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Legal issues for student businesses/projects

  • 1.  Legal issues for student businesses/projects

    Posted 01-11-2019 13:17
    Hello everyone,

    I hope the new year is starting out well for each of you.

    I am writing to ask if anyone has ever had to deal with any legal issues related to student "micro-businesses."  I know several schools provide students with funding in various amounts, so students can start a business for the semester, often as part of a class.

    My question relates to what happens if something goes wrong with a product or service provided by the student, and a customer decides to sue a student.  Although this may seem like a low probability, it is not probably not zero.  For example, if a student makes homemade bath salts, what might happen if a customer has a negative skin reaction to the product and decides to sue?

    Have any of you ever run into a problem like this?  If so, did the university provide legal support to the student?

    One possible remedy I've seen at a school where I previously worked was that students needed to gain approval from central administration for their businesses (It was a smaller school, so this was possible).  This was really more for the students' (and the university's) protection, though.  For example, students weren't allowed to start a tree-cutting service that involved using chain saws.

    Another possible remedy has been when a student has really wanted to start a high risk business, like a landscaping firm, we've helped them take the next step and form an LLC as part of the process to reduce the threat of lawsuits aimed at them personally.

    It is unfortunate that these potential threats exist...most professors I know that have had a "micro-business" component to their course seem to believe these are valuable learning experiences for students.

    Thanks for any suggestions you might have.

    Franz Lohrke

    Franz T. Lohrke
    Alvin C. Copeland Professor of Franchising and Entrepreneurship
    Stephenson Department of Entrepreneurship and Information Systems
    E. J. Ourso College of Business
    Louisiana State University
    3023 Business Education Complex
    Nicholson Drive Extension
    Baton Rouge, LA 70803
    (225) 578-2126

  • 2.  RE: Legal issues for student businesses/projects

    Posted 01-12-2019 07:58
    Dear Dr. Lohrke,

    I have experienced a similar situation at the University of Maryland, where I teach an introductory Agricultural Entrepreneurship course to undergraduates. Over the years, some percentage of my students have chosen to take their business ideas to market during, or right after, the course. 

    The issue of potential liability first came up several years ago, when a student made and sold an herbal tea grown in the campus garden. After working with our Legal and Risk Management departments, I learned that the university was covered in case of product liability issues because it was a unit of the State of Maryland, which was self-insured. No additional insurance was needed for classroom-led projects. The student, however, was not covered by said insurance for any entrepreneurial activity that took place outside the classroom. Rather than form an LLC, the student chose to purchase a general liability insurance policy while operating the business as a sole proprietor. The cost for up to $1,000,000 in coverage for one year was $240, if I recall correctly. 

    Other student startups have indeed formed LLCs with professional assistance from the various entrepreneurship units across the university (e.g., free legal advice from mentors at the Dingman Center for Entrepreneurship).

    I hope this helps.


    Larisa Cioaca
    Lecturer and Advisor, Agricultural Business Management, Leadership, and Communication
    University of Maryland
    Institute of Applied Agriculture

  • 3.  RE: Legal issues for student businesses/projects

    Posted 01-12-2019 07:58

    hi Franz


    Sandra and Rob Malasch just published an article in Entrepreneurship Education & Pedagogy on this topic: "Regulatory and Risk Management Issues Arising in the Context of Experiential Entrepreneurship Education."




    Kind regards

    Marco van Gelderen

  • 4.  RE: Legal issues for student businesses/projects

    Posted 01-12-2019 14:30
    When I run this I approve what they are going to do/sell (they also have a choice to put on a special event when I do this as part of organizational behavior, rather than as part of an entrepreneurship, class - in this case it is to give them experience working in large, hierarchical groups of 12-14 rather than small self managing groups of 5-7). I steer them away from potentially risky things. That being said, as an approved classroom activity BOTH I and the students are covered by the university's liability, etc. policy at every school I have done this.

    Incidentally, for those of you thinking about instituting this in your class, another legal issue is if the students want to use the university's logo on anything. You need approval for that (which can take time). And at one campus, I also needed approval for them to sell things on campus. Get your ducks in a row early on. I also found meeting with the company presidents weekly helped keep them on track. With financing - I have never had a company lose money BUT I nearly did. They had outsourced their t-shirts to China. They were held up in customs and they missed the football grudge game they were going to sell them at. They learned a hard lesson that way (and by extension so did the class). All profits are donated to a charity of their choice (typically it can't be religious or political if you are at a state school) and I counted (in the financial total they raised) fair market value of volunteer time and donated items to the charity of their choice. If your school has grants for classes where you have them do community service/service learning, investigate that (gets called various things at different schools).

    At one school I had to personally fund (eg loan) the start up funds of my students' companies the first time I did this before the dean then picked it up (I also knew from TA'ing this that the odds of me losing my money was close to nil). I have gotten banks to donate the cost of checking accounts (one place I was the banks gave start up loans too; they had to present their case and they didn't always get what they asked for). I invited the media to the presenting of checks to the non-profits by the companies and included the school's PR folks and the dean. It was after that that the dean donated the start up funds. He then decided not to have the students pay back the loans but to include them into the donation. This does take more work on my part than a "regular' project, but the students learn a lot and I find it well worth doing.

    Carolyn Birmingham