CHAPTER 7 l PREPARING THE PROPER ETHICAL AND
The LLC is rather complex to set up and maintain, and in some states the
rules governing the LDC vary. Members may elect to manage the LLC themselves
or may designate one or more managers [Who may or may not be members] to
run the business on a day-to-day basis. The profits and losses of the business
may be allocated to the members anyway they choose. For example, if two people
owned an LLC, they could split the yearly profits 50-50, 75-25. 90-10, or any
other way they choose.36
In summary, the advantages and disadvantages of an LLC are as follows:
Advantages of a Limited Liability Company
I Members are liable for the debts and obligations of the business only up to
the amount of their investment.
I The number of shareholders is unlimited.
l An LLC can elect to be taxed as a sole proprietor, partnership, S corpora-
tion, or corporation, providing much flexibility.
l Because profits are taxed only at the shareholder level, there is no double
taxation.
Disadvantages ol a Limited Liability Company
l Setting up and maintaining one is more difficult and expensive.
l Tax accounting can be complicated.
l Some of the regulations governing LLCs vary by state.
l Because LLCs are a relatively new type of business entity, there is not as
much legal precedent available for owners to anticipate how legal disputes
might affect their businesses.
CHAPTER SUMMARY
LEGAL FOUNDATION 263
1. Establishing a strong ethical culture in their
firms is the single most important thing the
founders of an entrepreneurial venture
can do. Three important ways to do this are
(1) lead by example. (2) establish a code of
conduct, and (3) implement an ethics train-
ing program.
2. In the context of “leading by exarnple," three
3
keys to building a strong ethical culture in a
firm are (1) hawng leaders who intentionally
make ethics a part of their daily conversations
and decision making. (2) supervisors who
emphasize integrity when working with their
direct reports, and (3) peers who encourage
each other to act ethically.
A code of ethics and ethics training program
are two techniques entrepreneurs use to pro-
mote high standards of business ethics in
their firms. A code of conduct describes the
general value system, moral principles, and
specific ethical rules that govern a firm. An
ethics training program provides employees
with instructions for how to deal with ethical
dilemmas when they occur.
4.The criteria important for selecting an attor-
ney for a new firm are shown in Table 7.3.
Critical issues include selecting an attorney
familiar with the start-up process, selecting
an attorney who can assist you in raising
money. and making certain that the attor-
ney has a track record of completing Work
on time.
It is important to ensure that a venture's
founders agree on their relative interests in
the venture and their commitment to its
future. A founders' (or shareholders] agree-
ment is a written document dealing with
issues such as the split of equity between or
among the founders of the firm, how individ-
ual founders will be compensated for the cash