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36 Cards in this Set
- Front
- Back
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Sole Proprietorship
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A form of business under which one person owns and controls the business. These do not happen unless you have the capital to give to the company in the first place. In this case, all responsibility is on the individual, so if the company is sued, it has to come out of the individual’s pocket, the corporation and the individual are one in the same, there is no separate entity like there is in a corporation.
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Articles of Incorporation
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Filed by a promoter or an incorporator with the branch of state government responsible for regulating corporations. A small fee is usually charged. Don’t know what else to say about this, this is just to let the state know that you have created a corporation. They must have name # of shares and address, or name + address of incorporates.
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Bylaws
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A document that governs the maintenance and operation of an organization. This is set up by the organization and lays out the organizational structure. There are many different possible structures, so this lets everyone know including yourselves how your specific corporation is set up.
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Inside Directors
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Senior executives employed by the company and are on the board of directors. The shareholders select the directors who then in turn hire the management. These are people within the company who are selected to be on the Board of Directors. There are also Outside Directors.
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Annual Meeting of Shareholders:
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Annual Meeting where all shareholders are invited to share ideas or concerns along with a presentation of the company’s current financial situation. Shareholders are allowed to talk, although not every shareholder is able to speak at a Meeting due to time constraints. If a shareholder wants to make himself a director, the corporation must provide a list of all shareholders so you can contact them and have them support you. This would happen at the meeting as well.
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Fiduciary Duties of Directors
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The responsibility of one in a position of trust with another to act in the best interests of the other. Remain loyal, due care, and no conflict of interests.
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Business Judgment Rule
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A rule protecting business managers from liability for making bad decisions when they have acted prudently and in good faith. (Courts won’t second guess management if fiduciary duties are met)
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Compensation Committee of the Board
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Decide how much money the president and officers should make.
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Audit Committee of the Board
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Made up of outside directors and many have to be accounting experts to monitor the financial records and make sure they are accurate.
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General Partnership
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An association of two or more persons where they agree to work together in a business designed to earn a profit. Advantage is that is allows pooling of individuals’ talents and resources. Easily organized and operated. Taxes paid on partners’ personal returns. Disadvantages are that partners personally liable for business debts. Terminates on death or withdrawal of partner. Shared management authority.
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Limited Partnership
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A form of business organization that has one or more general partners (promoters) who manage the business and have unlimited liability for the obligations of the business and one or more limited partners (investors) who do not manage and have limited liability. The maximum liability for investors is their original investment. The shares or interest may be sold or transferred freely for limited partners. General partners have same restrictions as in general partnership although provision made for an alternate general partner so that the project can continue unabated should a general partner be forced to withdraw. This requires state certification
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Closely Held Corporation
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Small Corporation with a shareholder agreement that restricts on transferability of shares. Family has first right to buy shares and don’t want shares of stock going outside of family.
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Franchise
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A marketing arrangement in which the franchisor permits the franchisee to produce, distribute, or sell the franchisor’s product using the franchisor’s name or trademark. Franchisee pays a fee and royalties to the franchisor. State regulation to protect franchisees.
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Shareholder Rights
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Shareholders have the right to inspect the corporation’s books and records (a right to info). In most states, shareholder may have preemptive right to buy a fraction of any new shares issued equal to the fraction of existing shares held by that shareholder so they maintain the degree of control in voting that had prior to issuance of new shares. Also have right to sue corporations. Either individually or part of a class action suit. Derivative suit is most important form of shareholder litigation when the corporations has been wronged but the directors refuse to act, so shareholders are allowed to sue on behalf of the corporation. Their duties are to elect/remove directors, amend articles of incorporation and vote on changes.
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Securities Registration
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Prefiling period (before the registration statement has been filed with the SEC) no sales of the security are permitted. During the waiting period (after registration statement filed, but before approved) no sales are permitted but a limited amount of solicitation allowed through a tombstone ad or red herring prospectus. After the SEC approves the registration statement, the post-effective period begins. Solicitations are permitted and sales made only if offeree received final prospectus.
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10-Q Report
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To promote full disclosure the SEC requires registered corporations to file a 10-Q report quarterly. Contains year-to-date information, including unaudited interim financial statements.
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Exchange Act, section 10(b)(5)-
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Antifraud provisions to the Securities Exchange Act of 1934. Prohibits misstatements or omissions of material fact. Forbids insider trading. Outsiders may be guilty of violation if they wrongfully secure material, nonpublic information and tip or trade on it for personal gain known as misappropriation.
1) The omission was material (likely affected price of security) 2) Defendant acted with scienter, fraud was intentional. 3) Plaintiff relied on defendant’s fraud |
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Insider Trading
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Trading securities while in possession of material nonpublic information, in violation of a fiduciary duty. Concept has extended to tippers and tippees.
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Accounting Oversight Board
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Provision in Sarbanes-Oxley Act that set up the accounting oversight board to oversee audits of public companies and had great investigatory and punitive powers. Audit c ommittee must consist of all independent directors. Mandatory audit partner rotation. Enhanced scrutiny of internal control system.
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Market Power
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The ability of a firm to decide questions of price and output without concern for competition. Monopoly power is the highest degree of market power.
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Antitrust Criminal Behavior
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Sherman Act, Section 1 deals with conspiracies. “Every contract, combination…or conspiracy in restraint of trade or commerce among the several states or with foreign nations is declared illegal” “Every person who shall make any contract or engage in any combination of conspiracy hereby declared to be illegal shall be deemed guilty of a felony.” Prosecutions include price fixing and bid rigging, market allocation agreements, agreements to restrict output, obstruction of justice, or mail fraud.
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Treble Damages
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Part of the Clayton Act, Section 4. A person injured in his business or property due to violations of the antitrust laws can sue to collect “threefold the damages by him sustained and the cost of suit, including a reasonable attorney’s fee.” This award of damages totaling three times the amount of actual damages is done to discourage further wrongful conduct.
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Monopolization
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Market power permitting the holder to fix prices or exclude competition. Sherman Act, Section 2 deals with monopolies. “Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several sates, or with foreign nations, shall be deemed guilty of a felony” Monopoly is also the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historical accident. See US v Microsoft case.
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Legal Problems presented by the Internet
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Problems of privacy such as spying and identity theft. Must have consent to publish or unauthorized invasion of privacy. It is a tort for unwanted publicity if it embarrasses the individual. Problems of control such as use of the internet by children to look at porn, misuse by hackers, and spam. Problems in conducting business such as formation of contracts on the internet, protecting intellectual property, and dealing with market dominance. Problems in adjudication such as what court would have jurisdiction, what information must be produced, and how courts should keep up with technology.
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Electronic Communications Privacy Act
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Enacted in 1986 to protect against the unauthorized interception of various forms of electronic communications and to update and elaborate on federal privacy protections and standards in light of changing computer and telecommunications technologies. It is a crime to intercept electronic communications. It is illegal to intercept sent or stored e-mail. Prohibition does not apply to party supplying the electronic communication service (like an employer) Does not apply to police investigation. Police must get warrant. Recipient of an email message has the right to disclose it. ISP’s are prohibited from disclosing e-mail message to anyone but addressee.
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Children’s Online Protection Act
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Prohibits Internet operators from collecting information from children under 13 without parental permission. Requires sites to disclose how they use information they acquire. Parents must be allowed to review and correct any information collected about their children.
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Computer Fraud and Abuse Act
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Prohibits forms of hacking including: computer espionage, theft of financial information, computer fraud, intentional and negligent damage to computer, and computer extortion.
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Digital Millennium Copyright Act (DMCA)
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Passed in 1998, webcasters can play copyrighted music over the internet as long as they pay standard royalties and meet certain criteria such as ensuring that the broadcasts are not interactive.
Prohibits deletion of copyright information and distribution of false copyright information Prohibits circumvention of encryption or scrambling devices that protect copyrighted works Used against those who download music |
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Anticybersquatting Consumer Protection Act
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Put in place to protect famous people who have recognizable names. When their name or a domain name is registered in bad faith (including misspellings), a victim can get a cease-and-desist order and collect statutory damages up to $100,000, or actual damages.
Julia Roberts example (sued holder of juliaroberts.com) |
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Globalization
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The term itself means that a company has a global presence and is known throughout the world. There are two theses: 1. Globalization is going to happen and is beneficial. The market determines what venues a product can enter and the entire world benefits from having this product be globally recognized. 2. Globalization is bad and should be resisted. It allows companies with multinational presence to exploit cheap labor and use natural resources in poor developing country for their benefit in bigger countries.
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Foreign Direct Investment
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This is a type of business done abroad. This is building a plant in the host country. There are other types like selling through commissioned agents, but this type of building a plant of your own in a foreign country.
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Convention on the International Sale of Goods
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I’m not 100% sure about this, but I am pretty sure this was a convention, about the international sale of goods. It basically says that international sales don’t need a contract, it just says that acceptance is effective upon the receipt by the offerer. A contract must specify quantity and price. Other than that, I don’t know much, it doesn’t say much in the book.
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Letter of Credit
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These are letters used in international sales deals that help assure both parties will perform as they agreed. The seller gets paid when he produces documentation showing shipment, and the buyer’s bank pays when it gets bill showing shipment has been made. The technical definition is a statement from a financial institution guaranteeing it will pay the financial obligations of a particular party.
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Gray Market goods
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These are goods that are conducted outside the usual supplier-approved channels of distributions. This is a problem if you license a company in another country to sell your product. They may be selling to people other than their country and people you didn’t necessarily want them to sell to, and those products end up in your country and then you are competing with your own product. It is legal, but the gray market operates parallel to the “officially” authorized chain of distribution. It is outside sales from the distribution originally set-up.
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Foreign Corrupt Practices Act
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This set up that it was illegal for American countries to pay bribes to foreign govt. officials or political party members in order to get or retain business. This typically tends to cripple American business in trying to get foreign business, because other people are using bribes. This also says that books must be kept in a way to disclose slush funds, funds which these bribes are paid out of.
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Corporate Social Responsibility
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Decision makers are obligated to take actions which protect and improve the welfare of society as a whole, along with their own interests.
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