Buyback Clause And How Entrepreneurs Can Promote Ethical Culture

Founder’s agreement is a written document that governs the relationship between the founders of a business. It governs things such as how equity is split among the founders, how they will be compensated for their equity contribution as well as how long they have to remain in the business before their shares fully vest.

The purpose of a buyback clause is to address the inequitable division of equity among founders if it is not addressed properly during the initial founding of the company. A buyback clause makes shares of the founders eligible for a buyback by the company. Such a buyback is used to compensate the founders for their contribution to the initial establishment of the company as well as what they are doing in the present and their expected contribution in the future.

Avoiding legal disputes

If not well managed, legal disputes can adversely affect an entrepreneur to the point of even winding up the business. However, an entrepreneur can do a lot to avoid legal disputes from taking place. Homework company has suggested four steps that an entrepreneur can take to avoid litigation:

• Establishing and maintaining good relationships

An entrepreneur should take initiative and strive to establish and maintain good relationships with his/her employees, suppliers, customers, and other stakeholders. By treating one’s stakeholders fairly reduces their likelihood to ruin their relationships with the entrepreneur by litigating.

• Familiarizing oneself with his/her stakeholders

The best and easiest way is to avoid litigation is to do business with people that one knows. An entrepreneur should ensure that his/her stakeholders are reputable companies and individuals. The entrepreneur should avoid doing business with companies and individuals that have a history of litigation, bad reputation, and other red flags.

• Document all agreements

In actual practice, many business disputes are due to ambiguities and misunderstandings that could have been avoided if the initial agreements were outlined in writing.

• Maintain complete files

Documentation is very important in maintaining good business relationships. Relying only on oral testimony, employees’ memory, and one’s interpretations usually complicates the situation. Maintaining proper records streamlines the process and acts as a point of reference whenever a dispute or conflict of opinion arises.

Building Strong Ethical Culture

As per homework services, unethical behavior in the workplace can result in serious problems in an organization. It is thus very important for business leaders to be actively involved in establishing and maintenance of good ethics in an organization. According to Schein (2010), business leaders can take the following steps to build a strong ethical culture in their organizations:

• Ensure expectations regarding ethics are clear

The leaders should teach employees what they mean by good ethical behavior. The leaders should express their expectations in writing. An ethical code of conduct should be a part of the employees’ handbook or in any other document given to employees during their early days on the job.

• Enforce ethical policies

There should be consequences when ethical breaches take place. Managers should not tolerate unethical behavior. Punishing offenders sends a strong message to other employees that unethical behavior is not condoned in the organization. If leaders overlook ethical breaches, other employees will be tempted to make similar breaches.

• Lead from the front

Leaders of an organization should be the organization’s change agents. If the leaders do not lead by example, the ethical policies will not work. In essence, employees take cues on how they are supposed to act from their leaders.

Piercing the corporate veil

The term “piercing the corporate veil” refers to the situation where a court may put aside the limited liability of a company and thus hold its shareholders and directors personally liable for the business’s debts or actions. It is common in close corporations. The courts take this action when an organization is involved in serious misconduct such as undercapitalization during the time of incorporation or in case the organization abuses its corporate form e.g. my mixing corporate and personal assets.

In this situation, there is no real separation between the owners and the company itself. This means that a corporation operates as a sham. Also, the veil can be pierced when a company’s activities or actions are fraudulent or wrongful. For example, a company may conduct business deals fully knowing the company could not pay.

In case of such a financial fraud, a court may pierce the veil. The veil may also be pierced when the court finds out that a business failed to pay its creditors, or that a person who has done business with the company suffered unfairness at the hands of the company; in such a case, the court may pierce the veil to correct the unfair treatment.