Legal Environment of Business Exam 4

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When dealing with any type of property always keep a few things in mind:

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When dealing with any type of property always keep a few things in mind:

  1. what type of property is it;

  2. how was it acquire;

  3. how is it owned 4 how it may be transferred

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Concurrent Ownership

This is a term in property law to describe property owned by more than one person. Examples of concurrent ownership are tenants in common, joint tenants and tenants by the entirety.

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Real Property

Land, buildings, trees, timber, oil, gas and minerals in the ground, and also fixtures that are attached to the real property. Essentially, the dirt and anything affixed thereto. Real Property may be "converted" into personal property, or vice versa - crops or timber harvested; cabinets purchased and installed in a home

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A little history

The land in Arkansas was part of the Louisiana Purchase. In 1803, the United States purchased lands, which now include the State of Arkansas from France. Thereafter, surveys were conducted.

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Surveys of Lands in the Louisiana Purchase

All lands contained in the Louisiana Purchase had to be surveyed, and those surveys began in eastern Arkansas around 1815. One surveying crew started where the St. Francis River flows into the Mississippi River and went west; and the other surveying crew started where the Arkansas River flows into the Mississippi River and went north. Where those two surveying lines intersect is in eastern Arkansas. And most significantly, the crew going west laid down what is called a "baseline." So, all lands from there to the Canadian border are surveyed off of the that line. And, that baseline runs east/west through Little Rock, thus giving the name "Baseline Road" in Little Rock.

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Surveys

Before purchasing real property, a purchaser needs to have a survey performed. A survey that UCA had performed before the new integrated health building was being built is one of the documents you may find in the materials for Chaper 23 on Blackboard. A survey tells you 1. the dimensions of the property; 2. the "footprint" of any structures or other permanent objects on the property; 3. utility lines; 4. fences; and 5. most importantly, the boundaries of the property.

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A Survey doesn't tell you

One significant thing a survey DOES NOT TELL you is who owns the property.

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Fee simple

type of ownership interest in real property in which the owner has the greatest rights in the property - to own, mortgage, gift it, transfer it, or deal with it in any manner

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Life Estate

Permitted use of real property for the lifetime of the person holding the life estate. During the life estate, the fee simple title remains with the true owner. Upon the death of the life of the tenant, the fee simple owner (who did not ever lose the title, only the right of possession during the life estate) continues to own it.

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Concurrent Ownership

Term to describe when two or more persons/entities own real property

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Types of Concurrent Ownership in Real Estate

Tenants in common, joint tenants, and tenants by the entirety

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Tenants in common

each tenant owns an undivided interest in the whole parcel; and the interests may not always be equal. On the death of a person owning an interests may not always be equal. One the death of a a person owning an interest as a tenant in common, his/her interest passes pursuant to their will or by inheritance (no survivorship feature); the interest may also be transferred during lifetime of the person holding the interest

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Joint tenants

again an undivided interest int he whole, but here the joint tenants own equal shares. The main difference is that there is a right of survivorship so that upon death of a joint tenant his/her interest passes to the surviving joint tenants. Upon death of the last tenant, then the fee simple title passes pursuant to the decedent's will or state law if the decedent dies intestate

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Tenants by the entirety

tenancy among married couples - right of survivorship feature as well, so that surviving spouse takes entire interest upon the death of the first spouse to die. In Arkansas, upon divorce of the spouses, this type of property becomes tenants in common.

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Leasehold Estates

an interest giving a tenant the right to possess and occupy real property for a limited time under a lease.

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Fixed Term Tenancy

a lease for a specific period of time, and upon expiration of the lease term the tenant must vacate the premises immediately, or the tenant may be immediately evicted from the premises.

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Periodic Tenancy

no specified period, but term is determined by how rent is paid (weekly or monthly, for example). In order to terminate it, either party must give the other party notice of at least one period (so, if monthly payment, either party must give the other party at least one month's notice of intent or terminate).

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Easement

right to use, access or cross the property of another property owner to gain access to your property.

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Easement by Prescription

Easement acquired for hostile, open, notorious and continuous of land for a period of at least the time to acquire property by adverse possession (7 years in Arkansas).

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Methods of Transferring Ownership of Real Property

Remember: the Statute of Frauds requires contracts to convey real property to be in writing to be enforceable

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Warranty deed

Most protection for a purchaser in that the grantor warrants clear, free and unencumbered title to the property and promises to defend the title against all claims forever - a purchaser of real property will always want and demand a warranty deed from the seller.

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quitclaim deed

merely conveys any interest of the grantor to the grantee, and makes no promises or guarantees about title or any promise to do anything

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will

heritance

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Beneficiary deed

a deed recorded during lifetime which conveys the property at the death of the grantor(s) to the grantee(s)

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gifts

via one of the dees described above

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adverse possession

acquiring property by open, continuous, exclusive, adverse and notorious use of another's property for more than the statutory time period

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eminent domain

acquisition of property by a governmental entity for a "public purpose." The legal proceeding is called "condemnation."

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Personal Property

any property that is not real property.

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There are two types of personal property

Tangible Personal Property and Intangible Personal Property

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“Tangible Personal Property”

furniture, jewelry, vehicles and other personal property that has physical substance; and

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“Intangible Personal Property”

cash, bank accounts, stocks and bonds, patents, trademarks and copyrights.

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Personal Property may be acquired by:

(i) purchase (the normal way to acquire personal property); (ii) possession (animals); (iii) production (say a painting by an artist); or (iv) gift.

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There are three (3) elements for a valid gift. They are:

(i) donative intent on the part of the donor; (ii) delivery of the property to the donee; and (iii) acceptance of the gift by the donee.

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An “inter vivos” gift is

one made while the donor and donee are alive

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Gifts causa mortis

gifts made in contemplation of the donor’s death; a type of “conditional” gift. A gift causa mortis is revoked if the donor recovers; and the gift causa mortis is also revoked if the donee dies before the donor.

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Sometimes personal property is

lost, mislaid or abandoned. Who owns or has the superior claim to the personal property depends upon how the property is characterized

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Mislaid Property

property that the owner has voluntarily placed in a location, and then inadvertently forgotten. The owner of the premises where mislaid property is found is a caretaker of it, subject to the superior rights of the true owner. The finder of mislaid property has not rights in it. (Arkansas case of Terry v. Lock)

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Abandoned Property

property voluntarily discarded by the true owner with no intention of reclaiming it. Finders keepers. By statute in Arkansas, upon expiration of a lease of real property, any personal property left on the premises is deemed to be abandoned property.

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Lost Property

property involuntarily left by, or separated from, the owner. A finder of this type of property can claim title to it against everyone, but the true owner.

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Intellectual Property

is any property resulting from intellectual or creative processes. This chapter of the text covers (1) trademarks, (2) patents, (3) copyrights and (4) trade secrets.

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Article I, Section 8 of the U.S. Constitution grants to Congress the power to

regulate and protect the “authors and inventors” by granting to them, for a limited time, their “Writings and Discoveries.”

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Trademarks:

a trademark is a distinctive word, symbol, or design that identifies the manufacturer as the source of particular goods and distinguishes its product from those made or sold by others. For example – Coca Cola.

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Trademarks must be registered

to receive protection.

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If a trademark is registered, and another person/company “infringes” on it,

suit may be brought by the holder of the mark.

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Tradenames

this is a name that a business uses to identify itself and its brand. A trade name that is the same as the company’s trademarked products is protected as a trademark, and unique trade names are also protected under common law. For example – “McDonald’s.” Or “Wendys”

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Patents:

this is a grant from the federal government that gives an inventor an exclusive right to make, use, sell and offer to sell an invention in the United States for a period of time.

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Patents for “inventions” are good for

20 years; whereas patents for “designs” are only good for 14 years. After these periods the product or process enters the public domain and anyone can make, sell or otherwise use the invention.

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What is patentable?

An invention must be novel, useful and not obvious in light of current knowledge and technology. Ideas are not patentable. Remember: it is an invention or design that is patentable.

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o Who gets the patent?

The first person who may have invented it, or the first person to file with the U.S. Patent and Trademark Office? Now in the U.S., it is the first person to file, although there is a nine-month period in which to contest the patent.

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If another person uses the patent in any way without the permission of the patent holder,

then that person has infringed on the patent. If successful, in a federal court proceeding, the patent holder may get an injunction, damages for royalties and lost profits.

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Copyrights:

a copyright is an intangible property right granted by federal statute to the author or originator of literary or artistic works. If a person has a copyright, he/she has the exclusive right to publish, print, sell or otherwise use that production.

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Copyrights last

for the life of the author PLUS 70 years (a long time)

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Copyrights may be registered

with the U.S. Copyright Office, but registration is not required any longer.

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Copyright owners are protected against the following:

Reproduction of the work Development of derivative works Distribution of the work Public display of the work

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We see more and more litigation over copyright infringement

music

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Finally, know that there is a “fair use” doctrine

which means use for purposes of criticism, comment, news reporting and teaching do not constitute “infringement” of the copyright.

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Trade Secrets:

a trade secret can be about anything that a business has or has created and that gives the owner a competitive advantage in the marketplace, provided that the owner is taking reasonable steps to protect it. This protection is for ideas and their expression.

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For trade secrets in regards to registration

There is no registration required. This was developed in common law (theft of trade secrets), but is no statutory law in most jurisdictions, including Arkansas.

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Our statute in Arkansas defines a “trade secret” as “…information, including a formula, pattern, compilation, program, device, method, technique, or process, that:

(A) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (B) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

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For theft of trade secrets

a company/business may obviously get an injunction, but also damages and attorneys’ fees.

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Business organizations

(i) sole proprietorships; (ii) general partnerships; (iii) limited partnerships; and (iv) limited liability companies

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Sole Proprietorship:

This is the simplest form of business organization. Your typical family-owned, “mom and pop” business.

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Under the sole proprietorship, there is

no filing required (no formalities), and the owners of the business are individually liable for all debts and obligations of the business.

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For income tax purposes for Sole Proprietorship

the income/loss of the business is taxed to the owners on their individual income tax returns. The owners also pay “self-employment” taxes on the earnings of the business.

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On the death of the owners for Sole Proprietorship

there is no continuity of ownership, so the business is generally over, and the assets then pass according to the last will and testament of the deceased owner (or in accordance with state law.

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General Partnership

Arkansas law defines a partnership as “..an association of two (2) or more persons to carry on as co-owners a business for profit…”

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A partnership is

an entity distinct from its partners. It may sue and be sued (however, see discussion below on the personal liability of the partners in a general partnership).

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For income tax purposes for general partnership

a partnership is a “pass-through” entity, which means that the profits/losses “flow through” to the partners who then report it on their own personal tax returns. The partnership entity itself pays no taxes.

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A general partnership is

formed by an agreement of two or more persons – and can be formed either through a formal, written agreement, or simply orally, or even through the conduct of the parties.

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Property acquired by a partnership

is property of the partnership and not of the partners individually

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Each partner is

an agent of the partnership for the purpose of its business.

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So, an act of a partner in carrying on in the ordinary course the partnership business or business of the kind carried on by the partnership

binds the partnership, unless the partner had no authority to act for the partnership in the particular matter and the person with whom the partner was dealing knew or had received a notification that the partner lacked authority.

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A partnership is liable

for loss or injury caused to a person, or for a penalty incurred, as a result of a wrongful act or omission, or other actionable conduct, of a partner acting in the ordinary course of business of the partnership or with authority of the partnership.

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Most Important Concept for General partnership

All partners are “jointly and severally liable” for all obligations of the partnership unless otherwise agreed by the claimant or provided by law. This means that each partner is fully liable for ALL debts and liabilities of a partnership. No partner, in a general partnership, is shielded (protected) from personal liability.

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Limited Partnership

A partnership composed of one or more general partners and one or more limited partners (compare to the general partnership in which ALL partners are general partners) It is more formal; formal agreement is needed It is a creature of state law and there is a filing requirement with the state involved

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Limited Partnership is an entity and

for income tax purposes it is a “pass through” entity so that they individual partners report on their personal tax returns the profit/loss from the partnership.

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An obligation of a limited partnership

whether arising in contract, tort, or otherwise, is not the obligation of a limited partner.

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Key Points for Limited Partnership

A general partner is personally liable for debts, liabilities and obligations of the limited partnership. However, a limited partner is not personally liable, directly or indirectly, by way of contribution or otherwise, for an obligation of the limited partnership solely by reason of being a limited partner, even if the limited partner participates in the management and control of the limited partnership.

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Limited Liability Companies

A limited liability company (LLC) is a creature of state law.

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The owners of the LLC are called

“members.” (whereas in a partnership they are “partners).

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Limited Liability Companies is a form of

a “pass through” entity. The members take the income/loss of the entity into their personal incomes.

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Key point for Limited Liability Companies

In an LLC, no member is personally liable for any of the debts, liabilities or obligations of the LLC. (Contrast to sole proprietorships and partnerships)

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A corporation

is a legal entity formed in accordance with state law. It is an entity, separate and distinct from its owners.

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A corporation is “formed”

by one or more “incorporators” filing Articles of Incorporation with the Secretary of State of the state wherein the corporation will be formed. The articles must comply with state law, and in general provide for the name of the corporation; the registered office and agent of the corporation; the name and address of the incorporators and other matters required by state law.

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A corporation usually has

“perpetual” existence

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For income tax purposes for Corporations

the corporation is a separate, taxpaying entity. It pays income taxes. (Compare to partnerships and limited liability companies which are not separate, taxpaying entities, but rather “pass through” the income/or loss to the partners or members.)

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The “owners” of a corporation are called “shareholders.”

a. The ownership interest of a shareholder is represented by shares of “stock.” b. Stock is an equity ownership in the corporation. In general, it gives the shareholder the right to vote on certain matters (most importantly, the election of the members of the board of directors) and also entitles the shareholder to dividends paid by the corporation.c. These ownership interests, unless restricted by an agreement among the shareholders, are usually freely transferrable. d. Shareholders do not have any liability for any debts, expenses or obligations of the corporation. e. If the corporation distributes “dividends” – which are essentially a distribution of the earnings or profits of the corporation to its shareholders, then the shareholders pay income taxes on the dividends they receive.

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The shareholders elect a

“Board of Directors.”

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A publicly traded company (for example Walmart) usually has two types of directors

“inside” directors and “outside” directors. Inside directors are those persons who are also officers of the corporation (see below), while outside directors are those persons selected by the shareholders who do not hold management positions with the corporation.

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o The Board of Directors then names

the officers of the corporation, which normally include a President (Chief Executive Officer); one or more Vice Presidents, a corporate Secretary; and a Treasurer.

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The officers then

run and manage the corporation, and its business and affairs.

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Insurance

is a “contract” through which an insurance company, in exchange for the payment of a “premium”, promises to pay in the event the insured or property insured, is injured, suffers a loss, dies or otherwise sustains damage. Fundamentally, it is a means of protecting persons and/or property from damage, injury or loss of life.

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Insurance is regulated

by the states; not by the federal government

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Policy

the actual insurance contract

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Premium

consideration paid to the insurance company by the owner of the policy

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Insurable Interest

legal concept which means that the person purchasing the policy must have an interest in preserving the health/life of a person insured, or the preservation of property to be insured.

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Types of Insurance

Vehicle, property (fire and other casualty), Liability, Life Insurance, and Professional Liability Insurance

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Products Liability

cover for injuries or loss due to defective products; generally purchased by manufacturers

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Premises Liability

protection for businesses due to injuries sustained by customers or others coming onto the premises of the business

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Life Insurance

Relevant parties are the Owner of the policy; the Insurance Company; the Insured Life; and one or more Beneficiaries. Frequently, the owner and insured life are the same.

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