LEB Midterm Review: Law and Ethics in Business

Comprehensive vocabulary flashcards covering fundamental concepts in business law, contract formation, corporate governance, international trade, ethics, and insolvency based on LEB midterm notes.

Law

A baseline of rules that society agrees to enforce, governing how companies are formed, how they trade, and how they interact with employees, consumers, and the public.

Ethics

Personal or cultural beliefs of right and wrong that guide behavior beyond mere legal requirements.

Code of Ethics / Code of Conduct

A corporate document designed to establish clear behavioral standards, deter wrongdoing, and align daily operations with the organization's core values.

Conflict of Interest

A situation where a person or organization has competing personal or professional interests that could influence their judgment and decisions, such as nepotism in the hiring process.

Corporate Social Responsibility (CSR)

A company's responsibility to not only generate profit for shareholders but also contribute to the well-being of society, the environment, and broader stakeholders.

Duty-Based Ethics

An ethical framework based on acting ethically because fulfilling moral duties is considered one's fundamental purpose.

Consequence-Based Ethics

An ethical framework where decisions are judged based on the outcomes or effects produced by one's actions.

Hard Law

Legally binding rules and obligations that can be enforced through formal legal mechanisms.

Soft Law

Non-binding rules, guidelines, or declarations that influence behavior but cannot be legally enforced.

Rule of Law

An invisible market infrastructure that establishes predictability and stability for business decisions, enabling fair competition and anti-corruption.

Misleading Advertising

A practice where a business deceives consumers rather than being truthful, often to maximize profit. For example, greenwashing in advertising by saying their clothes are made with recycled materials when they aren’t.

Greenwashing

The deceptive practice of misleading consumers into believing that a corporation or its products are environmentally sustainable when they are not.

Offer vs Invitation to Treat

A definite proposal that establishes a legally binding contract the moment it is accepted vs an invitation directed to others to negotiate or make an offer, which does not constitute a legally binding proposal.

Counter-Offer

A response to an initial offer that rejects that original proposal while offering alternative terms, such as a different price, timeline, or set of conditions.

Contract Formation vs Contract Validity

The procedural process through which parties negotiate and establish an agreement vs the condition of a contract meeting all formal and substantive legal requirements necessary for judicial enforceability.

Applicable Law vs Jurisdiction

The specific country's legal system that governs the rights and obligations under a contract vs the designated court or legal authority empowered to hear and decide a legal dispute.

Force Majeure Clause

A contractual provision that protects parties when unexpected events beyond their control delay or prevent the fulfillment of contractual obligations.

What remedies may be available for breach of contract? 

Remedies for breach of contract may include damages, specific performance, contract termination, or restitution.

CISG

A standardized legal framework providing rules for international commercial sales contracts between businesses located in different contracting states.

Incoterms

Standard trade terms that define the division of costs, delivery obligations, customs formalities, and risk of loss between buyers and sellers.

Bill of Lading

A maritime document that acts as a receipt for goods, evidence of the contract of carriage, and often a document of title.

Wire Transfer

An international electronic payment method that moves funds directly from a buyer's bank account to a seller's bank account.

Open Account

A trade payment arrangement in which goods are shipped and delivered before payment is due, typically under payment terms of 30, 60, or 90 days.

Documentary Letter of Credit

A financial arrangement where an issuing bank examines submitted shipping and commercial documents to verify whether they strictly adhere to agreed conditions before authorizing payment.

Creditor

The party to whom a debt is owed, such as a seller who has delivered goods prior to receiving payment from a buyer.

General Partnership vs Limited Liability Company (LLC)

A business structure in which all partners bear personal, unlimited liability for the debts and obligations of the enterprise vs a corporate entity type that safeguards its owners' personal assets against business debts and liabilities.

What are the main obligations of a seller and buyer?

The seller must deliver goods that meet the contract requirements, while the buyer must pay for the goods and accept delivery.

Separate Legal Personality

The legal concept establishing that a corporation is an autonomous entity distinct from its owners, possessing the right to own property, execute contracts, and participate in litigation in its own name.

Limited Liability

A legal shield restricting a shareholder's or owner's financial exposure to company debts to the amount capital they have invested.

Corporate Veil

The legal boundary that separates a company's distinct obligations and debts from the personal assets of its shareholders and directors.

Piercing the Corporate Veil

An exceptional court action setting aside limited liability to hold corporate owners personally liable for company obligations.

Constitutional Documents

The formal corporate records that define a company's legal existence, internal governance structure, and organizational rules.

Shareholders' Agreement

A private contract executed among company shareholders that regulates their respective rights, relationships, and responsibilities.

Due Diligence

An investigation and risk-assessment process conducted on a commercial entity, transaction, or partner to verify material facts prior to finalizing an agreement.

Dissolution

The formal legal process that brings an end to a corporation's existence as a registered legal entity.

Liquidation

The process of winding up a company's operational affairs, realizing its assets, and distributing the proceeds among creditors and claimants.

Insolvency

The financial status of an entity that is unable to meet its debt obligations as they come due or fails the applicable statutory balance-sheet tests.

Secured Creditor

A lender or creditor whose claim is backed by a legal lien or security interest in specific collateral assets.

Unsecured Creditor

A creditor who holds an uncollateralized claim against a debtor's assets, lacking any specific collateral backing their debt.

Give an example of legal but unethical business conduct. 

Technically it's legal to pay an employee the minimum wage of the state they are working in the US but is it ethical to pay a person a wage that isn’t sustainable for living?

What legal or ethical issues may arise from influencer marketing?

Influencers not disclosing their posts/videos are ads is both a legal and ethical issue. Is it ethical for an  influencer to endorse a product they may not use or like to a susceptible audience? Content ownership could also be a legal issue whether the brand or the influencer owns the video, post, etc.

Why must companies consider data protection in online advertising? 

to avoid severe legal penalties, prevent catastrophic brand damage, and maintain consumer trust.

Why does advertising directed at children require special attention? 

From a legal standpoint, regulators do not view children as "reasonable consumers." Instead, the law recognizes that children interpret advertisements literally, making them easy targets for exploitation.

Can silence or conduct amount to acceptance of an offer? 

No, not without prior terms stating silence is acceptance.