Being an Entrepreneur, Essay Example

A founders’ agreement describes a clear contract that is made between several individuals that begin an enterprise that states common goals in addition to providing a statement concerning how money will be raised. The purpose of a buyback clause is to legally require any founder who decides to leave to sell his or her shares of the company to the remaining founders. This allows the power over the company to continue to remain in the hands of the founding team and not allow outsiders to become involved with the leadership of the organization. This is helpful because it ensures that the organization will be run with the original vision in mind, which enables the original goals and plans to continue to be enacted.

To avoid legal disputes, it is necessary for entrepreneurs to document their intensions throughout the establishment of their organizations. One way this can be done is to form a partnership agreement, which states all of the terms under which a partnership will participate. Since this is done in the presence of an attorney, the interests of all parties are protected. A second step that can be taken is the establishment of a limited partnership, which allows partners to understand their specific responsibilities with regards to the organization. The establishment of a founders’ agreement and a buyback clause can also be used to accomplish this because it all founders enter the agreement understanding that the organization’s rights will be held over the rights of the individual. These documents will serve as the basis for practice for these organizations and therefore help avoid legal arguments.

To build a strong ethical culture, an entrepreneurial organization can take several steps. First, the business could make their expectations clear by providing their employees with a summary of which activities are deemed acceptable and which are not. Next, these policies should be enforced with clear rewards for good behavior and consequences for inappropriate behavior. For example, employees may be issued a warning they engage in unethical behavior and be fired for violating this rule as second time. It is important for employees to be aware of this so they avoid engaging in this behavior the first time. Last, founders should act as good examples to employees. They should not engage in any of the behaviors they wish for their employees to avoid.

“Piercing the corporate veil” refers to the fact that courts may occasionally ignore the limited liability status of a corporation or its directors and hold the people, rather than the company, responsible for an action they have taken (Levenson, n.d.). This can occur when an individual behaves unethically or engages in illegal behavior in a manner that is not detectable by his or her organization. Typically, the corporate veil is pierced by an individual who has big responsibilities on the behalf of the company and is therefore able to engage in these fraudulent activities unnoticed. When this type of behavior is detected, it is the individual responsible for the unethical behavior that will be tried in a court of law rather than the organization as a whole. A prime example of this was in the case of Bernie Madoff, who was controlling many large publicly traded organizations in a manner that would help him make a profit. Madoff, rather than the companies involved, were held responsible for the crime.

References

Levenson J. (n.d.). Piercing the Corporate Veil: When LLCs and Corporations May be at Risk. Retrieved from http://www.nolo.com/legal-encyclopedia/personal-liability-piercing-corporate-veil-33006.html