Business Law Review Flashcards
1
Q
Constitutional Law
A
Supreme law of the land
Supremacy clause
2
Q
10th amendment
A
Reserves to power of states all powers that are not granted in the constitution
3
Q
At what level does Statutory Law fall under?
A
- Laws enacted by a legislative bodies (Congress / Senate / House of Reps) AKA FEDERAL LAWS
- Laws enacted by State legislatures
- Laws enacted by local governments that create ORDINANCES
4
Q
Where are FEDERAL passed laws documented?
A
In the USC (United States Code) in an order where each section represents a different topic of law
5
Q
Where are STATE passed laws documented?
A
In the State’s code
6
Q
Uniform Laws
A
Suggested legislation that is suggested so every state has the same rules
7
Q
When do Uniform Laws become adopted?
A
Only when it is adopted by the state legislature
8
Q
Administrative Law
A
Laws created on the federal / state / and local levels
Ceation of an administrative agency to handle specific areas of the law who will then make the rules on that topic
9
Q
Where are laws that are passed by administrative agencies documented?
A
In the Code of Federal Regulation
10
Q
Ex. of State Administrative agencies
A
Colorado EPA (can run parallel to the federal administration)
11
Q
What are the two types of Federal administrative agencies?
A
Executive and Independent
12
Q
What are the differences between Executive and Independent agencies?
A
Executive: subject to the authority of the president (president has a lot of say Ex. (FDA)
Independent: created to deal with a topic and cannot be controlled as much
(officers serve for a specific period of time Ex. Federal Trade Commission)
13
Q
Substantive Law
A
law that defines and regulates the rights and obligations of people and organizations
14
Q
Procedural Law
A
rules that govern how legal cases are handled and resolved in a court system
15
Q
Stare Decisis
A
judges are supposed to follow past court decisions
16
Q
Case Law
A
laws based on past court decisions
judges deciding whether or not something is constitutional
17
Q
What are the two general exceptions to Stare Decisis?
A
- arguing the fact pattern is different than those in past cases where a decision was made
- court decides the past ruling was incorrect
18
Q
Can you overturn the Supreme Court?
A
No - you cannot directly overturn the Supreme Court BUT you can amend the Constitution (not easy, but doable)
19
Q
Civil Law
A
individual vs. individual usually dealing with monetary settlements
Ex. contract law, tort law
20
Q
Criminal Law
A
wrongs against society and has to be punished
21
Q
Trial Court
A
Lowest forms of court
One judge who hears the case
Opinions are not usually documented at the trial level
22
Q
Plaintiff + Petitioner / Defendant + Respondent
A
Trial level
23
Q
Appellant (lost) + Appellee (won)
A
Appellate level
24
Q
Concurring opinion
A
written by a judge who is voting with the majority but they are writing their own opinion/explanation
25
Dissenting opinion
written by judge who disagree with the majority
26
Plurality opinion
opinion of the most judges, but not enough for the majority
27
Per Curiam opinion
opinion of the court, but does not indicate which judge wrote the opinion
28
What level of court is used as the basis for Stare Decisis?
Appellate court (appeals court)
29
Federal Powers
specific powers set forth in the constitution
30
state powers (aka police powers)
if a power is not specifically set forth by the constitution, then that power belongs to the state
Ex. criminal law, public order, health, safety, building and zoning, etc.
31
Privileges and Immunities Clause
Prevents states from imposing unreasonable burdens on citizens from other states
Ex. Colorado showing preference to Colorado residents in hiring than those in Washington
32
Full Faith and Credit Clause
Each state must recognize other states rulings on deeds, wills, and contracts.
Ex. If I have a contract in Colorado, Washington has to recognize it
33
3 Branches of Government
Legislative: makes laws
Executive: enforces laws
Judicial: interprets laws
34
Commerce Clause (Constitutional Clause)
prevents states from making laws that interfere with commerce between states (interstate)
35
Supremacy Clause (Constitutional Clause)
Consitution is the supreme law of the land - if there's a direct conflict between Federal and State laws, Federal always trumps
36
Taxing and Spending Power Article 1 (Constitutional Clause)
Congress (legislative) has the power to collect taxes and pay the debts of the country
37
1rst Amendment in the Bill of Rights
protects freedom of speech, the press, assembly, and the right to petition the Government for a redress of grievances.
38
4th Amendment in the Bill of Rights
protects citizens from unreasonable searches and seizures by the government
39
5th and 14th Amendments in the Bill of Rights
requires that the government to operate within the law and provide fair procedures - no one shall be "deprived of life, liberty or property without due process of law." - EQUAL PROTECTION OF THE LAWS
40
Symbolic speech
Nonverbal expressions of opinions or thoughts about a subject - protected under the first amendment, guarantee of freedom of speech
41
Unprotected speech
Fighting words, or words that are likely to incite others to respond violently – also includes defamatory speech
42
Procedural Due Process
right to a notice and given an opportunity to be heard - following the process
43
Substantive Due Process
allows courts to protect fundamental rights from government interference
Ex. All people have the right to free speech, he right to own property, and the right to a fair trial
44
Strict Scrutiny
testing against the restriction of fundamental rights
45
Intermediate Scrutiny
used in gender and legitimacy cases
46
Rational Basis Test
used in economics and social welfare
47
Freedom of Information Act of 1966
people can request copies of personal information held by the government
48
Privacy act of 1974
Protects the privacy of individuals about whom the federal government has information
49
USA patriot act
Gives government officials increased authority to monitor Internet activities, and to gain access to personal financial information and student information
50
Legal vs. Ethical
required by law vs. a question of right or wrong
51
Moral minimum
the expectation that everyone is compliant with the law
52
Private Company Codes of Ethics
NOT LAW - company conduct
53
Industry Ethical Codes
NOT LAW - professional conduct
54
Duty based ethics
based on the philosophy that everyone has a duty to others (human and planet)
CANT WORRY ABOUT CONSEQUENCES, I JUST HAVE TO DO MY DUTY
55
Outcome based ethics
focuses on the consequence of an action (utilitarianism)
56
IDDR Ethical Decision Framework
I - Inquire about an ethical problem
D - discuss the course of action and impacts
D - decide the rational
R - review the solution for effectiveness
57
Short-run profit maximization
Company may increase its profits by continuing to sell a product, even though it knows that the product is defective
58
Intellectual Property
any product of someone's creation
59
What is the only category of intellectual property that has to be registered in order to be protected?
Patents
60
Trademark
distinctive mark / motto or slogan / symbol to identify the seller
Ex. Nike Swoosh / Just Do It
Ex. McDonalds / Golden Arches
61
What are the 5 levels of mark distinctiveness?
1. Fanciful
2. Arbitrary
3. Suggestive
4. Descriptive
5. Generic
62
Strong marks
Fanciful, arbitrary, suggestive (receives automatic protection)
63
Fanciful marks (trademark)
Made up word that doesn't exist anywhere else, that is attached to a "product"
Ex. Google / Kleenex
64
Arbitrary marks (trademark)
Words that exist elsewhere but is attached to the product as a descriptor
Ex. Apple for a company that makes computers and tech
65
Suggestive marks (trademark)
a mark that implies a connection between a company and a product
Ex. Dairy Queen (dairy suggests milk / ice cream, etc.)
66
Generic (trademark) - not automatically protected
generic terms like "aspirin" or "escalator"
67
Descriptive (trademark) - not automatically protected
describes the exact product the company is providing
Ex. Calvin Klein
68
Collective Mark
Credits on movies
69
Service Mark
A mark used in the sale or the advertising of services, such as to distinguish the services of one person from the services of others (airlines)
70
Remedies for Dilution
injunction (cease and desist) or damages when proven willful intent
71
Trademark Registration
Can only register if it's currently in commerce, or if it will be in commerce within 6 months
72
Federal Trademark Dilution Act (Lanham Act)
suit in Federal court for trademark dilution
73
Trademark Dilution
confusing the association (making it less distinctive)
Ex. creating a hotdog company that's logo is similar, but not the same to Nike's swoosh DILUTING it's distinctiveness in commerce
74
Trademark Infringement
use of a distinctive mark that was not authorized
Ex. Using the Nike swoosh on your shoe company (CREATING CONFUSION)
75
Remedies for Infringement
injunction, lost profits, destruction of infringed goods
76
Patents
Gives inventor exclusive rights to make, use, or sell their inventions for 20 years
77
What is NOT patentable?
laws of nature, natural phenomena, or abstract ideas
78
Patent Infringement
the make, use, or selling of another patented design without the owner's permission
79
Remedies for Patent Infringement
injunction, lost profits
80
Copyrights
Intangible property (books, music, other literary works)
81
How long does a copyright last?
Life of the author + 70 years
82
What do copyrights protect?
reproduction of work or derivative work
distribution of work
public display of work
83
What can and cannot be copyrighted?
an idea, procedure, or method of operation CANNOT be copyrighted Ex. page numbers)
the way in which an idea is expressed CAN be copyrighted Ex. finding the same location, using the same camera as a famous photographer
84
Remedies for Copyright Infringement
damages, injunction
85
Trade Secrets
protects businesses and information that cannot be copyrighted or trademarked (customer list, R&D, etc.)
86
Punishments of Trade Secrets
tort action (civil suit) - HAS TO BE DISCOVERED BY IMPROPER SECRET
87
What is a contract?
an agreement (promise) between parties creating mutual obligation enforceable by law
88
What rules govern contracts?
Common law EXCEPT when replaced by statutory law
89
Common law ruling vs. UCC rulings
contracts, real estate, employment, and insurance vs. sales of tangible goods
90
4 Requirements for a valid contract
1. Agreement - OFFER AND ACCEPTANCE
2. Consideration - both parties have to give something of legal value
3. Contractual Capacity - someone who is not a minor, and is of mental competency
4. Legality -
91
Mirror image rule
Offer mirrors acceptance
92
Bargained for exchange (consideration)
both parties are giving something up
93
Predominant factor test
test that courts use to determine whether a contract is primarily for the sale of goods or for the sale of services
94
Usury
Lending money at an unreasonable or unfair interest rate
95
Procedural law
establishes the rules of the court system, how the court operates, and the procedures used to protect the rights of individuals
96
Substantive law
laws that define the rights, duties, and obligations of people and entities within a society, and how they should behave
97
Bilateral contract
promise for a promise
Ex. I will sell you my bike for $500 (promise to sell, promise to pay)
98
Unilateral contract
promise for an act - can only be accepted if there is completion of a performance
Ex. I will give you $100 if stop smoking for 6 months
99
Formal contracts
contracts that require a specific form
100
Informal contracts
oral or written contracts
101
Statute of Frauds (common law)
When a contract must be in writing to be enforceable:
- real estate
- sales of goods at $500 or more
- performance that will take more than a year to complete
- promises made in consideration of marriage
102
Performance and Discharge of a Contract
- complete performance
- substantial performance (complied with in good faith, most of the requirements of the contract)
- material breach (nonperformance)
- anticipatory repudiation (notice that one party will not complete the contract)
103
Mutual Recission
both parties agree to cancel the contract
104
Accord and Satisfaction
acceptance of something different than the original contract
ACCORD: contract to perform some duty
SATISFACTION: performance of an agreement
105
Settlement
replacing the old agreement with a new contract
106
Requirements of Termination by Operation of Law (beyond the control of either party)
- Materially altering a written contract without consent of the other party
- Statute of limitations: the time you have to sue if there's a breach
- bankruptcy
- impossibility of performance
107
Novation
both parties agree to substitute a third party for one of the original parties
108
Damages for Contracts
Compensatory: compensating you to be in the same position that you would have been in if the breach didn't occur
Specific Performance: requirement to carry out what you were contracted to do
Consequential: covers indirect and foreseeable losses
Punitive: punishment
Nominal: recognizing the wrongdoing when there's no monetary loss shown
109
Uniform Commercial Code (UCC)
Deals with tangible and movable goods >> All 50 states have adopted 2 (sale) and 2A (lease) - STATE LAW
Supersedes the common law
110
What is NOT covered by the UCC?
Real estate
Service contracts (NOT a tangible good)
Intangible property (stocks and bonds)
111
What is a sale defined by the UCC?
Passing of title from seller to buyer for a price
112
Merchant
A person who sells goods of a specific kind - has the special knowledge or skill
Selling a lot of one item, not just a one time item
113
Open Terms
Terms that can be filled in by the court later if their is a dispute with the contract
114
Do you need to have a contract under the UCC?
No but:
- Parties have to have the intention to contract
- Quantity has been established
- Reasonably certain basis
115
Requirements contract
Buyer agrees to buy all of what they need from the seller
* won't buy from another seller - it has to come from this one seller only
116
Output contract
Seller agrees to sell all that they produce to the buyer
* can only sell what's produced to one buyer, can't sell to any other buyer
117
Merchant's Firm Offer
Offer must be written and signed by the offeror - consideration is not required
Ex. Checking out a car on a car lot - merchant send you an email offering you a discount until a specified period of time signed >> merchant can't sell car until the end of the specified period in the contract
118
What is considered acceptance of a sale or lease contract?
prompt promise or shipping of goods
119
When are additional terms enforceable on a contract?
only if you are a merchant
120
Unconscionable contract
A contract so unfair and one-sided that it would be unreasonable to enforce the contract
121
Insurable interest (UCC)
insurance to protect against damage, loss, or destruction of the goods
122
When can you obtain insurable interest?
- when the goods are identified as product of the contract
- goods cannot be future goods (have to be existing/manufactured)
- must sustain actual loss
-
123
Can the buyer and the seller both have insurable interest in an item/good?
Yes
124
Shipment contract (buyer loss)
Title transfers to buyer when goods are given to the carrier service (unless otherwise agreed)
125
Who is at loss if goods are damaged in transit?
BUYER
126
Destination contract (seller loss)
Title transfers to buyer once seller delivers goods to a pre-determined destination
127
Free on Board / Freight on Board
DESTINATION CONTRACT - Title transfers only when it arrives at the pre-determined location
128
What is the standard contract under the UCC?
SHIPMENT
129
Delivery without movement
Title passes when and where the title is delivered
130
Obligations of the seller in a contract
- Tender of delivery (goods that match what was purchased)
- Place of Delivery (place of business, residence, predetermined location)
131
Perfect Tender Rule
Conforming to the contract as it was agreed upon (seller has to give the buyer exactly what was contracted for)
132
Exception to the Perfect Tender Rule
Cure - seller has the right to tender the correct goods
133
What can the buyer do if the goods fail to conform to the contract?
1. accept goods as is
2. reject goods (full shipment)
3. accept part and reject part of the shipment
134
What are the rules of Cure for the seller?
- delivery has been rejected
- time of the performance hasn't expired
- notice has been given they want to fix it
- must cure in a timely manner
135
Obligations of the buyer in a contract
- payment
- right to inspect goods before making payment
- acceptance: verbally, failing to reject, or start using/selling the goods
136
Remedies for Breach of a Buyer
- right to cancel contract
- right to withhold delivery
- right to resell the goods
137
Remedies for Breach of a Seller
- right to cancel contract
- right to obtain specific performance (required to enforce contract)
- right to cover (suing for the difference in cost of the substitute goods that had to be bought to replace the breached goods)
- right of replevin (action to recover identified goods
- right to reject goods
138
Warranties
assurance by the seller about the quality and features of goods being sold
139
Warranties of Title
seller has good title to sell the goods (a store has the right to sell the goods inside their store)
140
Express Warranties
representation concerning the quality, condition, description, or performance potential of goods
Ex. What's on the box is what you're getting
** Only applies to statements of fact - NOT opinion
141
Implied Warranty of Merchantibility
goods purchased are fit for ordinary purpose - warranty on EVERYTHING that's purchased
Ex. Bought a toaster >> expectation is that it toasts bread
142
Implied Warranty of Fitness for a Particular Purpose
Only when you rely on the seller's expertise to purchase a good suitable for a specific purpose
Ex. Looking for and communicated to seller that you want a toaster that will toast Texas toast >> Seller sells you a toaster that they say that will fit your toast
143
Secured loan
Loan backed by collateral
Ex. Mortgage, car loans, etc.
144
Unsecured loans
loan without collateral
Ex. credit card, hospital bills, utilities, etc.
145
Pass through entity
Business entity that has no tax liability >> the individual is taxed, not the business
146
Lien
claim on a property in order to satisfy a debt
147
Artisan's Lien
work done on personal property (things that can move)
Ex. Suit taken to the dry cleaners >> cannot pay >> they keep your property until you pay for it
148
Mechanic's Lien
property, land, and buildings
Ex. someone coming to paint your house >> cannot sell the house without making payment towards services
149
Judicial Lien
a judgement obtained from the court stating that money is owed to the creditor
150
Writ of attachment
STATE LAW >> COMPLETED BEFORE JUDGEMENT >>> Request made by the creditor to physically obtain the assets of the debtor into custody
151
Suretyship
Third party who is primarily liable >> can be liable BEFORE the debtor defaults
152
Writ of execution
Court ordered seizure of nonexempt property
153
Guaranty
Third party who is secondarily liable >> can only be liable once the debtor defaults
154
Releases for Surety/Guaranty's
- Material modification: change to original contract without surety's consent
- Surrender of property
- Payment
155
Do Suretyship and Guaranty's need to be in writing to be enforceable?
YES
156
Defenses of the Surety/Guaranty
- Personal defenses: incapacity: not mentally capable or bankruptcy
- Statute of limitations: timeframe in which the creditor can chase after the debtor has passed
- Fraud
157
Rights of Surety/Guarantor
Right of subrogation: legal right that allows one party to assume the legal rights of another party (insurance going after the party at fault after paying out a claim to the insured)
Right of reimbursement: legal right to be reimbursed by the debtor after payment has been made on behalf of the debtor by the surety/guarantor
Right of contribution: two or more sureties - the right of one surety to seek 1/2 the amount paid on behalf of the debtor
158
Fixed rate
interest rate stays the same on the entire life of the loan
159
Adjustable rate (ARM)
interest rate changes periodically
160
Forbearance
postponing some of the loan payments to the future
161
Short sale
Loan holder agrees to take less than the balance due on the mortgage (house is sold for less than what's owed on the mortgage)
162
Workout agreement
Delaying foreclosure for additional financial info
163
Homestead exemption
portion of personal property that cannot be taken by creditors (limited by a $ amount determined by the state residing)
164
Personal property exemptions
Furniture, clothing, vehicles
165
What are the 2 goals of bankruptcy?
1. Give the debtor a fresh start without creditor claims
2. Ensure equitable treatment of creditors competing for debtor assets
166
Types of Bankruptcy
Chapter 7 - liquidation of nonexempt assets and distribution of proceeds to creditors
Chapter 11 - business reorganization
Chapter 13 - personal repayment plan for those with steady income
167
Bankruptcy trustee
determines if there are nonexempt assets to sell in order to pay off debts
168
Who can file Chapter 7?
Individuals, partnerships, or corporations
169
Who cannot file Chapter 7?
railroads, insurance companies, credit unions, banks
170
Who cannot be made to Involuntarily file bankruptcy?
Farmers, and charitable institutions
171
What's included in a Chapter 7 Petition?
** Must be filed within 45days
- list of secured and unsecured creditors
- list of property
- current income + expenses
- certificate of counseling
- proof of income
- tax returns
172
Requirements of Chapter 7
- attend credit counseling within 180 days to filing
- Means test >> determine if qualified to file (compare avg monthly income against median income for geographic area) Below = file / Above = cannot file
173
Automatic stay
All creditors are required to stop attempting to collect against you as soon as you file for bankruptcy
174
Adequate Protection Doctrine
protects secured creditors where payments are required to be made
175
Exceptions to Automatic Stay
- child support
- divorce
176
Exceptions to Discharge Bankruptcy Proceedings
- child support
- retirement account loans
- government fines + penalties
- student loans
- drunk driving judgements
177
Chapter 11 Bankruptcy
debtor in possession retains control of the business (business is allowed to keep running)
178
Reaffirmation of debt
agreeing to take back on debt (home, car, etc.)
179
Acceptance of plan
when each class of creditor accepts the plan by 2/3 of the amount of the total claim
180
Fast Track
liability is less than $2.7M and/or
do not own or manage real estate
181
Cram down provision
Court forcing creditors to accept a plan
182
Chapter 13 Bankruptcy
individuals with regular income making payments to the court to pay creditors in full or in part depending on a plan
**Max length is 5 years
183
What are the 4 main types of business organizations?
- sole proprietorships
- partnerships (general or limited)
- corporations (S + C)
- LLCs
184
Sole Proprietorships
simplest form of business - one person owns the business
185
Advantages of Sole Proprietorships
- owns entire business
- easy to start
- only taxed once (as personal income on personal taxes)
186
Disadvantages of Sole Proprietorships
- personal unlimited liability
- if owner dies, so does the business
- hard to raise capital
187
General Partnerships
two or more persons carrying the business for profit
188
Uniform Partnership Act (UPA)
governs the operation of partnerships in absence of an express agreement (how partnerships should work)
189
Elements of a General Partnership
- sharing of profits and losses
- joint ownership of the business
- equal rights in the management of the business
190
Pass-through entity
entity's income is passed through to the owner to pay income tax on their personal returns
Partnership makes the money but the individual partners pay the taxes on their personal income returns (taxed only ONCE)
191
What forms of business are pass-through entities?
- General partnerships
- Sole proprietorships
- LLC’s
- S Corps
192
Articles of Partnership
legal document that outlines the rights and responsibilities of each partner, and acts as a rule book for the partnership
193
Fiduciary duties of a Partnership
Duty of care >> do a good job
Duty of loyalty >> cannot put yourself ahead of the partnership
194
Disadvantages of Partnerships
- unlimited personal liability for the debts of the partnership
- joint and several liability: if some partners can't pay, then you are responsible for all of it
- Liable even if you're unaware or did not participate in the action
195
Dissociation from a Partnership
to cease to being associated with the partnership >> no further duty to the partnership
- can volunteer to leave
- can be voted out by other partners
- bankruptcy or death
196
Termination of a Partnership
Dissolution (the same thing as termination)
197
Winding Up
process of collecting, liquidating, and distributing assets to creditors first, then to capital contributions
198
Limited partnership - LP
Partnership consisting of one or more partners and one or more limited partners
199
General partner
Partner who assumes responsibility for the management of the partnership and assumes full liability for the partnership debts
200
Limited partner
Partner who contributes capital but has no right to participate in management and has no liability for any debts outside of their investments
201
What must an LLC file to form?
Articles of Organization
202
Who are Articles of Organization filed with?
filed with the Secretary of State
203
Uniform Limited Liability Company Act (ULLCA)
Notes that if there is no federal uniform law, they are governed by state law
204
What liabilities do members of an LLC have?
Limited to their investment only - UNLESS they have a personal guarantee
205
Pierce the Corporate Veil
Owners using an entity to perpetrate fraud >> court can rule that shareholders are personally liable
206
Advantages of LLCS
- limited liability
- legal entity apart from it's owner
- flexibility in taxation
207
Taxation in an LLC
can be taxed as a partnership (taxed once) or a corporation (taxed twice)
208
Disadvantages of LLCS
State rules vary
209
LLC Management
Member managed: all members participate by majority vote
Manager managed: members designate a group of persons to manage (does not have to be a member)
210
Fiduciary duties of an LLC
Duty of care
Duty of loyalty
211
LLC Operating Agreement
- how profits will be divided
- how members transfer interest
- dissociation
- how voting rights are allocated (voting rights are based on how much you invest)
212
Corporations (C Corp)
Legal entity created and recognized by STATE law
One or more owner (shareholder)
NOT a flow through entity
Company is treated as a person
213
Advantages of C corps
limited liability for shareholder >> can only lose or be responsible for your investment
214
Disadvantages of C corps
Double taxation
1. entity (as being like a person) is taxed on their profits
2. entity is taxed on dividend payments made to shareholders
215
Corporations (S Corp)
Closed corporation
Flow through entity >> only taxed once
216
Requirements of an S Corp
can only be domestically owned
max of 100 shareholders
shareholders must be individuals
only one class of stock
must file Articles of Incorporation
217
Articles of Incorporation
corporation's highest governing document and legal proof of its establishment in a state
218
How are corps financed?
Usually via stocks and bonds
219
common stock vs. preferred stock
Common: voting rights >> one vote per share
Preferred: priority over common in regards to getting payment on dividends >> no voting rights
220
Express powers
found in the articles of incorporation >> outlines what powers you have as outlined by the state and federal laws
221
Implied powers
implied power to perform all acts reasonably necessary to accomplish the business's purpose
222
Ultra Vires Doctrine
"beyond the power" >> acts of the corp beyond the express/implied powers
Acting outside the interests of the corporation
223
Who runs a Corporation?
Board of directors >> ultimate authority in all policy making decisions (hire + fire people)
224
Inside directors (Corporation)
People who are officers of the corp (president, secretary, etc)
225
Outside directors (Corporation)
do not hold a management position in the company
226
Fiduciary duties of Directors and Officers in a Corporation
Duty of care: do what you're supposed to do (act in good faith)
Duty of loyalty: faithful to the obligations and duties of the business
227
Business Judgement Rule
Courts ruling to forgive bad decisions that were made by directors/officers who have exercised their duty of care to the business
228
Shareholders
- purchase of stock in a corporation
- not responsible for day to day
- picking a board of directors
- shareholders meeting (at least once annually)
- voting rights (one vote per share of common stock)
229
Quorum requirement
more than 50% of a corporation's ownership must be represented in a shareholders meeting
230
Preemptive rights
shareholder preference over new stock purchases
231
What is agency?
Most common form of a business relationship
Fiduciary relationship to act primarily for another's benefit
232
Examples of Agency Relationships
- Employer / Employee: salesperson, cashier, delivery driver
- Employee / Independent Contractor: truck drivers, house painter, roofer
233
How to determine Employee (agency) status
- how much work does the employer exercise over the details of work being done?
- is the worker engaged in an occupation that is separate from that of the employer?
- is the work completed under the employer's supervision?
- does the employer supply tools for the job being performed?
- For how long is the person employed?
- What is the method of payment >> by job or by time period?
- What degree of skill is required of the worker?
234
Work for hire
When you are creating something for a business (something that can be copywritten or patented)
235
Formation of an Agency Relationship
Principal must have contractual capacity (must be allowed to be allowed to enter into a contract) + has to be created for any legal purpose
236
Agency by Agreement
most common type of agency >> voluntary consent of both parties and usually works for payment
237
Agency by Ratification
when someone who is not your agent, but you approve of their actions that were performed on your behalf
238
Agency by Estoppel
when the principal causes a third party to believe that someone is an agent acting on behalf of the company and they are relying on that "agent" when the agent does not exist
PRINICPAL HAS TO GIVE THE INDICATION >> DOES NOT EXIST IF AGENT IS GIVING THE INDICATION
239
Agency by Operation of Law
courts finding a agency relationship in the absence of a formal agreement >> usually in family or emergency situations
240
Agent's Duties to the Principal
- Duty to perform: using reasonable skills and diligence to perform work (failing = breach of contract)
- Duty to notify: letting the principal know of all matters that come to the attention of the agent
- Duty of loyalty: acting on behalf of the sole benefit to the business
- Duty of obedience: duty to follow lawful instructions to the business
- Duty of accounting: keeping a record of funds paid out on behalf of the business
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Principal's Duties to the Agent
- Duty to compensate: paying the agent for their services
- Duty of cooperation: do nothing to prevent agent from performing
- Safe working conditions
242
Reimbursement vs. Indemnification
reimbursement: payment for necessary expenses incurred during the reasonable performance of an agent's duties
indemnification: You hurt me - now you have to pay me back: BEING SUED
243
Express authority of an Agent
authority declared in clear, direct, and definite terms
244
Equal Dignity Rule
If a contract is required to be in writing, the agent 's authority must be in writing
245
Implied authority of an Agent
doing what is reasonably necessary to carry out the express authority
246
Apparent authority of an Agent
principal causing a third party to believe the agent has apparent authority
247
If the principal is disclosed, who is liable to sue?
Principal
248
If the principal is partially disclosed, who is liable to sue?
Agent (don't know who the principal is) >> agent can seek indemnification
249
If the principal is undisclosed, who is liable to sue?
Agent (don't know there is a principal) >> agent can seek indemnification
250
Respondeat Superior
“Let the master answer” - principals are responsible for their agents
When the agent is working negligently under a principal >> principal AND agent are responsible
251
Revocation vs. Renunciation
Revocation: termination by principal
Renunciation: termination by agent
252
Termination of Agency by Operation of Law
termination of agency relationship beyond control of either party
253
Federal Trade Commission Act
regulation of unfair trade practices (advertising included)
254
What are the 2 types of deceptive advertising?
1. Half truths: appears to be based on factual evidence but goes on a tangent
2. Bait and Switch: luring in consumers with ads for low prices, then selling them something else because it's "not available"
255
Puffery
vague generalities and obvious exaggerations >> IS ALLOWED
256
Telephone Consumer Protection Act
Prohibits telephone solicitation using an automatic system
257
Telemarketing and Consumer Fraud and Abuse Prevention Act
requires telemarketers to identify themselves, describe the product, and the cost
258
Cooling-off laws
Buyer of goods sold door-to-door has the right to cancel the contract within 3 business days
259
Telephone Order Merchandise rule
must give the seller an estimated shipping time >> if no estimate has been given, it has to be within 30 days
260
Truth in Lending Act
requires lenders to disclose the APR, total amount financed, etc.
261
Equal Credit Opportunity Act
prohibits the denial of credit solely on basis of race, religion, gender, etc.
262
Fair Credit Reporting Act
protects against inaccurate reporting credit
263
Fair Debt Collection Practice Act
limits the collection practices by collection agencies
264
Fair and Accurate Credit Transaction Act
efforts to combat identity theft >> credit report has to be provided to consumers for free once per year
265
What is a security?
Any kind of device used to show that you have interest in a company i.e. stocks and bonds
266
Securities and Exchange Commission (SEC)
Independent federal agency that is responsible for protecting investors
267
US Securities Act of 1933
governs the initial sale of stock by businesses with the goal to limit fraud and stabilize securities
268
Securities Exchange Act of 1934
no insider trading
stock market - keeps it fair, open, and honest. Every investor should get the same info
269
Howey Test
test to determine if something is a security: if someone is investing in it, if it's a common enterprise, and if they're not working in the company
270
What must all companies who want to sell stocks and bonds do prior to selling?
Register with the SEC
271
Prospectus
disclosure document that describes the securities being sold and the risk involved
272
EDGAR (Electronic Data Gathering Analysis, and Retrieval)
SEC's online database
273
What is the waiting period after filing for registration with the SEC?
minimum of 20 days
274
Exempt securities
Securities that don't have to register with the SEC >> low risk securities regulated by other statutes
Exs.
- government issued
- nonprofit / education
- common carries (railroads/trucking companies)
- insurance policies
275
Exempt transactions
Nonpublic small offerings with a small amount of investors
Securities sold only to residents of a state
276
Section 10b-5 (Insider Trading)
Prohibits commission of fraud in connection with the purchase or sale of securities
Have to show:
- material misrepresentation
- scienter (wrongful state of mind)
- reliance on bad info
- economic loss
277
Corporate Governance
relationship between a corporation and it's shareholders
278
Sarbanes Oxley Act (SOX)
corporate responsibility law aimed at improving the accuracy and reliability of corporate disclosures and protect investors
279
Requirements under SOX
- requires CEO + CFO to take personal responsibility for the accuracy of financial statements and reports filed with the SEC >> MUST CERTIFY that the report is compliant
- Senior management have to establish and maintain effective system controls and reassess annually
- independent auditors have to review management assessments
- no loans to directors and officers during IPO
- all members of public companies have to be outside directors
- audit committee must have a written charter
280
Exceptions to SOX
companies under $75M
281
What source of law is considered primary?
Common law doctrine
282
What is common law also known as?
Case law + judge law
283
What is the eligibility requirement for a small business debtor to avoid the appointment of a creditors committee?
Small business debtors that do not own or manage real estate with liabilities not exceeding $2.7 million
284
Statement of value
What ought to be the case
285
When winding up an LLC, who is paid first from the sales proceeds?
Members who are creditors
286
Do merchants have to follow the mirror image rule?
No
