Preparing a Proper Legal Foundation: A Start-Up Fable
Case Study 7.1
Introduction
* 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. * 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. * 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. * 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? 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 |
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 …
They couldn’t meet the right attorney they really wanted…
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
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
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
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
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.
Thank you for your listening