Law of Commercial Transactions- Exam 1 Material

Ethics

Study of what constitutes right or wrong behavior, and it's a branch of philosophy focused on morality.

Philosophy

study of the fundamental nature of knowledge, reality, and existence

Morality Philosophy

contemplates what is right and wrong, and it explores the nature of morality and examines how people should lives their lives.

Business Ethics

looks at the decisions businesses make and whether those decisions are right or wrong, and whether those businesses used moral or ethical principles in making their decisions.

Duty-Based Ethics

An ethical philosophy rooted in the idea that every person has certain duties to others, including both humans and the planet. Those duties may be derived from religious principles or from other philosophical reasoning.

Breakdown of Duty-Based Ethics

-Every person has certain duties

-Owed to Humans

-Principle of Rights "Rights Theory"

-The Plane

Principle of Rights

a theory used to determine whether a decision is ethical based on how that decision affects the rights of others

Conflicting rights

Deciding who to fire when downsizing a business is an example of the issue regarding

Outcome

Duty based ethics is not focused on the...

Your specific behavior and whether the motivations behind your behavior were good

Duty based ethics focuses on...

Robinhood Steals from the Rich and gives to the poor. (Duty-based Ethics)

Unethical because while the reason and outcome are good, the action is bad.

You donate money to a charity so you get good publicity (Duty based ethics)

Unethical as the reason was bad even though the action and outcome were good.

Outcome-based Ethics

focuses on the impacts of a decision on society

Utilitarianism

a form of ethical reasoning that determines that a good decision is one that results in the greatest good for the greatest number of people affected by the decision.

Example of the problem with strictly using the Utilitarian Approach

Pharmaceutical creates drug that cures 85% and kills 15% of people.

Systematic Approach

five step checklist that identifies the most efficient means of generating consistent and optimal results.

Steps of Systematic Approach

1 Inquiry

2 Discussion

3 Decision

4 Justification

5 Evaluation

Steps within Step 1 (Inquiry)

1. Identify Parties Involved

2. Collect Facts

3. List Any Applicable Legal or Ethical Principles.

Entrepreneur

one who initiates and assumes the financial risk of a new business enterprise and undertakes to provide or control its management

Reasons for Business Forms

Easy of Creation

How Liable You Are

Tax implications

Liable

Held legally responsible

Sole Proprietorship

Simplest form of business

Proprietor

owner of a business

Sole Proprietorship

Business income is filed on personal income tax return

Advantages of Sole Proprietorship

-Gets all the profits

-Easier to set up

- Free to set up

-Pass-Through Entity

-Most flexible

Pass Through Entity

a business entity that passes the income on to the owners of the business and avoids double taxation (Since taxes are only filed once)

Disadvantages of Sole Proprietorship

- Unlimited Personal Liability

-Lack of Continuity

-Limited Ability to Raise Capital (Limited to own personal funds & limited in getting loans)

Franchise

an arrangement in which the owner of the intellectual property licenses others to use it in the selling of goods or services.

Franchise Contract

specifies the terms and conditions of the franchise and the rights and duties of the franchisor and franchisee

Franchisor

seller of the franchise

Franchisee

purchaser of a franchise

Distributorship

a manufacturer (the franchisor) licenses a dealer (the franchisee) to sell its product

License

permit to own or use something

Manufacturing Arrangement

franchisor transmits to the franchisee the formula to make a particular product.

Distributorship Example

Someone wants to open a car dealership selling toyotas. Franchisor is the Toyota brand owners. They own and make the products. Franchisee owns the dealership. To sell toyotas, they must enter into a distribution franchise considering they only receive the product to sell rather than making the product.

Manufacturing Agreement Example

A soft drink distribution (Clark co.) wants to bottle coke at their factory and distribute the product. Coke (Franchisor) gives the formula to make coke to the franchisee.

Chain-Style Business Operation

the franchise operates under a franchisor's trade name, and the franchisee must follow standardized methods of operation.

Example of Chain Style Business Operation

McDonalds sends locations frozen food to cook & sell, instead of them making the food from scratch.

Chain Style Business Operation is a mix between

Distributorship & Manufacturing

Trade name

name by which something is known in particular

Intellectual Property

property resulting from the intellectual, creative processes

Trademark

symbol, word, or words that represent a company or product

Partnership

agreement by two or more persons to carry on, as co-owners, a business for profit

Person

can be either a real human being or a corporation

Agreement (if want to add new partner to partnership)

-Must be unanimous decision

-Share all profits/losses

-Have a joint ownership in business

-Have an equal right to be involved in the management of the business

Can create a partnership in these ways:

1. Orally agreed to and created

2. Agreed to in writing

3. Implied by conduct

Partnership Agreement

a written agreement that sets forth each partner's rights and obligations with respect to the partner

Implied

apparent from the actions of the partners has been created, even though there was no written or spoken agreement.

Apparent

means to be clearly visible, understood, or obvious

Responsibilities partners have:

A partner has the authority to legally bind all other partners in commitments to third parties

Bind

to impose one or more legal duties on a person

Partners' Responsibilities

-Authority to bind all partners to commitments

-Partners can make other partners jointly & severally liable for bad acts

-Fiduciary Duty

Joint and Several Liability

someone has the option of suing all of the partners together or separately

Fiduciary Duty

obligation of care, loyalty, and good faith owed to someone or some entity

Duty of Care

to refrain from reckless conduct, intentional misconduct, or a knowing violation of the law.

Reckless Conduct

is a rash or severely careless act

Duty of Loyalty

requires partners to act in the best interest of the partnership at all times

Good Faith

means to faithfully perform responsibilities

Limited Liability Partnerships (LLP)

used mainly by professionals who normally do business in a partnership. It's a pass-through entity for tax purposes, but a partner's liability for malpractice of other partners is limited.

Malpractice

professional misconduct

All businesses are pass through entities except...

corporations

Limited Partnership (LP)

consists of one or more general partners and one or more limited partners

General Partner

assumes management responsibility for the partnership and has full responsibility for the partnership and for all of its debt

Limited Partner

contributes cash or other property, owns an interest in the firm, is not involved in management responsibilities, and has limited liability