Lecture Entrepreneurship: Chapter 13 - Zacharakis, Bygrave, Corbett

LEGAL  AND  TAX 
I SSUES,   I NCLUDI NG 
I NTELLECTUAL 
PROPERTY
Chapt e r   13
Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley,
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CORPORATE  OPPORTUNI TY 
DOCTRI NE

Reduced survival
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chance
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2


CONSI DER  LEAVI NG  A  COMPANY 
WHEN…

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3


I NTELLECTUAL  PROPERTI ES

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4


I P  CONSI DERATI ONS

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I NTERNATI ONAL  PROTECTI ONS  FOR 
I NTELLECTUAL  PROPERTY

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CHOI CE  OF  VARI OUS 
BUSI NESS  FORMS
Forms

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 coowners, 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 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

Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley,
2017 ©

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COMPARATI VE  TABLE  OF  ENTI TI ES
Liability

Taxation

Administrative
Obligations

Sole
Owner has
Proprietors complete
hip
control

Unlimited
personal liability

Not a separate
taxable entity

Only those
applicable to all
businesses

Partnershi
p

Partners share
control

Joint and several
unlimited
personal liability

Not a separate
taxable entity

Only those
applicable to all
businesses

Corporatio
n

Control
distributed
among
shareholders,
directors and
officers

Limited personal
liability

Separate
taxable entity
unless

subchapter S
election

Some additional

Limited
Liability
Company

Members share
control or
appoint
managers

Form

Control

Limited personal
liability

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Not a separate
entity unless
affirmatively
chosen

Some additional

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STOCKHOLDER  &  OPERATI NG
AGREEMENTS

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COMPARI SON  OF  STOCK  REDEMPTI ON 
AGREEMENT  &  STOCK  CROSS­ PURCHASE 
AGREEMENT
Effect on Tax
Basis

Effect on
Alternative
Minimum Tax

Need for
Adequate
Corporate Surplus

Redemption
Agreement

No stepped-up
basis

Risks
accumulated
current earnings
preference for
larger C
corporations

Needs adequate
surplus

Cross-purchase
agreement

Stepped-up basis

No risk

Surplus is
irrelevant

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2017 ©

10


LEGAL  AND  TAX  I SSUES

  I N  HI RI NG
•

Employees as agents of the company

•

Employee discrimination

•

Other employment status

•

Employment agreements

•

Equity sharing

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2017 ©

11


LEGAL  I SSUES  I N  THE  SALE
OF  SECURI TI ES

Private Placement
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2017 ©

Public Placement
12


RECAP
•

•

•

•

•

When creating a company while at a job, consider
your legal obligations to your employer.
Are you violating a non-compete or using
proprietary information for your start-up?
Choose the form of business that will most benefit
you and any stockholders—what are tax
implications?
Hire a lawyer to draw up legal agreements
Before issuing stock, make sure investors are
accredited and that stock offering doesn’t have to
be registered with the government

Zacharakis, Bygrave and Corbett, Entrepreneurship, New York: Wiley,
2017 ©

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