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79 Cards in this Set
- Front
- Back
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Advantages of collective fm business
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Access to capital
Risk sharing Expertise |
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Sole proprietorship characteristics
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Unlimited liability
Earnings accrue to owner, taxed only once Must sell entire biz to transfer interests Existence tied to life of owner |
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Partnership characteristics
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Unlim liability
Joint and several Earnings accrue to owners, taxable one time Must get approve of other partners to transfer/sell General or limited |
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Corporation characteristics
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Liab is limited to investment
Earnings accrue to corp, taxed twice Can freely transfer interests by selling stock Perpetual existence Significant gov't regulation |
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General partnership characteristics
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One general partners
All partners personally liable for debts, avoid personal liability by each partner becoming corp Founded casually Right to manage Can transfer value of partnership interest |
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Limited partnership characteristics
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Limited and gen partners
Not personally liable Only risk what invested into partnership Gen partners within must file certificate of limited partnership to form Essentially passive investors with few rights beyond being informed Can only sell/give away interest if partnership agreement permits Perpetual existence |
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S corporation
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Regular limited liability of a corporation, but taxed like a partnership- all profits pass to shareholders, who pay individual tax rates
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Limited liability company
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One or more members who have limited liability and may share in mgmt
Ltd liability of corp and taxed like partnership (like S corp), but may include members who are corps, partnerships, etc |
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Limited liability partnerships
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Must qualify under state statute, not taxable entity, right to choose duration
Not responsible for partnership debts |
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Joint venture
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Assoc. of 2 or more persons to accomplish spec. objective
Power to bind each other for purposes of venture |
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Professional corp
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PC's provide more liab protection than partnerships,
All stockholders belong to same profession Legal process expensive/time-consuming Separate taxable entities Stockholders responsible for own torts Corp assets at risk for malpractice, but not innocent members' assets No shareholder liability for contract debts: vendors can't sue them individually for lapse in payment |
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Close corporations
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Defined as co. that is privately held and has taken adv. of the close corporation provisions of its state code
Protects minority shareholders Statutes typically require corp to require shareholder first offer shares to other owners before selling to outsider Flexible: can operate without board of directors, formal bylaws, or annual shareholder meetings |
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Franchising basics:
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franchisor: owns rights to intellectual property
franchisee: makes use of rights: gets benefits of advertising, endorsements, no breaking ice |
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Contract terms of franchising (4 caveats)
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1. Investments:
-Initial francise fee -Gross receipts percentage -Must buy operating supplies from franchisor 2. Location concerns: Particular about where to locate business to generate good amount of traffic -Get territorial exclusivity: assurance that won't be a franchise within certain range 3. Quality control: standards, designs, procedures 4. Termination provision: "good cause" for franchise terminations |
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Forming a corporation:
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1. Promoters assess initial interest and get it started
2. Obtain charter from state 3. Create corporate documents (articles of incorporation and by-laws) |
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Corporate governance
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Shareholders elect board of directors, who set large policies and make major decisions,
Select officers who run daily business operations |
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Parts of fiduciary duties
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Duty of Care
Duty of Loyalty |
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Duty of care specifics
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1. Act in best interests of corporation, use same care as would over own assets
Rational business purpose must back decisions Legality |
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Duty of loyalty specifics
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Put corp's interests ahead of own
No self-dealing w/o permission: make decision benefiting oneself or another company with which relationship No corporate opportunity blocking: competing against own corp. Conflicts of interest: other directors must be fully informed and get majority vote of disinterested directors |
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Types of shareholder voting
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Straight voting: one vote per share per position, all into ONE position
cumulative voting: one vote per share per position, may distribute into different candidates |
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Preemptive rights
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May buy shares in proportion of what already own when new shares issued
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Right of first refusal
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Give chance to sell shares within corp before outside bus
Allows shareholders to keep track of who has ownership in bus |
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Right of dissolution
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Share in what's left over after paying off creditors
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Shareholder proposals
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If own at least 1% or $2000 of stock, may have one proposal placed in proxy statement to be voted on in mtg
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Three Ways to Acquire Company Control:
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1. Buy assets
2. Merge with company 3. Buy stock from shareholders with a tender offer |
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Piercing corporate veil, 4 reasons
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Hold shareholders individually liable for debt
1. When fail to observe formalities 2. Commingling of assets 3. Inadequate capitalization 4. Fraud |
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Policy debate concerning antitrust laws
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1. Traditional school: focus on competition
2. Chicago school: focus on economic efficiency 3. Post-Chicago school: focus on consumer |
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Sherman Act, Section One
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Outlaws every contract, combination or conspiracy in restraint of trade
Requires concerted action (more than one entity involved) |
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Group boycotts
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Two or more competitors attempt to harm another competitor by disrupting access to supplier or customer
per se violation |
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Horizontal market division
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divide market by geography or type of consumer, per se
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Territorial or customer restrictions of vertical restraints
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Vertical divisions (like granting exclusive territory) are judged under rule of reason
Promotes interbrand competition at expense of intrabrand competition |
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Refusals to deal
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Illegal to charge diff prices to diff purchases if items are same and price disrim lessens competition
BUT legal to charge diff price if costs to serve this buyer are lower |
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Resale price maintenance
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Tells reseller what price to sell product at
If enforces prices unilaterally, no violation, but if responds to complaints differently, could be |
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Sherman Act, Section 2
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Illegal to monopolize
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Monopoly power defined
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Ability to control prices or exclude competitors while remaining profitable. Not necessarily have it without barriers to entry
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Determining market share gets tricky why?
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Percentage of shares in given market.
Product market? -What ppl do with it. -What substitutes available Geographic market? -Where are alternatives? Barriers to entry? If low, then not so picky |
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Predatory pricing
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Company lowers its prices to below cost to drive competitors out of business, then raises them again
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Tying arrangements
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Agrees to sell product on condition that buyer also by a tied product
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Clayton Act
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Prohibits anti-competitive mergers, tying arrangements, exclusive dealing agreements
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Price discrimination
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Selling same product to different buyers at different prices
(Seller is allowed to meet competition, however) |
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Exclusive dealing contracts:
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Agree not to buy competitors products
Judged by rule of reason Generally acceptable today b/c usually don't close off too much commerce |
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Mergers focus
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Prevent too much concentration
Judged by market share, but also how affects competition and consumers |
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Who enforces antitrust legislation?
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Dept. of Justice
Federal Trade Commission |
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Exemptions of antitrust law
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Insurance
Union activity Cooperation b/w business and gov't |
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Utility patent
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Available to those who invent/significantly improve upon:
a. Mechanical invention b. Electrical invention c. Chemical invention d. Process e. Machine f. Composition of matter Lasts up to 20 yrs from date of application |
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Design patent
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Original design for something- non-obvious and nonfunctional design features
Appearance protected, not function 14 yrs |
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Plant patent
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Newly created plant, if can produce asexually
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Requirements to obtain patent:
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1. Novel: not known or used in this country
2. Nonobvious: can't be patented if obvious to a person with reasonable skill in particular area 3. Useful |
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Application process for patent
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Patent won't be granted if in commercial use for one year
Can be difficult/expensive SO can try Provisional Patent Application first- one year lifespan |
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Who gets patent priority
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First to invent and USE, not first to file
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Copyright basics
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Holder owns particular tangible expression of an idea
Need not be novel |
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Scope of copyright protection
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Applies to fixed/durable medium: literature, music, architecture, etc.
If someone else records, they get copyright. B/c its fixed and durable 70 years after death of last living author, 95 years after publication or 120 years from creation |
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When copyright starts
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As soon as in tangible form, valid
Getting special (C) mark can add, b/c other countries recognize it |
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Proving copyright infringement
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Work was original and
Actual copied work Or had access to real work and is substantially similar |
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Fair use of copyrights
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Criticism, comment, news reporting, scholarship, research
Purpose and character: Is it nonprofit or educational? Is it factual or more creative? How much did you use of it? What is the effect of its market value if you copy it? |
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No Electronic Theft Act
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Deter downloading of copyrighted material by providing criminal penalties for reproduction/distribution of $1000 worth of copyrighted material
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Digital Millenium Copyright Act
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Cannot delete or falsify copyright info prior to distributing work via Internet
Can't circumvent encryption or scrambling devices, or let others know how to |
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Trademark definition
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Any combination of words/symbols that a business uses to distinguish products or services
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Types of marks
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Trademark--affixed to goods
Service mark--affixed to services Certification marks: used to attent that products meet certain organization's standards Collective marks--identify members of an organization |
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Ownership of trademark
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First to use it as a mark in trade owns it
Registration makes it valid nationally |
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Types of valid trademarks:
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Fanciful marks: made up words
Arbitrary marks: existing words with no other tie to product Suggestive marks: describe products' function Secondary meaning: name associated with product over time Trade dress: shape, color, size, texture, etc. |
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Nonvalid trademarks
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Too similar to existing mark's colors or name
Generic word Descriptive word Surname Scandalous, immoral or deceptive |
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Prohibited uses of infringement or dilution:
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Infringement: deceives customers
Dilutions: making use of trademark in a way that does not directly deceive consumers, but confuses by placing it on an unrelated product |
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Cybersquatting
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Snagging domain name in hopes that the rightful owner will pay you to give it up
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Define trade secrets
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Formula, device, process, or compilation of information that used in business that gives advantage over competitors who do not own it
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Liabilities attached to misappropriating trade secrets
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Actual damages
Unjust enrichment Reasonable royalties |
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Externalities
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Costs aren't borne by producers or consumers
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National Environmental Policy Act
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Requires filing environmental impact statement
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Clean Air Act of 1970 four major provisions:
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1. Primary standards establishing national air quality for primary pollution (that which harms public health)
2. Secondary standards: unpleasant effects on quality of life 3. State implementation plans must reach primary in 3 years and secondary in reasonable time frame 4. Citizen suits, permitting anyone to file suit against a polluter or EPA for failing to enforce statute |
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Market-based sulfur dioxide emissions
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Uses market-based "emissions allowance" trading approach, selling margin between used pollution and what's allowed.
Incentive for firms to be efficient in reducing pollution |
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Clean Water Act of 1972:
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Make all navigable water suitable for swimming and fishing by 1983.
Eliminate discharge of pollutants into navigable water by 1985... Clearly did not meet these |
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Point source
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Specific place where water pollution gets emitted
Sets limits, by industry, for amount of each type of pollution each producer/point source may have Each point source set to same standard Use of best available technology |
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Primary state implementation of water standards
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Identify use for each body of water
Jurisdiction over non-point sources of pollution |
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Waste disposal: Resource Conservation and Recovery Act
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Establish rules for treating hazardous and other forms of solid waste
Determine which wastes are hazardous Tracking from production to disposal |
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Superfund
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Liability for anyone who owns or operates/d contaminated site
Pay cost of cleanup, cost of damage to resources, and health assessments Joint and several liability |
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Federal Insecticide, Fungicide, and Rodenticide Act
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Must register pesticides
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Federal Food, Drug, and Cosmetic Act
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Requires EPA to set maximum levels for pesticide residue in raw or processed food
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Toxic Substances Control Act
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Regulates chemicals other than pesticides, foods, drugs, and cosmetics
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Endangered Species Act
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Gov't must prepare list of species in danger of extinction
Must develop plan to revive species Prohibits sale/transport of species Prohibits "taking" of species May be "delisted" |
