in part.
whole or in part.
14 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
whole or in part.
Any business must meet requirements relating to—
• Business name registration.
• Occupational licensing.
• State tax registration.
• Health and environmental permits.
• Zoning and building codes.
consent, filing LLC articles of dissolution with the state, and forming the new firm.
G. PROTECTING INTELLECTUAL PROPERTY
There are aspects of intellectual property law that entrepreneurs should consider at the outset of any
business venture.
business. For nationwide protection, registration can be accomplished through the U.S. Patent
and Trademark Office (though first use may prevails).
b. Use of Symbols
To protect a mark, an owner should use the mark, use appropriate symbols in association with
• To protect trade secrets, companies may require employees with access to secrets to
agree in their employment contracts never to divulge them.
• A company may include a covenant not to compete in an employment contract to protect
VI. Financial Capital
Raising capital is critical to business growth.
A. LOANS
CHAPTER 3: OTHER ORGANIZATIONAL FORMS FOR SMALL BUSINESSES 15
A business can raise capital through a bank loan, a loan from the Small Business Administration, or
B. VENTURE CAPITAL
Most new businesses raise capital through exchanging certain ownership rights (equity) in the firm for
capital.
To attract outside capital requires a business plan that describes the company, its products, and its
anticipated performance. Key issues in negotiating the terms of investment include—
• Disclosure of trade secrets and a confidentiality agreement.
• The degree of ownership and control the venture capitalist will receive in exchange for the
1. Specialized Crowdfunding Sites
Crowdfunding Web sites offer partial ownership of start-ups in exchange for cash investments.
2. Less Regulation Encourages Crowdfunding
Under the Jump-Start Our Business Start-Ups (JOBS) Act, investing in start-ups is more accessible
16 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
the installation of telephones, utilities, and electronic equipment; amounts to pay for office and sales supplies,
taxes and licenses, professional fees, advertising and promotion, and living expenses for the partners for at
least the first three months. What are the rights and liabilities of the parties who provide these funds,
whether their source is a bank, a partner, or some other party? This and the next topic might also be
discussed after covering the materials on corporations.
4. After students have begun to realize what it can cost to start a business and what the rights and liabilities
are of the people who start it, ask them under what circumstances a lack of capital might be desirable (or at
least not a major obstacle) in beginning a business. A better mousetrap, more efficiency, creative marketing,
and hard work have served as a springboard for many successful enterprises.
Cyberlaw Link
Should online businesses adopt a limited liability form of business organization? Why or why
not? Which form of business organization would be best for a business that transacts deals only
online?
DISCUSSION QUESTIONS
investment in the firm for the debts and other obligations of the firm.
2. Why might the members of an LLC prefer to put the terms of their operating agreement in writing?
Generally, LLC members should protect their interests by forming a written operating agreement. If there is no written
agreement covering an issue in dispute among the members, the state LLC statute will govern the outcome.
entity for tax purposes but limits the personal liability of the partners.
4. Should fraud be required to pierce the veil of an LLC? Probably not. A showing of fraud or an intent to
defraud is not necessary to pierce a corporate veil. Fraud may initiate a suit to disregard a corporate fiction, but it is
not a prerequisite. If an LLC has caused damage and has inadequate capitalization, co-mingled funds, diverted
