DEPAUL UNIVERSITY
KELLSTADT GRADUATE SCHOOL OF BUSINESS
MGT 398/798, BLW 398/798 Special Topics: Entrepreneurship Law
Spring Quarter 2012
Instructor: Daniel T. Gillespie
Office: Room 7000, DePaul Center Draft date: 3/20/12
Telephone: 312.603.5014
Email:
Course Description: This is a class on Entrepreneurship Law. We will be discussing the legal aspects of entrepreneurship. For example, should a person set up her start-up venture as a sole proprietorship, partnership, corporation or limited liability company? We will follow the development of a successful start-up all the way to the IPO. We will be discussing:
· The relevant laws and rules relating to HR considerations of the entrepreneurship.
· The legal aspects of venture capital financing decisions. We will be discussing
· The ability of an entrepreneur to use contracts to allocate risk and reward.
This is an intense course that examines and analyzes critical legal issues confronting start-up and emerging growth companies. There may be guest speakers from time to time.
Course Objectives: This course is designed and structured to examine fundamental legal principles and rules of law necessary to begin a business and to familiarize the entrepreneur with pertinent legal principles and standards of a fundamental business basis necessary to secure a working knowledge of prudently managing and operating a successful entrepreneurship. The course is not designed to produce lawyers but to make entrepreneurs cognizant of basic threshold legal rules and to allow the entrepreneur to recognize “red flag” areas and to identify, react and converse reasonably with trained legal counsel to resolve potential or actual legal problems.
Course Format: Class meetings will be informal, though intense. Students will be required to maintain an entrepreneurship journal that will consist of exercises requiring critical thinking and decision making. At the end of the quarter the completed journal must be turned in and will be graded.
Graduate students will form into 3 or four member teams for a Group Project. The Group Project will involve developing an idea for a new enterprise. They will develop a simple, straight-forward business plan. They will go through the steps of setting up the enterprise. They will consider the form the business should take, e.g., corporation, partnership or LLC and prepare the appropriate documents for filing with the Secretary of State. Further details will be the subject of a separate handout.
Students will be required to formulate answers to assigned problems which appear throughout the text, to include recitation of the key facts, identification of the key issue, selection of the appropriate rule of law and application of the rule of law to the issue in order to resolve the dispute between the litigants. Students will also discuss by presentation assigned cases and recognize the rule the court used to decide the case.
To a certain extent this is a “hands on” course. The student will be expected to maintain an Enterprise Journal which will contain specific legal forms and documents and other data drafted and compiled by the student in delineated sections of the course. For instance, in the first section, the student will be required to form a selected business organization, explain the basis of organization distinctions viz. the selected form and adopt a legal document suitable to validy form the organization. In the area of financing, the student will develop an appropriate outline plan of financing, and prepare suitable documents to secure financing whether in the form of issuance of securities, dealing with a venture or financing institution. The student may also be involved in drafting suitable employment contract terms, develop rules on termination of employees, prepare formal management responses to overtures for unionization and present an outline manual for hiring, retaining and terminating employees. Relative to the organization’s products, the student may be tasked with developing invoices and contract forms appropriate to protect the entrepreneur against product liability, develop correct warranty disclaimer provisions, become aware of tort and warranty liability implications arising from advertising, and be able to understand coverage and liability facets of the new venture’s insurance policy. The contents of the Project will be fleshed out over the course of the quarter and will be collected by the instructor at the time of the final examination for review and grading.
N.B. The class schedule and assignments are subject to change. Please check D2L weekly for the most up-to-date schedule.
COURSE REQUIREMENTS AND GRADING POLICIES
Regular class preparation, attendance, and participation are required. There will be an open-book take-home final exam. The final exam will consist of a complex hypothetical set of facts that raises many of the key issues addressed in the course. Students will be called upon to identify the issues and their appropriate resolution.
CLASS PARTICIPATION
In a typical class, one or more students will be asked to start the class by answering a specific question or discussing a specific issue. Preparation for class (including any assignment questions) should be sufficient to handle such a leadoff assignment. After a few minutes of initial analysis, we will open the discussion to the rest of the class. As a group, we will then try to complete the analysis of the situation and address the problems and issues presented in the readings. The cases and hypotheticals will be discussed in an interactive, Socratic fashion, with follow-up questions by the professor that provide an opportunity for students to defend and refine their reasoning. Cold calls will be used throughout each class session to encourage active participation by all.
The development of verbal skills is given a high priority in this course. The classroom should be considered a laboratory in which students can test their ability to convince their peers and the professor of the correctness of their approach to complex problems and of their ability to achieve the desired results through the use of that approach. Some of the things that have an impact on effective class participation are the following:
1. Is the participant a good listener?
2. Are the points that are made relevant to the discussion? Are they linked to the comments of others?
3. Do the comments add to our understanding of the situation and move the discussion forward?
4. Are the comments informed by an analysis of the course readings?
5. Does the participant distinguish among different kinds of data, such as facts, opinions, beliefs, and concepts?
6. Is there a willingness to share?
7. Is there a willingness to test new ideas, or are all comments “safe” (e.g., a repetition of case facts without analysis and conclusions or a repeat of a comment already made by a colleague)?
8. Does the participant pay attention to and interact with other class members?
9. Do comments clarify and highlight the important aspects of earlier comments being covered?
The questions above deal with both the process of class participation and (of equal or greater concern) the content of what students say. Class participation will be a portion of the grade in this course and will be evaluated primarily on the basis of quality not just quantity.
Because faculty members tend to have somewhat different expectations as to class behavior, I would like to outline a few of my expectations concerning such matters.
1. Attendance in every class is considered important. Please schedule other activities, such as interviews, at other times.
2. In the event that for some unavoidable reason you have to miss a class during the quarter, please let me know in advance of class by e-mail. Also, if you do miss a class, it is your responsibility to find out from your classmates what topics were covered and what additional assignments were made, and to obtain a copy of any materials distributed in class.
3. As a courtesy to your classmates and to me, you are expected to be in class on time.
4. I plan to be prepared for every class and expect you will do the same. Because throughout each class session I frequently call on individuals whose hands are not raised, you should let me know before the start of the class if some emergency has made it impossible for you to be prepared adequately for that class. Otherwise, I will assume that everyone in class is prepared. Failure to notify me in advance of your inability to prepare will have a seriously negative impact on your class participation grade.
5. Given the importance of class participation, I will seek to learn your names as quickly as possible. To facilitate that, I will circulate a seating chart during the second class session. Once you select a seat, please sit there every class.
Grading: Student performance in the course will be evaluated on effort and comprehension of negotiating principles and practices as discussed in class and as follows:
For Graduate Students: Undergraduate Students:
Entrepreneurship Journal 25% Entrepreneurship Journal 45%
Project Notebook 25% Class Participation 10%
Take-Home Final 40% Take-home final 45%
Class Participation 10%
The following grade schedule will be used:
93 - 100 A
90 - 92 A-
86 - 89 B+
83 - 85 B
80 - 82 B-
77 - 79 C+
73 - 76 C
70 - 72 C-
67 - 69 D+
60 - 66 D
58 - 59 D-
0 - 57 F
Required Readings:
The textbook is: The Entrepreneur’s Guide to Business Law (4th ed. 2011), by Constance Bagley and Craig Dauchy, ISBN 13: 978-0-538-46646-2. This is an excellent text. The author, Dr. Bagley, teaches this course in the Yale Graduate School of Management.
There will be assigned business case studies as well, which will be available for purchase in the Book Store.
Assignments: (Subject to modification from time to time. Please consult D2L before each class for any changes.)
Class #1: March 28, 2012: Introduction, course orientation, & Leaving an Employer to Start a Business.
Readings: Bagley Chapters 1, 2 & 3.
Class #2: April 4: Choice of Entity
Readings: Bagley Chapter 4.
Case: Web Saver, HBS No. E239
Covenants Not to Compete and Assignments of Inventions
Assignment: WebSaver involves a Stanford MBA student who joins with several classmates to prepare a business plan for a class, then decides to form a new venture based on the business plan after graduation. In the course of planning an initial public offering, she discovers that errors in the venture’s early stages could endanger her ability to go public.
Study Questions:
1. What possible claims could Diamondware make against Fine or Next Step based on the employee non-disclosure agreements that Fine and Salinas signed? What, if anything, should Fine do about this problem?
2. What are the challenges that Next Step faces with respect to the protection of its intellectual property domestically and abroad?
3. What factors should Fine consider prior to making a decision concerning Chen? What should Fine do with respect to Chen? What, if anything, could Fine have done to ensure that the situation with Chen was resolved at an earlier time?
4. What accounting and tax problems could arise by reason of the last-minute issuance of stock to Next Step’s employees?
5. What, if any, other legal issues should be of concern to Fine?
Class #3: April 11: Structuring the Ownership:
Case: Richard Spellman (A) (HBS Case No. 801-202).
Readings: The Entrepreneur's Guide to Business Law: Chapters 5 & 6, Chapter 10: Marshaling Human Resources (pp. 248-249).
Assignment: The Richard Spellman case deals with an entrepreneur who has decided to leave one dot-com, where he was a VP, to become CEO of another start-up. The cases focuses on two key agreements that are part of the negotiation—a restricted stock agreement and an employment agreement. As the devil is in the details, students will be expected to read each agreement carefully, even those sections they might initially dismiss as boilerplate. In the (A) case, we will see the first drafts of these agreements, prepared by the attorney for the start-up. In the (B) case, which will be passed out during class, we will have an opportunity to review the final versions and consider the impact of the changes.
Study Questions:
1. What are the key issues related to the restricted stock agreement? What should Spellman’s priorities be with respect to these issues, and what resolution of these issues would constitute a “fair” outcome from your point of view? Be specific as to which provisions you would want added or modified.
2. Consider the same questions with respect to the employment agreement.
3. Other than the issues specifically addressed in the draft restricted stock and employee agreements, are there other issues that Spellman should be concerned about? If so, is there any legal documentation that could give him comfort on these issues?
4. Evaluate Spellman’s progress so far in negotiating the issues on his own. How should he use his attorney, Tom Miller, in the next phase of the negotiations?
5. Should Spellman file an 83(b) election?
Class #4: April 18. Raising Money & Securities Regulation:
Readings: Bagley Chapter 7.
Guest speaker.
Class #5: April 25: HR Issues
Readings: Bagley Chapter 8.
Group Project teams to present a short business plan and an interim project report.
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Class #6: May 2: Risk Management:
Contracts, Trade Secrets and Nondisclosure Agreements
Reading: The Entrepreneur’s Guide to Business Law: Chapter 9 Contracts & Ch. 14: Intellectual Property and Cyberlaw (pp. 516-529).
Case: X-IT and Kidde (A) (HBS Case No. 9-803-041).
Assignment: The X-IT and Kidde case deals with two HBS grads that developed a novel escape ladder. After their company, X-IT, began to gain traction, Kidde, a much larger competitor, began discussions with the two founders to license the technology or to buy X-IT outright. In the course of these discussions, X-IT disclosed certain information to Kidde pursuant to a confidentiality agreement. After Kidde began marketing a very similar ladder, the X-IT founders had to decide how to respond. In the (B) case, which will be passed out during class, we will have an opportunity to review X-IT’s subsequent course of action and consider the consequences of their decisions.