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Ethics and Legal Issues (Founder's Agreement (Included Items (About…
Ethics and Legal Issues
Ethics
Establish a Strong Ethical Culture
Forms to Establish
Establish a Code of Conduct
Implement Ethics Training Program
Lead By Example
Benefits
Avoidance of potential Fines
Better access to capital
Improved brand reputation
Decreased Vulnerability
Improved Customer Loyalty
Example
Primark Fire Child Worker Firms
Ethical Behaviour
Advantages
High Revenues
Improved Brand recognition
Improved employee motivation
New Source of Finance
Disadvantages
Higher Costs
E.G. Fairtrade suppliers instead of cheap suppliers
Higher Overheads
Ethical Training
Potentially build up false expectations
Legal Issues
Avoiding Legal Disputes
Most Disputes result from
sloppiness
A misunderstanding
Lack of Law Knowledge
Legal disputes should try to be avoided
Steps
Meet all contractual Obligations
Avoid undercapitalization
Get everything in writing
Set standards
Founder's Agreement
Written Document deals with issues
Split of equity among founders
How founders compensated for "sweat equity"
How long founders must stay on to get full shares
Included Items
About Prospective Business
Identify titles of founders
Legal business ownership info
Division of Stock/Ownership
Buyback Clause
Initial Operating Capital Description
Ownership share for each founder
Identification of Intellectual Property of the business
Business Advisors
Acountant
Role
Operational
Day to day finances
Strategic
Long term investment decisions
Advisory
Bounce ideas off of
Important
Go to Accountant with queries
Job is to advise and assist
They should have an active interest in business
View Accountant as integral part of business
What can accountant do?
Monthly/Quarterly accounts
Margin analysis
Comparison against budget
Dealing with Banks/Lenders
Dealing with revenue and CRO - Smooth growth
Build relationships with people who have resources you need
Working with your accountant
Ask for simple language explanations for all financial information
Have clarification on
Key Cost Drivers
Key Income Drivers
Set up financial recording system for key cost and income drivers
Keep detailed records of all transactions
Set annual/Quarterly targets
Monitor Progress
Give stock/WIP figures for management accounts
VAT
Charge customers additional "VAT" on all sales invoices
You collect it for revenue
Only get to hold it as a "loan" - Is not your money
Entitled to re-claim VAT on cost of goods/services
Supply services > €37.5K - must register and charge VAT
Supply Goods > €75K - must register and charge VAT
2 VAT rates - 21% and 13.5%
Advisor
Select early
Must be familiar with start ups
Must be familiar with the industry
How to select one?
Recommendation
Law/Accounting Body
Interview
Assist you in raising money for start up
Track Record
Cost
Business Ownership
Types
Sole Trader
Sole Proprietor/One Owner
Steps To Create
Open Bank Account for business
Thats it
Advantages
Easy to create
Complete Control
Losses deducted against other income sources
Easily dissolvable
Not subject to Double Taxation
Pitfalls
Unlimited Liability
Tax issues
Pay tax on profits of business
No Pension Entitlements
Business reliant on skills of owner
Difficult to raise capital
Partnership
Two or more people start a business
Combine skills of 2 people
General Or Limited Liability
Partnership Agreement must be set up
Each member jointly + individually liable
One founder creates debt - also on other founder
Often created when not allowed to create LLC
Limited Liability Company better option most of the time
Limited Partnership
Modified General Partnership
Two Owner Types
General Partners
Liable for all debts
Limited Partners
Only liable for investment amount
Limited Liability Company
Legal Entity registered with the governement
Considered the preferred business structure
€500 to set up
Management
Director/Board of Directors make management decisions
Finance
Shareholders, borrowing and retained profits
Public Limited Company - Sell shares on stock market
Private Limited Company - Cant sell shares
Accounts filed with CRO
Directors/Secretary must notify CRO of change of business structure/management
Dividends - Profits distributed to shareholders
Liability
Shareholders - Only risk investment
Directors - may be asked - guarantee loans
Advantages
Shareholders - Limited Liability
Ownership and Control can be separated
Company - Separated legal existence
General LLC gives better impression
Tax advantages
Tax exemptions - Startups
Disadvantages
Legal advice required
Creation process complex
Accounts must be registered
Finance information - Public
Expand Quicker - Go public - Sell shares
Comply with legal legislation
Greater accountancy costs
Banks may ask for personal guarantee on business loans
Customer Impression
Business Name
Consider Customer over personal preference
Cornerstone of
branding
logo
signage
advertisements
website
Acceptable Name Checks
Not inappropriate in foreign languages
traditional vs modern
Think about customers saying the name
Company name ends in limited
Not offensive
Not same as other registered company
No sensitive words/expressions
Issues to consider
Legal Form set up and maintenance cost
Tax Consideration
Investors Involved - Types and Number Of
Extent Personal Assets shielded from business liability