Chp. A - Working within the Legal Environment

Business law

Rules, statues, codes, and regulations that provide a legal framework within which business may be conducted and that are enforceable by court action

Areas covered by business law

• Product liability

• Contracts

• Fair competition

• Consumer protection

• Taxes

• Bankruptcy

Statutory law

State and federal constitutions, legislative enactments, treaties of the federal government and ordinances (written law)

Common law

Body of law that comes from decisions handed down by courts (unwritten law)

Precedent

Decisions judges have made in earlier cases that guide the handling of new cases

Court Decisions

Common law evolves through…

Administrative Agencies

Federal or state institutions and other government organizations with delegated power to pass rules and regulations within their mandated area of authority

Examples of Administrative Agencies

• (SEC) Securities and Exchange Commission

• (FEC) Federal Communications Commission

• (EEOC) Equal Employment Opportunity Commission

Tort

A wrongful act that causes injury to another person’s body, property, or reputation

Intentional tort

A willful act that results in injury

Negligence

Behavior that causes unintentional harm or injury

Product Liability

Holds businesses liable for harm that results from production, design, sale, or use of products they market

Strict product liability

Legal responsibility for harm or injury caused by a product regardless of fault

Plaintiff

The party that was harmed and is initiating a lawsuit

Defendant

The party being sued

Compensatory damages

Money to pay for the actual damage done (EX. Medical bills, Property repairs)

Noneconomic damages

Compensation for pain and suffering

Punitive damages

A fine meant as punishment for the defendant and to deter future similar actions

Patent

Gives inventors exclusive rights to their invention for 20 years

Copyright

Protects a creator’s rights to materials such as books, articles, photos, and cartoons

Trademark

A legally protected name, symbol, or design that identifies the goods or services of a seller

Fastest-Growing Patent Categories

1. Autonomous Driving

2. Electrical Smoking Devices (Vaporizers)

3. Earth Drilling

4. Breathing Masks

5. Quantum Computing

Uniform Commercial Code (UCC)

A comprehensive commercial law that covers sales laws and financial transaction laws in the U.S.

Aspects of the Uniform Commercial Code (UCC)

• Meant to simplify interstate commerce

• All states adopted the law between 1953-1973

• A state law that is the same in every state—not a federal law

12 Articles

UCC has how many articles that contain laws covering a wide range of business issues?

Sales of goods, leases of goods, contracts, banking, auctions, financial securities transactions, digital asset transactions, and more

What business issues are covered in the UCC?

Contract

A legally enforceable agreement between two or more parties

Contract law

Specifies what constitutes a legally enforceable agreement

When is a Contract Legally Binding?

1. Offer is made

2. Voluntary acceptance of the offer

3. Both parties give consideration—something of value

4. Both parties are competent

5. The contract covers a legal act

6. The contract is in proper form

Contracts must be in writing if:

• Value over $500

• Won’t be completed within a year

• Real estate

Breach of Contract

When one party fails to follow the terms of a contract

After a breach, the following may be ordered

1. Specific performance

May be required to fulfill the contract

2. Payment of damages

Monetary settlement for the amount lost

3. Discharge of obligation

Terminate the agreement

The Sherman Antitrust Act of 1890

Prevents large organizations from stifling the competition of smaller or newer firms

Reasons for Antitrust Legislation

• Contracts, combinations, or conspiracies in restraint of trade

• Creation of actual monopolies or attempts to monopolize

Federal Trade Commission Act of 1914

• Prevent unfair methods of competition

• Prevent deceptive acts or practices in commerce

• Seek monetary redress for conduct injurious to consumers

• Conduct investigations into business or people engaged in commerce

• Make reports & legislative recommendations to Congress

Child Protection Act (1966)

Removes from sale potentially harmful toys and allows the FDA to pull dangerous products from the market

Truth-in-Lending Act (1968)

Requires full disclosure of all finance charges on consumer credit agreements and in advertisements of credit plans

Alcohol Labeling Legislation (1988)

Provides for warning labels on liquor saying that women shouldn’t drink when pregnant and that alcohol impairs a person’s abilities

Sarbanes-Oxley Act (2002)

Requires accurate, transparent corporate financial reporting

Dodd-Frank Act (2010)

Protects consumers from abusive financial services practices, increases transparency in the financial system, ends “too big to fail” taxpayer-funded bailouts

Taxes

How the government (local, state, and federal) raises money

Usage of Taxes

• Primarily used as a source of funding for government operations and programs

• Can be used to raise revenue or adjust behavior

Income taxes

Taxes paid on the income received by businesses and individuals. The largest source of tax income received by the federal government.

Property taxes

Taxes paid on real property and personal property. Real property is owned by individuals and businesses. Personal property is any movable property such as tangible and intangible items. The taxes are based on the assessed value

Sales taxes

Taxes paid on merchandise sold at the retail level

Excise (aka Sin) taxes

Taxes paid on items such as tobacco, alcoholic beverages, airline travel, gasoline, and firearms. Income generated from the tax goes toward a specifically designated purpose

Bankruptcy

Legal process by which a person, business, or government entity unable to meet financial obligations is relieved of those obligations by a court

Voluntary Bankruptcy

Debtor initiates bankruptcy proceedings

Involuntary Bankruptcy

Debtor’s creditors initiate bankruptcy proceedings

Chapter 7 — “Straight bankruptcy” or liquidation

• Used by businesses and individuals

• Liquidation—assets are sold and the funds used to pay obligations

• Creditors with secured claims receive the value of their collateral or repossess the asset (EX. Car)

• Unsecured claims (those not tied to a particular asset) are paid in “order of priority

Order of Priority for Unsecured Claims

1. Costs of the bankruptcy case (court fees)

2. Unpaid operational expenses (wages, employee benefits, customer preorders)

3. Federal and state taxes owed

4. Unsecured loans/corporate bonds

5. Equity investors (if there’s anything left)

Debts that CAN be discharged through Chapter 7

• Credit cards

• Medical bills

• Unpaid rent

• Personal loans

Debts that CANNOT be discharged through Chapter 7

• Alimony and child support payments

• Student loans

• Taxes

Chapter 11 — Reorganization Bankruptcy

• Used almost exclusively by businesses

• A company sued by creditors (or company volunteers) continues to operate under court protection while it tries to work out a plan for paying off its debts

• Management, lawyers, creditors, and the court work together to form a reorganization plan to enable the business to continue functioning in a more financially responsible way

• Company emerges from bankruptcy with a new organizational and/or financial structure

Chapter 13 — Repayment Bankruptcy

• Used by individuals and small-business owners

• Permits individuals, including small-business owners, to pay back creditors over 3-5 years

• Less complicated and less expensive than Chapter 7

• Debtor pays a court-appointed trustee (mediator) in monthly installments

• The trustee repays creditors with the debtor’s monthly installment funds