Unit VIII Case Study
Please make sure that it is your own work and not copy and paste. Please read the study guide. Please watch out for spelling and grammar error. Please use the APA 7th edition. three length pages.
Book Reference:Neck, H. M., Neck, C. P., & Murray, E. L. (2021). Entrepreneurship: The practice and mindset (2nd ed). SAGE. https://online.vitalsource.com/#/books/9781544354644
Case Study Matthew Vega-Sanz, Cofounder, Lula
For this assignment, read the case study on pages 377 and 378 of the eTextbook. Once you have read and reviewed the case scenario, respond to the following questions with thorough explanations and a well-supported rationale.
- What legal structure would you recommend for Lula? What are the benefits of this legal structure?
- Describe employee legal classifications, and determine which best fits these employees.
- Analyze the role of an entrepreneurial mindset in opportunity recognition related to this case.
- Differentiate innovative business strategies that are or could be associated with this case.
- Appraise the use of design thinking toward innovative ideation related to this case.
- Determine the type of entrepreneurship associated with this case, and compare it to social entrepreneurship. Then, apply creative thinking skills to restructure this venture into a social entrepreneurial venture. From a social entrepreneurship perspective, how would the business model change, and what business model would you use for this new venture? What legal structure would you recommend for this social entrepreneurial venture?
BUS 8303, Entrepreneurship and Innovative Business Development 1
Course Learning Outcomes for Unit VIII
Upon completion of this unit, students should be able to:
1. Compare the types of entrepreneurship.
2. Analyze the role of an entrepreneurial mindset in opportunity recognition.
3. Appraise the use of design thinking toward innovative ideation.
4. Examine business models.
4.1 Synthesize the connections between social entrepreneurship business models and selection of
5. Differentiate innovative business strategies.
7. Describe legal aspects of business growth.
7.1 Identify unique benefits related to legal structures in forming a new venture.
7.2 Describe legal determinations of employee classification.
Unit VIII Case Study
2, 3, 5 Unit VIII Case Study
Student Resource: Common Legal Structures
Unit VIII Case Study
Unit VIII Case Study
Required Unit Resources
Chapter 14: Navigating Legal and IP Issues
Chapter 16: Supporting Social Entrepreneurship
In order to access the following resource, click the link below.
Navigate to the Video and Multimedia area in Student Resources for Chapter 14 of the eTextbook to view the
item listed below.
• Common Legal Structures
UNIT VIII STUDY GUIDE
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There are important decisions needed in selecting the form of ownership for your new venture. The legal
structure impacts tax rates, ownership stakes, non-profit and for-profit status, legal liabilities, and even
conditions of sale when the new venture is sold, which is most often the primary means by which significant
profits are realized.
A common mantra in creating a new venture is to begin with the end in mind. What is the ultimate goal of your
new venture? Knowing this end goal will help you understand what form of ownership you want to select for
your new venture.
As an example, let’s look at YouTube. A key success requirement for YouTube was technology related to
video searches. Just as this technology was being created, the four PayPal employees who started YouTube
recognized this technology as an opportunity to create a video library or video content collection. The startup
team also knew that their goal was to sell the company to Google, or at least that was their hope (TechSavvy,
2019). Having this end vision in mind, selling to Google should have helped in the decision for the form of
ownership YouTube founders selected.
Other influencing factors would have been acquiring funding for the venture and potential liabilities around
their business idea. Each of these considerations should be a part of the decision in the selection of the form
of ownership. There is also the option that you might start with one form of ownership, such as a sole
proprietor or limited liability corporation (LLC) status, and select another form of ownership as the venture
The easiest form of ownership is a sole proprietor; although LLCs are also easy to acquire and have the
added benefit of providing some liability protection. This is a frequent choice for licensed professionals.
Liability for wrongdoing and debts are the responsibility of the owners, even with LLCs. A C corporation is a
type of corporation created by the state government and owned by an unlimited number of shareholders. It is
frequently selected when seeking external equity funding. In the YouTube example, YouTube started as a
sole proprietor and evolved into a C corporation.
Another example is someone who wants to start a lifestyle venture or a venture that solves a social problem.
A lifestyle venture is a business that supports the owner’s lifestyle with sufficient income to pay the venture’s
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expenses as well as the owner’s debts and enough money to provide for a reasonable quality of life. Social
entrepreneurship has a focus on solving a societal problem such as supporting children’s health and
education. Knowing the legal risks and benefits in selecting the best legal structure can position the venture
for future success. These examples point out the value in knowing what you want from the new venture, and
how that outcome impacts the legal structure to support your vision for the venture’s future.
There are a variety of business structures to choose from including, sole proprietorship, general partnerships,
corporations, limited liability, and benefit corporations, to name a few choices. In the eTextbook, Table 14.2
explains types of ownership including a short definition, liability, and taxation differences between these
choices. Learning these differences is a start in considering the legal structure that best fits your idea.
Because selecting the structure of the venture is an important and essential choice, consulting an attorney is
well worth your time and effort.
Various websites provide information related to legal questions and concerns about your business venture
and are located in Table 14.1 of the eTextbook. Just as due diligence is needed in making all decisions, you
should also take the time to explore the legal implications of your decisions, including your business structure.
Conducting this background research before deciding positions you for improved and informed actions. Even
with taking the time to become informed about legal topics, you should seek out legal advice before making
these decisions. In some situations, such as the following topic area, you might even need formal letters from
state officials clarifying your decisions.
Employee Legal Classification
One significant area of legal consideration relates to employees. Legal requirements related to the
classification of employees, benefits, and compensation are derived from federal, state, and local regulations
impacting these tightly regulated areas. Knowing your state and local employment laws and other regulations
related to your specific business is essential to avoid potential penalties and fines. There are three primary
categories of employees: contract labor, non-exempt employees, and exempt employees.
Table 14.7 of the eTextbook identifies the differences between an employee and a contract laborer.
(Neck et.al, 2021, p. 375)
In some industries, getting a formal letter from the state where you operate is wise for providing a statement
supporting workers as contract laborers rather than employees. Contract laborers provide their tools and pay
their taxes, benefits, and expenses. If we start a business categorizing workers as contract laborers, we
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would not withhold taxes or pay taxes on the worker’s behalf, but, if, at a later date, the state decides that the
workers are not contracted workers and are, instead, employees, the business owner would be responsible
for back taxes and possibly wages and other benefits. This determination could be the downfall of the
Let’s say you want to open a cottage industry business that creates custom-made clothing. Your workers
provide their equipment like sewing machines and scissors. You provide the workers with orders from
customers. You pay these workers based on what they produce. Would these workers be contract laborers,
or would these workers be employees?
Interestingly enough, some states determine that these are contract laborers and other states decided that
these are employees. This is an example of a situation where it would be best to get a final and specific
classification from the state labor department.
Across the United States, some states use common law in classifying workers as contract laborers or
employees, while other states use an ABC method. Common law considers if the employer has any
behavioral control of the worker, financial control over the worker in terms of reimbursement of expenses,
whether the worker provides the same services in the open market, and the relationship between the
employer and worker. The relationship is further clarified through any written contracts describing the
relationship and provided benefits such as vacation, sick days, profit-sharing, and the terms of employment
such as length of the relationship and conditions for ending the relationship (Wrapbook, 2019).
The ABC method considers the extent of control over the worker or absence of control, as in free from control
in how the work is performed, the business of the worker such as if the work performed is unusual and/or off
the premises of the entity’s premises, and whether the worker is customarily engaged as a contractor, a
perspective related to whether worker is commonly accepted as engaged for profit in the open market
Let’s go back to the example of the cottage industry with people creating the products. In applying both the
common law and ABC methods for determining if an employee is a contract worker or an employee, how
would you classify these workers? As you can see, these nuances and interpretations make these decisions
difficult. This example fits well into that area where taking the time to receive a formal determination from the
state labor department and keeping that document on file, is well worth your time.
Non-Exempt and Exempt Employees
Two subdivisions of employee categories are non-exempt and exempt employees. Non-exempt employees
are entitled to overtime pay by the Fair Labor Standards Act (FLSA) while exempt employees are not entitled
to overtime pay. Exempt employees must earn a minimum of $55.00 per week or $23,660 per year in the form
of salary. Executives and professionals are considered exempt. Non-exempt employees must be paid
overtime at one-and-a-half times their hourly rate for any hours over 40 hours per week. This exempt
employee earning amount is updated occasionally.
Even if an employee is titled as a manager, if that employee does not earn this minimum amount of wages,
the employee is non-exempt and would need to be paid overtime wages. The FLSA covers a variety of labor
requirements and is another legal area that impacts your business.
Due to the complexities related to regulations, taxes, compensation, and benefits, outsourcing these activities
might be a wise decision. Many payroll companies manage the entire compensation process from storing
employee information through processing payroll through year-end tax statements such as employee W-2s.
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In order to check your understanding of
concepts from this unit, complete the Unit VIII
Knowledge Check activity.
Unit VIII Knowledge Check
PDF version of the Unit VIII Knowledge Check
Note: Be sure to maximize your Internet
browser so that you can view each individual
lesson on a full screen, ensuring that all
content is made visible.
Remember, this is a nongraded activity.
In considering legal decisions, asking other business owners about their choices and experiences is part of
your due diligence process. Asking questions provides background information, although due diligence
includes digging deeper to find out if the answers apply to your business venture’s best interests. Other legal
considerations include intellectual property areas and the privacy protection of employee and customer
Even for social entrepreneurs, legal structure must be carefully considered and must align with the business
model and success of the venture. Selecting a non-profit status still requires that the venture has cash inflow
to sustain the venture. Some unique business models for social entrepreneurs include grant funding, crowd
funding, as well as traditional and innovative business models covered in a previous unit. Just as cash is
necessary for the venture’s growth and success, mitigating risks through the best legal structure is also
All of these topics should be addressed by your team in a founder’s agreement. A founder’s agreement is a
formal document that clearly defines details about who makes decisions, especially in situations of
disagreement; what percent each person in the startup team owns of the venture; and how this percent
reflects payment of losses and receipt of profits. Making these decisions early in the new venture planning
stage prevents significant future problems.
In looking at the decision for percent ownership in the venture and how losses and profits are managed,
consider what happens if one owner thinks payments are in cash and another owner thinking payments are
made in greater equity in the venture.
Another important area is the way owners exit the venture. Discussing and deciding on these topics early in
the venture’s planning process is much easier than making these decisions in real time when owners have
their interpretation of these actions.
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Neck, H. M., Neck, C. P., & Murray, E. L. (2021). Entrepreneurship: The practice and mindset. SAGE.
TechSavvy. (2019, August 9). What was YouTube before Google? – The story of YouTube before it was sold
to Google for $1.6 billion [Video]. YouTube. https://www.youtube.com/watch?v=0vU0wVp_45E
Wrapbook. (2019). Employee or contractor? The complete list of worker classification tests by state.
Suggested Unit Resources
Supplement B: The Pitch Deck
Learning Activities (Nongraded)
Nongraded Learning Activities are provided to aid students in their course of study. You do not have to submit
them. If you have questions, contact your instructor for further guidance and information.
In order to access the following resources, click the links below.
Utilize the following Chapter 14 Flashcards and Chapter 16 Flashcards to review terminology from the
- Course Learning Outcomes for Unit VIII
- Required Unit Resources
- Unit Lesson
- Legal Structures
- Employee Legal Classification
- Non-Exempt and Exempt Employees
- Interactive Activity
- Suggested Unit Resources
- Learning Activities (Nongraded)