D216 - Business Law for Accountants

First Amendment

freedom of speech and religion

Fourth Amendment

search and seizures must have a search warrant obtained by showing probable cause to a judge

Fifth Amendment

cannot be forced to be a witness against themselves

Fifth and Fourteenth Amendment

no person can be deprived of life, liberty, or property, without due process of law

Fourteenth Amendment

equal protection of the laws and prohibits discrimination

Freedom of Information Act (1966)

right to obtain information about yourself from the government

Privacy Act (1974)

protects privacy of individuals and regulates disclosure of data

Electronic Communications Privacy Act (1986)

prohibits interception of information communicated by electronic means

HIPPA (1996)

regulates the privacy and security of individuals' health information, ensuring that personal medical records remain confidential

Financial Services Modernization Act (Gramm-Leach-Bliley Act) (1999)

prohibits disclosure of nonpublic personal information about a consumer unless it is disclosed and opt-out requirements are met

Lanham Act

protects trademarks and false advertising claims

Telephone Consumer Protection Act

prohibits telephone solicitation using an automatic telephone dialing system or a prerecorded voice

Telemarketing and Consumer Fraud and Abuse Prevention Act

requires telemarketer to identify seller’s number, describe products being sold, and disclose material fact (total cost)

Fair Credit Report Act

protects against inaccurate credit reports and requires correction of report

Fair and Accurate Credit Transaction Act

it is an effort to combat identity theft and requires each major credit reporting agency to provide consumer with a FREE COPY OF THEIR CREDIT REPORT ONCE A YEAR

Fair Debt Collection Practice Act

limits practices by collection agencies. Must send validation notice — debtor has 3 days to dispute claim and request written verification of the debt

US Securities Act of 1933

Governs initial sales of stock by businesses in order to limit fraud and stabilize securities industries by informing investor about the securities offered for public sale. Makes all companies that offer securities to be registered with the SEC and they must complete prospectus

US Securities Act of 1934

continuous periodic disclosures required by publicly held corporation to enable the SEC to regulate insider trading (10-b). Applies to companies that have access inn excess of $10 millions and 500 or more shareholders (section 12 companies)

Securities and Exchange Commission Act

Independent federal regulatory agency established by the passage of US Securities Act of 1933/1934 with the goal of protecting investors

The Private Securities Litigation Reform Act (PSLRA) (1995)

provides a safe harbor for publicly held companies that provide meaningful cautionary statements to protect against securities fraud

Sarbanes-Oxley Act (2002)

AKA Corporate Responsibility Act of 2002. Created the Public Company Accounting Oversight Board (PCAOB) to regulate and oversee public accounting firms. Requires CEO and CFO to take personal responsibility for accuracy of financial statements

Common Law

covers contracts for services, real estate, employment, and insurance (all contracts unless replaced by statutory law)

Uniform Commercial Code (UCC)

statutory law that covers sale of tangible and moveable goods

Uniform Commercial Code (UCC) Article 2 (Sales) Article 2A (Leases)

state law (adopted by all 50 states) that defines sale as passing of title from seller to the buyer for a price, whose goal is to facilitate commercial transactions and supersedes the common law

Perfect Tender Rule

to unconditionally offer money or performance to meet an obligation

Scienter

A person who has knowledge of wrongdoing and intent of wrongdoing

Uniform Laws

suggested legislation (model statutes) so every state has the same rules. Provides a uniform, yet flexible, set of rules governing commercial transactions

Stare Decisis

judges are obligated to follow the precedents established by prior court cases in their jurisdiction unless court decides their past ruling were incorrect (Argue Fact Pattern)

State Powers

all powers not delegated to the national government (10th amendment)

Unanimous Opinion

written by entire court

Majority Opinion

written by majority

Concurring Opinion

judge agrees with decision but no the explanation

Dissenting Opinion

written by judges who disagree with majority

Plurality Opinion

opinion of most judges but not enough for majority

Per Curiam Opinion

opinion of court, does not indicate which judge wrote the opinion

Commerce Clause

prevents states from making laws that interfere with interstates (between the states) commerce

Supremacy Clause

constitution is the supreme law of the land. If direct conflict between federal and state, federal prevails

Mechanic’s Lien

work done on real property (aka fixed property like land and buildings)

Artisan’s Lien

work done on personal property (car, truck, jewerly, dry cleaner, etc)

Judicial Lien

if a debtor fails to pay after a due date, a creditor can bring legal action against them in order to collect a debt – GET JUDGEMENT (letter from court)

Writ of Attachment

court order taking of debtor’s property before judgement. Prejudgment remedy. Assets taken into custody of the court (so debtor can’t dispose of assets before judgement)

Writ of Execution

after judgement for creditor. This orders the seizure and selling of a debtor’s nonexempt property which is then paid to debtor (after paying cost of sale, etc.)

Surety

primarily liable for a debtor’s obligation

Guaranty

secondarily liable for a debtor’s obligation

Suretyships and Guaranty Release

• material modification without surety’s consent

• surrender of property (creditor surrenders collateral to the debtor)

• payment or tender of payment (when debtor pays the amount owed or if creditor refuses payment and obligation is discharged)

Debtor Protection

• All exempts are limited by monetary amount

• Homestead exemption (real property)

• Personal property exemptions

Bankruptcy: Chapter 7 - Liquidation

• Debtors can be individual, partnership, and corporations

• Schedules must be filed within 45 days

Means Test (Chapter 7)

Purpose is to keep upper-income people from abusing the bankruptcy process. It compares average monthly income to the median salary of your area

Automatic Stay (Chapter 7)

Suspends all actions by creditor to collect against debtor Exception: domestic support obligations

Adequate Protection Doctrine (Chapter 7)

Protects secured creditors

Estate in Bankruptcy (Chapter 7)

Goal is to set a dividing line- after acquired remains the debtors. When you file bankruptcy everything you owned at the time of filing is considered your estate. After-acquired property/estate to which the debtor becomes entitled within 180 after filing may also become part of the estate.

Bankruptcy: Chapter 11 - Business Reorganization

Corporate debtors reorganize business debts. Each class of creditor must accept by ⅔ of amount of total claim to approve plan

Creditor Committee (Chapter 11)

Unsecured creditors form committees to consult with trustee on the bankruptcy

Fast Track (Chapter 11)

No need for committees if liability under 2.7 million and does not own or manage real estate

Cramdown Provision (Chapter 11)

Court forces every class of creditor to accept and move forward with the plan

Bankruptcy: Chapter 13 - Personal Repayment

Individuals with regular income create a plan that generally runs 3 years with a maximum length of 5 years to complete all payments (full or in part)

Federal Trade Commission Act (FTCA)

Regulates unfair and deceptive trade practices, including deceptive advertising

Well Known Seasoned Issuers (WKSI)

Firm that has issued at least $1 billion in securities in the last three years/or outstanding stock valued at $700 million. No waiting period

Section 10b-5

Prohibits commission of fraud in connection with the purchase or sale of securities. Also prevents insider trading. You must have scienter to be convicted, and individual are fined up to $5 million and imprisoned up to twenty years

Agency by Agreement

Voluntary consent of the parties

Agency by Ratification

A person who is not an agent, makes a contract on behalf of another. If the principal approves the contract by word or action, agency relation is created by ratification

Agency by Estoppel

Created by principal’s conduct. Principal causes a third person to believe that another person is the principal’s agent, and the third person acts to their detriment in reasonable reliance on that belief

Agency by Operation of Law

When necessary, a court will find an agency relationship in the absence of a formal agreement. May also occur in emergency situations

Novation

Both parties agree to substitute a third party for one of the original parties

Accord and Satisfaction

Accepting something different than stated in original contract

Compensatory Damages

Put in the same position would have been if the breach did not occur. Covers direct losses and costs

Consequential (Special) Damages

Covers indirect and foreseeable losses

Punitive Damages

Punishment

Nominal Damages

Recognizes wrongdoing when no monetary loss shown

Liquidated Damages

Provision in contract detailing dollars amount to be paid in event of breach of contract

Requirements Contract

Buyer purchases whatever they need from the seller

Output Contract

Seller agrees to sell all of what seller produces

Merchant’s Firm Offer

Offer to buyer, must be written and signed by the offeror

Shipment Contract - Loss to Buyer

Title transfers to buyer when goods given to carrier (unless otherwise agreed, this is the rule)

Destination Contract - Loss to Seller

Seller is required to deliver goods to a particular destination when title transfers

Fanciful Trademark (Automatic Protection)

Consists of a word that has no meaning outside of the mark. They are invented words. Ex.: Kodak, Google

Arbitrary Trademark (Automatic Protection)

Words that exist in reality; but are not used to describe the actual products of the company. Ex.: Apple Inc (tech)

Suggestive Trademark (Automatic Protection)

Implies a connection between a company and a product. Ex.: Citibank, Microsoft

Descriptive Trademark

Describes the exact good that the company provides through extensive advertising. Ex.: Calvin Klein

Generic Trademark

Comprised of generic words or phrases such as “computer store” - no protection

Trademark Infringement

Someone uses your trademark without permission

Trademark Dilution

Applies to famous trademarks where use blurs or tarnishes by another mark

In order for copyright to be protected…

it must be fixed in a durable medium

Lanham Act

Protects trademarks, and false advertising claims. one must show injury to reputation, direct causation by false advertising, loss of business by those deceived

Right of Subrogation (Surety and Guarantor)

Any rights that the creditor has against the debtor are rights that a surety has against a debtor

Right of Reimbursement (Surety and Guarantor)

A surety is entitled to be reimbursed from the debtor

Right of Contribution (Surety and Guarantor)

If there are two or more sureties, a surety has the right to receive compensation from other sureties if the paid amount was more than their proportional amount

Prospectus

Disclosure documents that describe security being sold and the risk involved in the investment

Agent’s duties to the principal

• Performance: use reasonable diligence and skill in performing the work. If gratuitous agency fails performance, it is not a breach of contract, and they are only liable for negligence.

• Notification: notify principal of all matters that come to agent’s attention

• Loyalty: act solely for the benefit of the principal and keep information confidential

• Obedience: duty to follow all lawful and clearly state instructions of the principal

• Accounting: must keep and make available an accounting of all property and funds received and paid out on the principal’s behalf

Principal’s duties to the agent

• Compensation: pay agent for their services (unless gratuitous). If no amount has been agreed upon, principal owes agent customary compensation for such services. This includes reimbursement (for any necessary expenses) and indemnification (principal pays agent for lawsuit)

• Cooperation: duty to cooperate with agent

• Safe working conditions

Bilateral Contract

Promise for a promise (contract forms at promise)

Unilateral Contract

Can only accept by completing the contract performance – a promise for an act (contract forms when act is performed)

Warranties of Title

Seller has good title to sell the goods

Express Warranties

Representations concerning the quality, condition, description or performance potential of the goods

Implied Warranty of Merchantability

Fit for ordinary purpose

Implied Warranty of Fitness for a Particular Purpose Seller

• Particular purpose for which a buyer will use the goods

• Buyer relying on the skills and judgement of the seller to select suitable goods

Uniform Partnership Act (UPA)

Governs operation of partnerships in absence of express agreement