TUTORIAL 10 (Topic 6)

1. What is the purpose of establishing and using an ethics training program in an

entrepreneurial firm?

Answer: Ethics training programs are programs that teach employees how to
respond to the types of ethical dilemmas that might arise on their jobs. The
purpose is to promote a healthy climate of business ethics in a firm. Ethics
training programs can also help a firm avoid litigation.

2. What is a founders agreement and why is it important for a team of

entrepreneurs to have one in place when launching a venture?

Answer: A founders agreement is a written document that deals with issues such
as the relative split of the equity among the founders of the firm, how individual
founders will be compensated for the cash or the sweat equity they put into the
firm, and how long the founders will have to remain with the firm for their
shares to fully vest.

3. Why is it important for the founders of a firm to think carefully about the name
they pick for their company?

Answer: A companys name is one of the first things people associate with a
business, and it is a word or phrase that will be said thousands or hundreds of
thousands of times during the life of a firm. A companys name is also a critical
part of its branding strategy.

4. What are the advantages and disadvantages of organizing a new firm as a sole
proprietorship?

Answer: Advantages of organizing as a sole proprietorship: (1) creating one is

easy and inexpensive; (2) the owner maintains complete control of the business
and retains all the profits; (3) business losses can be deducted against the sole
proprietors other sources of income; (4) the business is not subject to double
taxation; and (5) the business is easy to dissolve.

Disadvantages of a sole proprietorship: (1) liability on the owners part is

unlimited; (2) the business relies on the skills and abilities of a single owner; (3)
raising capital can be difficult; (4) the business ends at the owners death or loss
of interest in the business; and (5) the liquidity of the owners investment is low.

5. Under what circumstances should ethical considerations be part of a companys

business plan? Should a company periodically measure its ethical performance?
If so, what are the best ways for a firm to do this?

Answer: Ethical considerations should be an integral part of a companys

business plan. Particularly if the company deals with client privacy, public
safety, is safeguarding clients money or other resources, or is involved in a
similar activity. Its important for a company to assert that it plans to adopt high
ethical standards and explain how high ethical standards will be implemented
and institutionalized. There are various methods that a company can utilize to
measure its ethical performance. One set of methods is based on external
feedback, such as counting the number of complaints it receives or the number of
fines it is subject to. Other methods are based on internal feedback, such as
administering confidential surveys to ask employees how many times theyve
committed ethical breaches or how many times theyve observed coworkers
committing ethical breaches.