Entrepreneurship Exam 2

Chs. 6-7, 9-11, 15

Patent

A contract between the government and theinventor which gives the inventor an exclusive right toproduce and market a product (creates a legalmonopoly for a set period of time)

Who is responsible for defending a patent?

The patent holder

Utility patent

The most common form of patent (20 years of protection)

Design patent

Covers only the new design of an object – its ornamental appearance (lasts 15 years). Examples include designs for shoes by Nike and Reebok

Plant patent

Used for biotechnology inventions (lasts 20 years)​

Coined mark

A made up word that denotes no relationship between the mark and the goods or services (e.g.,Polaroid, Kodak)

Arbitrary mark

A real word that denotes no relationship between the mark and the goods or services (e.g.,Polaroid, Kodak)

Suggestive mark

Hints at a characteristic of the good or service provided

Descriptive mark

Directly describes a characteristic of the product or service

Life of the author plus 70 years

How long does a copyright last?

Trade secret

Knowledge which may include business or technical knowledge that is kept secret for the purpose of gaining an advantage in business over competitors​

$500

Courts insist on a written contract for all transactions over what amount?

Contract

A legally binding agreement between two parties

Capital, Capacity, Collateral, Character, Conditions

5 C’s of credit

Reality, competitive, value tests

Three tests a business plan must pass

Sole proprietorship

Most common form (over 70% of all businesses)​​

Easy to set up/Easy to discontinue​

Total control​

Personal tax rate/personal tax filing​

Personally liable for any damage/injury (unlimited)​

Limited access to capital (personal capital and loans)

Partnership

Similar to a proprietorship except there is more than one owner (easy to set up/ends when one partner leaves/dies)​

Limited Liability Partnership

Allows a company to take on ‘limited’ partners (reduced orno liability)​

Limited partners take a part of the earnings but do not (and cannot) manage the company.​

Usually have at least one general partner whose liability is unlimited. ​

Legal or accounting firms most often. There is a management (general) partner(s) who runs the company and takes on all of the personal risk, and employees/investors (limited partners) who work or put up money. ​

Corporation

Separates the business from the individual by creating a new legal entity

Domestic corporation

Incorporated and operates in the same state

Foreign corporation

Incorporated in a different state than it operates in

Alien corporation

Incorporated in a different country than it operates in

C corporation

Type of corporation that is primarily for larger companies with many shareholders

“Double taxed” — They must pay tax at the corporate level (21%) and then again at the individual level (15%-39.6%)

Can have various classes of stock (preferred, common, etc.)

S Corporation

Cannot have more than 100 shareholders

All shareholders must be domestic

Profits are passed directly to the owners and reported on personal taxes

Can only have one type of stock and must be domestic (U.S. Corporation)​

Limited Liability Company

Similar to “S” Corporation (similar fee/annual report). Becoming more popular than corporations.​

Taxes like “S” Corp – individuals must pay all taxes​

No limit on number of “members” (not shareholders) ​

Laws differ from state to state

Concerns about international liability issues​

Execute the business plan

A management team must be able to (function #1)

Identify fundamental changes in the business as they occur

A management team must be able to (function #2)

Make adjustments to the plan based on changes in the environment and market that will maintain profitability

A management team must be able to (function #3)

Board of Advisors

Serves only in an advisory capacity. ​

​No legal status; not subject to Sarbanes-Oxley Act.​

​Likely to meet less frequently. ​

​Useful in a family business.​

​Advisors may be compensated on a per-meeting basis or with stock or stock options. ​

Pro forma

Projected

Sales Budget

Estimate of expected volume of sales by month

Bootstrap Financing

Using any possible method for conserving cash

Small Business Innovation Research Program

• All federal agencies with R&D budgets in excess of $100 million must award a portion of their R&D funds to small businesses

  • Offers a uniform method by which each participating agency solicits, evaluates, and selects the research proposals for funding

Employee Stock Option Plan

• Establishes a new legal entity—an employee stock ownership trust.​

• Obligates the firm to repay the loan plus interest out of business cash flows.​

• Results in significant stock values for employees.

Management Buyout

Direct sale of the venture for some predetermined price

Chapter 7 (Liquidation)

The most extreme case of bankruptcy.​

Voluntary bankruptcy

Entrepreneur’s decision to file for bankruptcy

Involuntary bankruptcy

Petition of bankruptcy filed by creditors without consent of entrepreneur

Chapter 11 (Reorganization)

Courts try to give the venture “breathing room” to pay its debts

A plan for reorganization is prepared and approved by the US Bankruptcy Court.​

Decisions made reflect one or a combination of the following:​

• Extension - Postpone claims.​

• Substitution - Exchange stock for debt.​

• Composition settlement - Debt is prorated to creditors as settlement.

Should be filed only if a chance of recovery exists

Chapter 13 (Extended Time Payment Plans)

Individual creates a five-year repayment plan under court supervision

Sarbanes-Oxley Act

Public companies are liable/responsible for producing accurate financial statements

Factoring

A bank buys a business’ accounts receivable at a discount; similar to a CAs advance