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[LAW] Business Law Summary

작성일 2017-12-24 13:39 조회 14

 


Business Law Summary


The Law


Public law – the government is an actor (e.g. criminal law, administrative law)


Private law – the government is not an actor (e.g. contract law)


Federal law:


  • The Constitution

  • Federal legislation

  • Treaties – same force as a law passed by Congress, once ratified

  • Federal regulation – agencies such as the EPA or SEC

State law:


  • Common law

  • Statute law

  • UCC

Business Entities - Corporations


Types:


  • Private corporation for profit

  • Government corporations (e.g. schools)

  • Not-for-profit corporations

  • Professional corporations

Advantages:


  • Limited liability

  • Baseline provisions

  • Attractive to investors

  • Attractive to employees

Disadvantages:


  • Double taxation

  • Complexity; recordkeeping

Subchapter S corporations:


  • No double taxation

  • No more than 35 stockholders, all human and US citizens

Forming a Corporation


Incorporators file the Articles of Incorporation with the state


  • Name & addr of corp

  • Name & addr of reg agent

  • Purpose

  • Number of shares

File an annual report annually


Articles are subordinate to state law. Need a vote of the shareholders to amend.


Bylaws (procedural) are subordinate to Articles. Need a vote of the Board to amend.


Corporate Structure & Decisionmaking


Stockholders – elect directors annually by vote or proxy


  • Right of access to information

  • No right to dividends

  • Right to an appraisal (Dissenter’s Rights)

Directors – appoints officers; decides major decisions for the corporation; defines committees


Officers – make day-to-day decisions


Duties of managers (directors & officers):


  • Trust (fiduciary duty) – act in the best interests of the shareholders

  • Loyalty – corporate opportunities

  • Care

Business judgment rule – can’t sue if the manager used good judgment.


Business Entities – LLCs


Advantages:


  • No double taxation

  • More tax flexibility

  • Limited liability

  • Baseline provisions

Disadvantages:


  • More complex than corporations, so legal fees higher up front

  • Hard to find investors

LLC Structure & Decisionmaking


Member rights:


  • Right of access to information

  • No right to dividends

  • Right to an appraisal (Dissenter’s Rights)

Differences:


  • Members, not stockholders, holding “ownership units,” not stock

  • Managers, not directors/officers

  • Can have different rights for different members, and can keep it all private

 

 


Forming an LLC


Members file the Articles of Organization with the state


  • typically contains nothing of importance

  • can only be changed by a membership vote

Operating Agreement is the main document


  • covers rights & relationship among members

  • not necessary to file with the state

Business Entities – Partnerships


An agreement among 2 or more people/entities to conduct business together


Types:


  • General partnership

  • Limited partnership

  • Limited liability partnership

General Partnerships


Advantages:


  • No double taxation – same taxation as LLCs (“disregarding the entity”)

  • No state filings

  • Baseline provisions

Disadvantages:


  • No limited liability

  • Any partner can bind the partnership

  • Partnership dissolves upon withdrawals, deaths, expulsions, or bankruptcy of any partner

Partners owe fiduciary duties to each other


Can have a managing partner.


A joint venture is a type of GP, limited in purpose and lifetime.


Limited Partnerships


General partners – unlimited liability; fiduciary duty to limited partners


Limited partners – limited liability; no control


Limited partnership agreements must be filed with the state


 


Limited Liability Partnerships


For licensed professionals


Essentially identical to LLCs


Securities


A security is:


  • An investment

  • In a common enterprise

  • With the expectation of profits

Regulations (both state & federal) cover:


  • The sale of securities

  • Remedies

  • Disclosure

  • Broker/dealer regulations

Short-swing profits – capital gains w/in 6 months


Securities Forms


S-1 – IPO


10-K – annual report


10-Q – quarterly report


8-K – current report


Forms 3, 4, & 5 – insider reporting


Sarbanes-Oxley


CEO & CFO must sign certifications of reports


Civil & criminal liabilities for falsehoods


No loans to insiders


Disgorgement of compensation


Real-time reporting


Sale of Securities


NYSE & Nasdaq


Bulletin Board


Pink Sheets


Agency


Express agency


Implied agency


Apparent agency


Ratification


Respondeat Superior – employer is liable for harm caused by agents/employees while on the job


 

 


Civil Rights Act


Protected classes – race, color, religion, sex, national origin


EEOC enforces


Discrimination bad


Affirmative action okay


Sexual harassment bad


ADA Act


Disability is a physical or mental impairment that substantially limits life abilities.


Employee must be able to perform the essential functions


Employer must make reasonable accommodations


Employee cannot be an affirmative danger to other employees


ADEA


Protected class – age 40 – 70


Discrimination bad


Mandatory retirement bad


Seniority systems okay


OSHA Act


Administered by OSHA


Very broad powers


Real Property – Ownership


Ownership in Severalty – only one owner


Tenancy in Common – several owners with equal rights to use the property


Joint Tenancy – when one owner dies, his/her rights revert to the surviving owners


Tenancy by the Entirety – Joint tenancy for married couples; can only be terminated by agreement of both


Real Property – Leases


Tenancy at will – either party can terminate any time


Tenancy for xxx – specified period


Tenancy by sufferance – the tenancy is over, but the owner & tenant agree to go on


 


Real Property – Buying


State law governs buying real property


Warranty deed – the seller guarantees no one else has a claim


Quit-claim deed – the seller transfers his/her interests


Encumberances:


  • Mortgages

  • Covenants – e.g. can’t paint your house purple

  • Easements – right to access

Land Use Regulation


Zoning


Covenants


Eminent Domain


CERCLA – Superfund Act


Intellectual Property


Personal property


Protected by federal law


Trade secrets


Trade secrets:


  • Has commercial value

  • Is kept confidential

  • Is not generally known

Patents


Patents (product/process, design, & plants):


  • New

  • Useful / ornamental

  • Non-obvious

Copyrights


Copyright:


  • Original

  • Expressed in a tangible medium

  • Creative

Fair use of copyright material:


  • Noncommercial copying

  • News reporting

  • Teaching

  • Parodies

Trademarks


Distinctive trademarks used in geographic areas


 

 

 


Business Contracts


Contract law is state law (either UCC or common law)


 


Forms of Contracts


Bilateral – a promise for a promise


Unilateral – a promise for an act


5 Requirements for a Contract


1.      Offer & acceptance


a.       Regarding price quotes: “I’ll take it” is the offer and “Ok, it’s yours” is the acceptance


b.      Print ads are considered offers


c.       “You break it, you bought it” is not an offer because stores exist for customers to examine merchandise, and you cannot accept by doing something you would have done anyway.


d.      Mailbox rule: Acceptance is valid when mailed; revocation is valid when received


2.      Consideration


a.       Courts won’t judge adequacy (i.e. market value)


b.      Past consideration is not consideration


c.       Moral obligations are not consideration


d.      Preexisting duties are not consideration


e.       Part payment of a debt is not consideration


f.        Promise to pay a debt discharged in bankruptcy or beyond the statute of limitations is consideration


g.       Promise to pay a charity is consideration


3.      Legal capacity to contract (e.g. not a minor, not drunk to incapacitation)


4.      Must have a legal purpose


5.      Must be in the form required (e.g. in writing)


Types of Contracts


Express – the agreement is explicit


Implied – the agreement is implied


Quasi – no contract, but a court is doing something to prevent unjust enrichment


Status of Contracts


Executed – all of the stuff is done


Executory – not all of the stuff is done


Statute of Frauds


Contracts that must be in writing:


1.      Transfer of any interest in real estate


2.      A promise to pay the debt of another


3.      Any contract where the terms cannot be completed within one year


Other Contract Issues


Discharging contract obligations:


1.      Subsequent illegality


2.      Objective impossibility – it is impossible to fulfill the contract (e.g. the goods are destroyed)


3.      Commercial impracticability – it is practically impossible to fulfill the contract


4.      Frustration – the entire purpose of the contract no longer exists.


Unconscionable – unequal bargaining power w/harsh effects


Mistakes:


1.      Bilateral mistake – no contract.


2.      Unilateral mistake – contract. Buyer beware


Compensatory Damages


General damages – not tied to a specific calculation (e.g. ‘lost profit’)


Specific damages – tied to something specific (e.g. ‘medical bills’)


Must show:


1.      Causation


2.      Certainty – i.e. the damages are not speculative


3.      Reasonable forseeability


4.      Mitigation – the damaged party is trying to keep the damages under control


Compensatory damages do not include legal fees


Punitive Damages


Used as a deterrent, and to back-end compensation where compensatory damages won’t quite do it.


Liquidated Damages


Damages calculated ahead of time, when the parties first enter into a contract. Courts don’t usually like these, because they look too much like a penalty.


Non-Monetary Relief


Specific performance


·        e.g. sale of land (must perform; cannot simply give back the money)


·        Not for personal svcs contracts (13th Amendment)


·        Injunction – court order to do or not do


·        Rescission – unwinding the contract


M&A Contracts


State law governs basic M&A, but federal law governs public company aspects and antitrust aspects


Two types of purchases:


1.      Asset purchase


2.      Stock purchase


Asset Purchase


Buyer does not assume liabilities


Tax treatment – stepped up basis in assets


Cannot purchase licenses this way.


Stock Purchase


No tax realization


Can purchase licenses and contracts this way


Buyer assumes liabilities


M&A Process


1.      Companies come together, usu. via brokers


2.      Initial negotiations & discussions – public companies must disclose this (to prevent insider trading)


3.      Letter of intent – not enforceable


4.      Negotiate final purchase agreement & sign


5.      Closing


M&A Terms


Contingent consideration – a portion of the payment is contingent upon certain revenue goals (also called “earn out”)


Covenants – promises, e.g. to run the business in the ordinary course until the deal closes


Conditions – e.g. if a fire destroys your property, I won’t buy.


Representations & Warranties – statements about the seller’s business (e.g. no pending lawsuits)


Indemnification


Other M&A Issues


Market out exeption -- No appraisal / dissenters’ rights for public companies, (where there is an obvious valuation mechanism, i.e. the stock market)


Some states have anti-takeover laws


Must fill out governmental consents, such as Hart Scott Rodino forms


Warranties


Governed by UCC (state law) and Magnuson Moss Warranty Act (federal)


Types:


1.      Express – created by any statement of fact about a good that’s being sold:


a.       Description (not vague advertising hype)


b.      Sample


c.       Model


2.      Implied warranty of merchantability – minimum quality guarantee


a.       Only applies to sellers of goods like the one in question (no private sales)


b.      Goods must also be adequately contained, packaged, and labelled


c.       Can be disclaimed if done conspicuously


3.      Implied warranty of fitness – guarantee that the goods are suitable for the seller’s purpose


Magnuson Moss Warranty Act


Warranties must be prominent and in plain English.


Express warranties must be either ‘full’ or ‘limited’


Limited warranty must specify the scope and length of coverage, as well as procedures the consumer must follow to make a claim.


Product Liability


Major theories:


1.      Negligence – failure in a duty to take reasonable care to only design/manufacture/etc. non-defective products. Counterarguments:


a.       Assumption of risk


b.      Contributory negligence


2.      Strict liability – liability regardless of duty owed


a.       defective or


b.      unreasonably dangerous.


c.       Foreseeable misuse is not a defense


3.      Breach of warranty –


Joint & Several liability – the plaintiff can collect damages from whomever is able to pay.


Secured Transactions


Secured transaction - A debt that is backed by something that can be sold to pay back the creditor


Security – the collateral


Secured party – the creditor


Security Agreement


The agreement in which the debtor agrees to pay the creditor.


Must reasonably identify the collateral.


Creates a “security interest”


Secured party must give value in exchange for the agreement


Debtor must have rights in the collateral


Can only be verbal if the secured party takes possession of the collateral


 

 


Ways to Perfect the Security Interest


1.      Financing Statement:


  1. Perfects the security interest by giving the secured party the right to enforce its interest against 3rd parties to whom the property may be transferred.

  2. Filed with the state. First party to file gets priority on the property.

  3. Lapses after five years if not continued

  4. Creditor gives a Termination Statement when debt is paid.

2.      Certificate of title – must be marked to show the secured party’s interest


3.      The secured party takes possession of the property (risk of loss is on the debtor)


4.      Use of a purchase-money security interest


Remedies for the Secured Party


1.      Repossession (no breech of the peace)


2.      Disabling the collateral


3.      Sale of the collateral


a.       Secured party gets money owed, plus expenses


b.      Sale must be done reasonably


   

 

 

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