Legal Liability and Corporations

Entrepreneurship What is a founders' agreement? Describe the purpose of a buyback clause and why it's important. A founder's agreement is the 'founding' agreement of a corporation and defines the "the roles and responsibilities of the founding team, equity ownership and vesting and IP ownership" (Yaghmaie 2015). Defining what the founders' roles are is critical given that roles may vary over the course of a company's lifespan and can become a subject of dispute. "You'll need to allocate the ownership of your new enterprise amongst the founding team.

While this is a subjective matter and can sometimes be very delicate, it is imperative that you nail down how you will split up the equity between the founding team upfront to make sure there are no misunderstandings or hurt feelings once things get off the ground" (Yaghmaie 2015). A buyback clause specifies that a founder that wishes to leave the firm must sell his or her shares to the remaining founders.

The purpose of this agreement is to ensure that ownership remains within the control of those who began the original firm (Baron & Shane 240). Part B: List and explain four (4) steps entrepreneurs can take to avoid legal disputes. First and foremost, getting everything in writing is essential. Vague and ambiguous terms almost inevitably lead to discord and disputes.

The terms of firm ownership can be clearly stated in the founders' agreement; any contractual arrangement entered into by the company should be legal and in writing, whether the contract is with another firm or an employee. There should be specific guidelines and policies for appropriate conduct, and also specific channels through which employees can deal with personal disputes, including those related to harassment. So should any privacy policies, such as when and if employees can expect to have emails monitored. Finally, having clear ethical guidelines is also important.

Not only should illegal conduct be avoided; the appearance of illegality should also be shunned. IP (intellectual property) and the expectations surrounding IP (such as what the employee owns or does not own when he/she generates new ideas or products) should also be specified. "Getting IP assigned into the entity is simple and there are many forms available online that get this basic assignment accomplished. Do it on day one and don't wait too long" (Yaghmaie 2015).

Issues pertaining to disclosure of company information should also be specified in employee contracts. Part C: List and briefly describe three (3) specific steps that an entrepreneurial organization can take to build a strong ethical culture. First and foremost, ethical expectations must be clear. It is not fair to fault employees for being unable to intuit what such expectations are.

From day one of orientation, "teach employees what you mean by ethical behavior -- there's no simpler way to do so than to write down your expectations," either in an employee handbook and/or in the mission and value statement of the company (Moran 2012). Secondly, ethical rules must be enforced. If employers talk a great deal about ethics but people are not punished for infractions, or worse, punished inconsistently, then there will be little respect for them. Finally, it is important that employers themselves behave in an ethical fashion.

"Employees watch you for cues about how they're expected to act. When you cut ethical corners, they notice and are likely to think the behavior is okay" (Moran 2012). They may assume that a flexible attitude towards ethics is what employers 'really' want, versus adherence to standards. Part D: What is meant by the term "piercing the corporate veil"? How can the corporate veil be pierced? According to the law, corporations are fictional persons and members of the board of directors, founders, employees, and other individuals associated with the organization.