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Entrepreneurship

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Entrepreneurship ­ MGT602
VU
Lesson 20
LEGAL ISSUES FOR THE ENTREPRENEURS
LEARNING OBJECTIVES
1. To illustrate some of the fundamental issues related to contracts.
2. To understand important issues related to insurance and product safety and liability.
PRODUCT SAFETY AND LIABILITY
The Consumer Product Safety Act, passed in 1972, created a five-member commission that has the power
to prescribe safety standards for products. The commission also has the power to identify what it considers
to be substantial hazards and bar products it considers unsafe. The act was amended in 1990 to establish
stricter guidelines for reporting product defects and resulting injuries and deaths. Manufacturers could be
subject to fines of $1.25 million for not reporting product liability settlements or court awards.
Any new product should be assessed as to whether it falls under the law. If it does, the entrepreneur has to
follow appropriate procedures. Product liability problems are complex.
Recent attempts to reform the legislation passed in Congress but were vetoed by the President. Claims
regarding product safety and liability usually fall under one of these categories:
1. Negligence extends to all parts of the production and marketing process.
2. Warranty Consumers may sue when advertising overstates the benefits of a product or when the
product does not perform as stated.
3. Strict Liability. A consumer can sue on the basis that the product was defective prior to its
receipt.
4. Misrepresentation occurs when advertising or other information misrepresents material facts
concerning the quality of the product.
The best protection against product liability is to produce safe products and to warn consumers of any
potential hazards.
INSURANCE
The entrepreneur should purchase insurance in the event that problems do occur. Most firms should
consider coverage in specific areas as a means of managing risk in the business.
Common types of insurance include:
Property insurance.
Casualty insurance.
Life insurance.
Worker's compensation.
Bonding.
Each of these types of insurance provides a means of managing risk in the new business. Some insurance,
such as disability and vehicle coverage, is required by law and cannot be avoided. Life insurance of key
employees is not required but may be necessary to protect the venture. The entrepreneur should consider
the increasing insurance premiums in cost projections. The entrepreneur should determine what kind of
insurance to purchase, how much to purchase, and from what company. Skyrocketing medical costs have
significant impact on insurance premiums, especially workers' compensation. Insurance companies
calculate the premium for workers' compensation as a percentage of payrolls, type of business, and prior
claims. Some states are undertaking reforms in this coverage.
Promoting safety through comprehensive guidelines and being personally involved with safety will help the
entrepreneur control costs. Health care coverage is an important benefit to employees and a significant cost
to businesses. A self-employed entrepreneur has limited options. If you are leaving a corporate position,
consider extending your health care benefits with a COBRA, which allows you to continue on the same
health policy for about three years. Individual health care policies hare available. One rule is to never rely
on a handshake if the deal cannot be completed within one year.
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Entrepreneurship ­ MGT602
VU
The courts insist that a written contract exist for all transactions over $500. The safest way to conduct
business deals is with a written contract. Any deal involving real estate must be in writing to be valid.
Leases, rentals, and purchases all need written agreements.
Four essential items in an agreement to provide the best legal protection:
1. All parties involved should be named and their roles specified.
2. The transaction should be described in detail.
3. The exact value of the transaction should be specified.
4. Obtain signatures of the persons involved in the deal.
KEY TERMS
Copyright
Right given to prevent others from printing, copying, or publishing any original works of authorship
Trade secret
Protection against others revealing or disclosing information that could be damaging to business
Licensing
Contractual agreement giving rights to others to use intellectual property in return for a royalty or fee
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Table of Contents:
  1. THE NATURE AND IMPORTANCE OF ENTREPRENEURSHIP:DEFINITION OF ENTREPRENEUR
  2. THE NATURE AND IMPORTANCE OF ENTREPRENEURSHIP:Possibility of New Venture Formation
  3. ENTREPRENEURIAL PROCESS/START UPS:GOVERNMENT AS AN INNOVATOR
  4. THE ENTREPRENEURIAL AND ENTREPRENEURIAL MIND:ENTREPRENEURIAL PROCESS
  5. THE ENTREPRENEURIAL AND ENTREPRENEURIAL MIND (continued…)
  6. THE ENTREPRENEURIAL AND ENTREPRENEURIAL MIND (continued…):CLIMATE FOR ENTREPRENEURSHIP
  7. THE ENTREPRENEURIAL AND ENTREPRENEURIAL MIND (continued…):PROBLEMS AND SUCCESSFUL EFFORTS
  8. THE INDIVIDUAL ENTREPRENEUR:ENTREPRENEURIAL BACKGROUND AND CHARACTERISTICS
  9. THE INDIVIDUAL ENTREPRENEUR (continued…):Personal Values, Work History, MOTIVATION
  10. THE INDIVIDUAL ENTREPRENEUR (continued…):ROLE MODELS AND SUPPORT SYSTEMS
  11. INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES:INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES, Minority interests
  12. INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES (continued…):DIRECT FOREIGN INVESTMENT
  13. INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES (continued…):BARRIERS TO INTERNATIONAL TRADE
  14. INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES (continued…):ENTREPRENEURIAL PARTNERING
  15. INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES (continued…):SOURCES OF NEW IDEAS
  16. CREATIVITY AND THE BUSINESS IDEA:METHODS OF GENERATING NEW IDEAS, CREATIVE PROBLEM SOLVING
  17. CREATIVITY AND THE BUSINESS IDEA:PRODUCT PLANNING AND DEVELOPMENT PROCESS
  18. LEGAL ISSUES FOR THE ENTREPRENEUR:NEED FOR A LAWYER, PATENTS
  19. LEGAL ISSUES FOR THE ENTREPRENEUR:TRADEMARKS, LICENSING
  20. LEGAL ISSUES FOR THE ENTREPRENEURS:PRODUCT SAFETY AND LIABILITY, INSURANCE
  21. CREATING AND STARTING THE VENTURE:WHAT IS THE BUSINESS PLAN, PRESENTING THE PLAN
  22. CREATING AND STARTING THE VENTURE (Continued….):WRITING THE BUSINESS PLAN
  23. CREATING AND STARTING THE VENTURE (Continued….):
  24. CREATING AND STARTING THE VENTURE (Continued….):WHY SOME BUSINESS PLANS FAIL, MARKETING PLAN
  25. THE MARKETING PLAN:MARKET RESEARCH FOR THE NEW VENTURE
  26. THE MARKETING MIX:STEPS IN PREPARING THE MARKETING PLAN
  27. THE ORGANIZATIONAL PLAN:DEVELOPING THE MANAGEMENT TEAM, LEGAL FORMS OF BUSINESS
  28. THE ORGANIZATIONAL PLAN (Continued….)
  29. THE ORGANIZATIONAL PLAN (Continued….):THE LIMITED LIABILITY COMPANY
  30. THE FINANCIAL PLAN:OPERATING AND CAPITAL BUDGETS
  31. THE FINANCIAL PLAN (Continued….):PRO FORMA INCOME STATEMENTS, PRO FORMA CASH FLOW
  32. PRO FORMA SOURCES AND USES OF FUNDS:PERSONAL FUNDS, FAMILY AND FRIENDS
  33. PRO FORMA SOURCES AND USES OF FUNDS:COMMERCIAL BANKS
  34. BANK LENDING DECISIONS:SMALL BUSINESS ADMINISTRATION LOANS
  35. SOURCES OF CAPITAL:GOVERNMENT GRANTS
  36. SOURCES OF CAPITAL:PRIVATE PLACEMENT, BOOTSTRAP FINANCING
  37. CAPITAL SOURCES IN PAKISTAN:PROVINCIAL LEVEL INSTITUTIONS, FINANCIAL INSTITUTIONS
  38. PREPARING FOR THE NEW VENTURE LAUNCH: EARLY MANAGEMENT DECISIONS (Continued….)
  39. PREPARING FOR THE NEW VENTURE LAUNCH: EARLY MANAGEMENT DECISIONS (Continued….)
  40. PREPARING FOR THE NEW VENTURE LAUNCH: EARLY MANAGEMENT DECISIONS (Continued….)
  41. PREPARING FOR THE NEW VENTURE LAUNCH: EARLY MANAGEMENT DECISIONS (Continued….)
  42. PREPARING FOR THE NEW VENTURE LAUNCH: EARLY MANAGEMENT DECISIONS (Continued….)
  43. NEW VENTURE EXPANSION STRATEGIES AND ISSUES:JOINT VENTURES, ACQUISITIONS
  44. NEW VENTURE EXPANSION STRATEGIES AND ISSUES (Continued….):DETERMINING THE PRICE FOR AN ACQUISITION
  45. ENTREPRENEURSHIP & PAKISTAN:GENDER DEVELOPMENT STATUS WOMAN AS AN ENTREPRENEUR IN PAKISTAN