Business Law for Accountants - D216

Crammed.

Administrative agency

A federal, state, or local government agency established to perform a specific function.

• Executive: Executive branch of government, subject to the authority of the president, who has the power to appoint and remove their officers (FDA).

• Independent Regulatory: Consist of officers who serve for fixed terms and cannot be removed without just cause.

• Such law can only be overturned if considered arbitrary and capricious by court

Sources of American law

Constitution (amendments), statutory law (U.S.C), administrative law (D.O.D), and case law/common law doctrine (published court opinions).

Stare decisis

“Let the decision stand.”

Exemptions

• Fact patterns don’t match

• Court determines their past opinions were wrong and want to correct

Majority opinion

More than half the judges agree.

Concurring opinion

The judge sides with the majority on who wins or loses, but departs from how or why the majority explains their conclusion.

Dissenting opinion

Disagrees with the majority opinion.

Plurality opinion

The opinion issued when no single theory of the case gains a majority; multiple concurring opinions exist, and the one joined by the greatest number of justices is the plurality opinion.

Per curiam opinion

Unanimous opinion, whole court agrees on one side.

10th amendment

Power reserved to the states.

5th and 14th amendment

Due process

Duty-based ethics

Deontology, a moral theory focusing on following a set of rules and doing one’s duty rather than the consequences of actions.

Outcome-based ethics

Utilitarianism, focuses on the results of actions and is a cost-benefit analysis that aims to maximize the good for the greatest number of people.

Trademark dilution

Diminishes uniqueness, distinctiveness, or reputation.

• Usually, trademark and alleged suspect are in different industries.

Trademark infringement

Causes confusion about the source of goods or services.

• Remedies: Actual damages, profits of the infringer, the order of destruction of the fake goods, and possibly attorney fees.

• Usually, trademark and alleged suspect are in the same industry.

Strong marks

Trademarks that get automatic protection.

Trademark protection tiers

1. Fanciful

2. Arbitrary

3. Suggestive

4. Descriptive

5. Generic

Copyright protection

Begins the exact moment you create an original work and fix it in a tangible medium of expression. Registration is not required. Covers:

• Literary works

• Musical works

• Dramatic works

• Choreographed works

• Artwork (pictures, graphics, sculptures)

• Motion pictures

• Sound recordings

• Architectural works

Fair use doctrine

Copyrighted work may be used without paying royalties for:

• News reporting

• Criticism

• Comment

• Teaching (including multiple copies for classroom use)

• Scholarship

• Research

Fair sale doctrine

If you buy a copyrighted book, you can sell it to someone else. Copyright owner sold the copy, and no longer has the right to control distribution of that copy.

American Invents Act

First person to file an application for a patent receives patent protections. Begins at filing.

Revocation

Principal ends relationship.

Renunciation

Agent ends relationship.

Unilateral contracts

Can only be accepted by the performance of an act.

Bilateral contracts

A promise for a promise.

Basic requirements for a contract

Agreement, consideration, contractual capacity, and legality.

Agreement

Offer mirrors the acceptance; meeting of the minds.

• Mirror Image Rule: Common law rule, requires that the terms of the acceptance adhere exactly to the terms of the offer.

Consideration

Bargain for consideration or exchange; both parties must do or give something.

Contractual capacity

Must be legally able to enter a party and not intoxicated, mentally incompetent, or a minor.

Legality

Contract must be formed with a legal purpose and follow state and federal statutes

Mailbox rule

Contract accepted when offeree puts acceptance in the mail.

Substantial performance

Party performs substantially all the terms of a contract in good faith (performance creates substantially the same benefits as in the contract).

Accord and satisfaction

Used to settle dispute; accord is new agreement, satisfaction is completion of the new agreement.

Anticipatory repudiation

One party to a contract clearly and unequivocally states or demonstrates that they will not fulfill their contractual obligations before their performance is actually due (can treat as a material breach at time of notice or wait to see if there is a breach causing harm).

Right to cover

If there is a breach, prevent further damages by buying elsewhere if possible.

Duress

Unlawful pressure brought to bear on a person, causing the person to perform an act that he or she would not otherwise perform (or refrain from doing something the person would otherwise have done).

Compensatory damages (actual damages)

To make the injured party "whole" again. It covers exactly what was lost, putting you in the financial position you would have been in if the harm had not occurred.

Consequential damages (special damages)

To cover indirect, secondary losses caused by the harm. These are not automatic; they are awarded if the losses were foreseeable to both parties when the agreement was made.

Punitive damages (exemplary damages)

To punish the wrongdoer and deter others from acting similarly in the future.

Liquidated damages

To provide a fixed, pre-agreed upon amount of money to be paid if a contract is breached. Parties write this into a contract because actual damages would be too difficult or complex to calculate later.

Free On Board (FOB)

Agreement indicating exactly when the responsibility, ownership, and liability for goods transfer from the seller to the buyer.

• FOB turns contract into destination contract, buyer assumes responsibility

Mechanic liens

A statutory lien on the real property (land, buildings homes) of another, created to ensure payment for work performed and materials furnished in repair or improvement.

Artesian liens

A possessory lien given to a person who has made improvements and added value to another person’s personal property (things you can move; vehicles, jewelry, art) as security for payment for services performed.

• Can only have this lien if you retain the property

Judgement (judicial) liens

A court-ordered, nonconsensual claim placed on a debtor's property after a creditor wins a lawsuit. It gives the creditor a legal interest in your assets, meaning you cannot sell, refinance, or transfer the property clearly without first resolving the debt.

Writ of attachment

A court order issued at the beginning or during a lawsuit that freezes a defendant's assets to ensure they cannot hide or spend them.

Writ of execution

A court order issued after the plaintiff has officially won the lawsuit and been awarded a monetary judgment.

Garnishment

a court orders a third party (such as an employer or bank) to withhold a debtor's money or property to satisfy a debt.

• Wage garnishment limits to 75% of disposable income or 30x federal minimum wage

• Exemptions are social security, unemployment, child support/alimony, worker’s compensation, pensions, etc.

Surety

Primarily liable, promise made by third party to be responsible for the debtor’s obligation.

• Discharged if terms of contract are modified without this person’s consent, if the creditor surrenders the collateral/impairs it without this person’s consent, or if debt is paid off.

Guarantor

Secondarily liable, required to pay only after the principal debtor defaults and creditor has made an attempt to collect.

• Discharged if terms of contract are modified without this person’s consent, if the creditor surrenders the collateral/impairs it without this person’s consent, or if debt is paid off.

Right of subrogation

Allows one party (usually an insurance company) to "step into the shoes" of another (the policyholder) to legally pursue a third party who caused a loss.

Right of reimbursement

Right of reimbursement from the debtor when paying their debt for them.

Right of contribution

Co-sureties, right to collect from the other surety.

Bankruptcy estate

All legal or equitable interests of the debtor in property at the time of the bankruptcy filing.

Credit counseling

Up to 180 days before filing.

Means test

Eligibility for Ch. 7, average monthly income compared to median income in geographic areas.

Chapter 7

Liquidation.

• Debtor can’t keep family heirlooms, collections (stamps, coins, etc.), second cars, and vacation homes

• Barred: (voluntary) railroads, insurance companies, banks, savings and loan companies, (involuntary) family farmers and charities

Chapter 11

Reorganization: pay a portion of debt, discharged from the remainder.

• Plan requires votes only from unimpaired creditors (unimpaired creditor committee) holding at least 2/3 of debt and over 50% of the number of these creditors.

Debtor in possession

Continue to operate their business.

Unsecured creditor committee

Appointed group of unsecured creditors in a Chapter 11 bankruptcy case.

Small-business debtor

Must owe less than $2.7M and no real estate, fast-track procedure to avoid having an unsecured creditor committee.

Acceptance of the plan

Submitted to each class of creditors, accepted when ⅔ of the amount of claim for each class.

Performance

Use reasonable diligence and skill in performing the work.

Notification

Notify the principal of all matters that come to their attention concerning the matter of the agency.

Loyalty

To act solely for the benefit of their principal and not in the interest of the agent or a third party.

Obedience

Follow all lawful and clearly stated instructions of the principal.

Accounting

Keep an accounting of all property and funds received and paid out on the principal’s behalf.

Independent contractor

Person who hires them have no control over the details of their work.

Employer

In control of the employee.

• Employer is normally not liable for the actions of an independent contractor

Doctrine of a respondeat superior

Employer is liable for any harm caused to a third party by an agent-employee in the course of employment.

• Detour → slight deviation from work assignment, principal still liable

• Frolic → substantial departure from employer business, employer not responsible

Intentional tort

Generally no relation to their employment, employer will not be held liable.

• Liable if in course of employment

• Liable if employer knows of propensity for committing tortious acts

Agency by estoppel

Principal causes a third person to believe another person is the principal’s agent, third party acts to his detriment in reasonable reliance on that belief.

• Must be caused by the principal

Agency by agreement

Expressed or implied agreement that the agent will act for the principal and the principal agrees to have the agent so act.

Agency by ratification

Person who is not agent makes contract, and principal approves or affirms contract.

• Principal must know all of the material facts involved in the transaction.

Agency by operation of law

Family relationships, spouse owes basic necessities to other or emergency situation.

Indemnification

A contractual guarantee to protect a party from specific future losses, repaying the exact, verified cost of the damages (actual damages)

Duty of cooperation

Requires involved parties to actively assist and communicate with one another to ensure the successful fulfillment of shared objectives.

Disclosed principal

Identity of principal is known, sue the principal.

Partially/undisclosed principal

Identity of principal is unknown, sue the agent.

Agency relationship ends by operation of law

Beyond the control of the parties.

• Death/insanity, impossibility, change of circumstance, bankruptcy, war

Sole proprietorship

Unlimited personal liability (pass-through entity), difficulty raising capital, business dissolves after death.

Partnership

An agreement by two or more persons to carry on, as co-owners, a business for profit. Pass-through entity.

1. A sharing of profits or losses.

2. A joint ownership of the business.

3. An equal right to be involved in the management of the business.

Joint liability

In partnership law, a doctrine under which a plaintiff must sue all of the partners as a group, but each partner can be held liable for the full amount.

Joint and several liability

In partnership law, a doctrine under which a plaintiff may sue all of the partners together (jointly) or one or more of the partners separately (severally, or individually).

Dissociation

The severance of the relationship between a partner and a partnership or between a member and a limited liability company.

• Voluntary notice (express will to withdraw)

• Occurrence of event mentioned in agreement

• Unanimous vote of other partners under certain circumstances

• Cord order if partner has engaged in wrongful conduct that affects business

• Partner declaring bankruptcy, becoming mentally/physically incapacitated, or death.

Pierce the corporate veil

Courts disregard the separation between a business and its owners removing limited liability.

Winding up

The second of two stages in the termination of a partnership or corporation, in which the firm’s assets are collected, liquidated, and distributed, and liabilities are discharged.

Express authority

Both parties agree, orally or in writing, that an agency relationship exists in which the agent has the power (authority) to act in the place of, and on behalf of, the principal.

• E.g., power of attorney

Notice of termination

Must be given to agent and third parties that know of the agency relationship.

Prefiling period

Before the registration statement is filed, the issuer normally cannot sell or offer to sell the securities.

Exempt securities

• Government-issued securities.

• Bank and financial institution securities.

• Short-term notes and drafts (negotiable instruments that have a maturity date that does not extend beyond nine months).

• Securities of nonprofit, educational, and charitable organizations.

• Securities issued by common carriers (railroads and trucking companies).

• Insurance policies, endowments, and annuity contracts

• Securities issued in a corporate reorganization in which one security is exchanged for another or in a bankruptcy proceeding.

• Securities issued in stock dividends and stock splits.

Securities Exchange Act of 1934

Provides for the regulation and registration of securities exchanges, brokers, dealers, and national securities associations.

• To prevent insider trading

Board of directors

Responsible for ensuring that the corporation’s officers are operating wisely and in the exclusive interest of shareholders.