Preparing a Proper Legal
Foundation: A Start-Up Fable
Case Study 7.1
Ralph Matthew A. Ong
(M997Z245)
Ha Phuoc Vu
(M997Z244)
Chien Pham Dinh
(M997Z201)
Melva Hermayanty
Saragih
(M997Z227)
Group 4 Members
Tran Khai Khuong
(M997Z212)
Content
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Introduction
Discussion Question
Discussion Question
Discussion Question
Discussion Question
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4
Introduction
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Jack Peterson and Sarah Jones planed to locate and operate 10
kiosk and malls and other high traffic areas to sell accessories
for Apple iPods and iPhones.
They created a series of short videos helping users learn how
to make better use of their iPods and iPhone and sold them to
the customer via streaming video on Jack and Sarah’s website.
Introduction (Cont…)
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Registered their name as www.iuseraccessories.com on
GoDaddy.com.
Completed their feasibility analysis with firstly developed a
concept statement and distributed it to total of 16 people,
including professor, electronics store owners, iPod and iPhone
users, and the parents of young iPod users.
Introduction (Cont…)
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Surveyed their target market (410 people) age 15 to 35 years
old.
The result affirmed that majority of their target market don’t
realize the number of iPod and iPhone accessories that exist,
let alone know where to get them.
Introduction (Cont…)
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Completed also one and three-year proforma financial
statements, which demonstrated the potential viability of their
business. They have commitments for $66,000 of funding
from friends and family.
And the last important steps was they arranged and discussed
with Attorney about their intellectual property.
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 issues do
you think will stimulate the most
discussion with the attorney, and which
issues do you think will stimulate the
least?
Jack Peterson and Sarah Jones
 Founders, iUser Accessories
 List of Legal Issues to Discuss with Attorney
Issue
Jack and Sarah’s
Recommendation
The best form to use for that kind of
business. (Is there a better type to
minimize taxes and liability)
LLC or partnership
Duties and Responsibilities
Each person contributions
Necessary agreement for legal form
have chosen
Agreements
Complexity/Cost of Startup.
State registration, operating
agreement
Company legal record
keeping/reporting complexity
Minutes of member meetings
should be kept, changes in
operating agreement. Some
states require annual or biennial
report, fee payment.
Legal Liability
limited to investment
Income Taxes
multiple-member taxed like
partnership
Continuity
Depends on operating
agreement, may dissolve if no
agreement
Issue
Jack and Sarah’s
Recommendation
Operating Agreement
Distribution of profits/losses
Apportioned by operating
agreement
Transfer of interest
Members may sell interest,
based on operating agreement
Tax position of individual/s
self-employed; pay selfemployment tax on share of
profits
Ability to raise capital/get a business
loan.
Banks accept for loans. Investors
want corporate structure
Separation of shareholders and
managers.
No separation
Limited Liability Company
Operating agreement
Company Operating agreement covers the main crucial
parts of an operating agreement like:
◦ What the name of the LLC will be.
◦ A certificate of formation by the members, showing proof
that they did indeed form an LLC.
◦ The registered office and registered agent of the LLC.
◦ What the term of the LLC shall be.
◦ Voting rights of the members.
◦ Continuance of the company if one of the members dies.
◦ Business purpose of the LLC.
◦ Principal place of business.
◦ Addition of additional members.
◦ What the initial contributions will be, and which member
contributed what.
◦ What you will do with profit and losses of the LLC.
◦ How you will make distributions.
◦ Who and how the managers will run the company.
◦ The power of the managers and members.
◦ Record keeping.
◦ Management fees.
◦ Assignment of rights of members.
Question #2
Make a list of the things you think Jack and
Sarah did right in preparing for their
meeting with the attorney?
They had a good preparation for their
meeting with attorney:
◦ Tried to find a good attorney;
◦ Make a clearly schedule;
◦ Planned carefully the time they spend with
attorney;
◦ Prepare clearly things they want to discuss;
◦ Tried to understand the legal issues;
After the first meeting …
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They couldn’t meet the right attorney they really
wanted…
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The second one…
◦ Keep the list of legal issues;
◦ Send it to attorney a week prior to the meeting;
Question #3
Comment on the product feasibility analysis
that Jack & Sarah completed. Do you
think the way Jack and Sarah approached
this task was appropriate and sufficient?
PRODUCT FEASIBILITY ANALYSIS
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Developed a concept statement and feasibility study
then distributed it to a total of 16 peoples.
Responses received: Positive
Distribution of videos: Educative
Idea: To use iPod and iPhones better, via streaming
video over the internet, providing customers access
codes to retrieve the videos.
Surveyed 410 people in a more conventional manner.
Median Age of Target Market: 20 years old
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Process of Distribution: Approaches their target
market, then ask them to complete the survey.
Seeked help from their marketing professors for their
survey’s design.
Survey design: Large Population
52% of the target market own an iPod and iPhone.
Participants are very interested in their feasibility
analysis.
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?
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
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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
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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 partner
 Liablity on the part of each partner is unlimited.
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Thank you for your listening