Preparing a Proper Legal Foundation: A Start-Up Fable

1. Preparing a Proper Legal Foundation: A Start-Up Fable Louis Bohan Tsatsral Dorjsuren Amarzaya Nasanjargal

2. Content • Introduction • Questions 1 • Question 2 • Question 3 • Question 4

3. Introduction • Sarah and Jack’s business: tentative name was iUser Accessories. • Goal: Locate 10 kiosks in malls and other high-traffic areas to sell accessories for Apple iPods and iPhones. • AD: Series of short videos that helps users learn how to make better use of their iPhones and iPods via their website. • Target market: 15-35 years old Apple users.

4. Introduction • They took 1st place in University-wide business plan competition and their business plan won: • $7,500 in cash and $7,500 in (in-kind) services for the business. • As part of their business plan they completed: • A product feasibility analysis for iUser Accessories • Concept statement and distributed it to 16 people (professors, electronic store owners, Apple brand users, and parents of young users) and got positive result. • Surveyed 410 people in their target market. • Some target market people did not realize the number of iPhone and iPod accessoriestill they filled the survey.

5. Introduction • As business plan, their one-and three-year pro forma financial statements demonstrates their business is viable. • Start-Up Capital: $66,000 • They planned to collect: • Each $30,000 from friends and family • Each $3,000 by themselves • Salary per year: $32,000 for both • They needed to meet attorney anddo formal trademark search before they use name and begin advertising. • They prepared a list of issues and their recommendations • Emailed the list to attorney 1 week prior the meeting • Finally, they had permission to start their business as legally.

6. Question 1 • Complete Jack and Sarah’s list for them, including the issues you think they will place on the list along with their recommendations. Which of the issue do you think will stimulate the most discussion with the attorney, and which issues do you think will stimulate the least? Forms of Business Ownership and general legal issues:

7. Forms of Business Ownership and general legal issues: • As Founders, controlling owners • Independent of investors • As minority investors • Awarded dividend • As employees • Eligible for benefits • As independent contractor (Online business) • Research • Video production • Marketing • eCommerce

8. Starting a Small Business • Federal Tax Identification • An Employer Identification Number is free, applied for online, and required by most vendors before conducting business with a retailer. • Business License • Register the retail business with the state; dependent on different state laws. • Resale Certificate • Allows a store to buy goods tax exempt from a manufacturer or distributor. Then the store collects the sales tax from the customer and pays it back to the state. Most vendors will request a copy of your resale certificate before doing business with your company. • Business Name Registration • If different form founder’s name/s

9. Starting a Small Business; Other permits • Different based on place and industry: • Alcohol & Tobacco Sales • Alarm System Permit • Building Construction • Health Permit • Signage • Special Events • Zoning • Most important for iUser Accessories • Zoning at kiosk location • Signage • Construction

10. Trademark Issue: Apple iProducts iBeacon iBook, iBooks iCal iChat iDVD iFrame Logo iLife iMac iMessage iPod iPad iPad Mini iPad Air iPhone iSight iTunes iWeb iWork iMovie

11. Question 2 • Make a list of the things you think Jack and Sarah did right in preparing for their meeting with the attorney?

12. Answer 2 • They had a good preparation for their meeting with attorney: • Finding a good attorney; • Prepare a clearly schedule; their business plan • Planned carefully the time to discuss with attorney; • Prepare clearly things they want to discuss; they planned to meet at local bookstore in several evening, looking at books that deal with forms of business ownership and other legal issues. • Tried to understand the legal issues; making a concise list of issues discuss with attorney. • After the first meeting with the attorney, they: • Keep the list of legal issues; • Send it to attorney a week prior to the meeting;

13. Question 3 • Comment on the product feasibility analysis that Jack and Sarah completed. Do you think the way Jack and Sarah completed. Do you think the way Jack and Sarah approached this task was appropriate and sufficient? Was Jack and Sarah’s Feasibility Analysis appropriate and sufficient?

14. Was Jack and Sarah’s Feasibility Analysis appropriate and sufficient? NO! • Survey did not assess: • Necessity of individual accessories • Existing competitors to iUser Accessories • 20 of 26 accessories may be too specific or useless • Pro Forma statements were not based on existing competitive business models • “Cash flow positive” in 4 months sounds over-confident YES! • 410, adequate sample • Survey tested for validity • Confirmed existing void of information about accessories • Pro Forma statements build confidence • Competitive Advantage: • Kiosks offer user assistance, and benefits from online remarketing, unlike competition • Online iUser site is marketed at Kiosks, driving traffic

15. Question 4 • What advantages do Jack and Sarah have starting iUser Accessories together, rather than one of them starting it as a sole entrepreneur? • What challenges do you think Jack and Sarah will have keeping their partnership together?

16. Answer 4 Advantages(2/1) • Jack and Sarah completed one and three year pro forma financial statements, which demonstrate the potential viability of their business. • They have commitments of funding from friends and family. • They are fortunate in that they are able to each contribute $3,000 to the business personally and were able to gain commitments of $30,000 each from their respective groups of friends and family

17. Answer 4 Advantages(2/2) • They had emailed the attorney their list of issues along with their recommendations. • The attorney greeted them with a firm handshake and opened a file labeled “iUser Accessories, Jack Peterson and Sarah Jones”. • On an attorney’s file, made it seem like their company was already real.

18. Answer 4 Challenges • Disagreements can occur, Because decision making among the partners is shared. • The liquidity of each partner’s investment is low. • The business lies on the skills and abilities of a fixed number of partners. • Liability on the part of each partner is unlimited.