Business Law

OA BUSINESS LAW

OA1 Acquire foundational knowledge of business laws and regulations to understand their nature and scope

LAP-EC-016-Scolor.pdf

Business law or commercial law is simply a body of law that governs every aspect with regards to conducting a business.
contract law Designed to provide stability, predictability, as well as certainty, for buyers and sellers in the marketplace.
A contract is a legal agreement negotiated between two persons that creates an obligation to perform (or not perform) a particular duty
- A “person” may be either a human being or an entity, such as a corporation, created by law.
Sales laws relate to the transfer of ownership of property from one person to another for value
What is intellectual Property?
- A product resulting from human creativity, an original work fixed in a tangible medium of expression.
Intellectual property laws protect the value of the investment in their creation and their economic potential into the future.
Types of Intellectual Property:
- Patents - Inventions
- Copyrights - Movies, Songs, Plays, Literary
- Works, Choreography, Paintings, drawings, Photographs
- Trademarks - Products and Services
- Trade Secrets - Formulas, Practice, Process, Patterns
- Designs - Machines, Building, Products
- Copyright law protects the expression of an idea but not the underlying idea itself, i.e. composers, artists, photographers.
  - - Minimum term of life of author plus 70 years
    - 95 years in case of anonymous or pseudonymous works
    - Published and unpublished works
Patent Law - Exclusive federal grant from U.S. Patent and Trademark Office to make, use and sell an invention for 20 years.

- - Cannot be renewed.
  - Protection much stronger than copyright.
  - Holder has exclusive rights to produce
  - Must be an original idea.
  - Patents for Software are now available.

Trademark is a distinctive mark, symbol, or slogan or any combination of these used by a business to identify goods and to distinguish them from products sold by others.

- - Trademarks apply to products.
  - Trade name applies to companies and are protected by federal law as well.
    - - Example: IBM, Coca-Cola, NBC.
  - Register with U.S. Patent Trademark Office
  - Registration allows use of “®” symbol.
  - Continuous use good forever.
  - Renew every 10 years.
  - General trademarks can be lost (Corn flakes and aspirin)

Bankruptcy Law - Business owners who can't afford to pay back their creditors may file for bankruptcy.
- Way to settle their debt & avoid costly legal action
- Creditors may be prevented from collecting on debts until the bankruptcy process is completed.
Generally Two Forms of Bankruptcy Relief
- Liquidation
- Reorganization
Chapter 7 – Liquidation.
- Primarily for individuals but affect businesses operating as sole proprietorship
- Trustee will sell assets (business & personal) to satisfy outstanding debts
Chapter 11 – Reorganization
- Applies to both individuals & small businesses
- Small businesses operate under increased scrutiny but may keep operating under a reorganization plan
Chapter 12 – Reorganization
- Family farmers & fishermen
Chapter 13 – Reorganization
- Personal only.
- Trustee sets up a 3-5 year repayment plan. Debtor keeps more assets under this plan.
State tax laws
- Income taxes:
- Tax on profits of the business
- Determined based on the type of business ownership
Payroll taxes – tax on salaries and wages paid to employees
- State income tax withholding – paid by employee only
- State Unemployment tax – paid by business only
- Worker’s Compensation Insurance – paid by business only
Sales & Use Taxes – collected from customers & remitted to N.C. Dept. of Revenue
Property taxes – tax on the assets of the business
- Real estate
- Personal property – trucks, equipment, etc.
Federal tax laws
Income taxes:
- Tax on profits of the business
- Determined based on the type of business ownership
Payroll taxes – tax on salaries and wages paid to employees
- Social Security – paid by business & employee
- Medicare – paid by business & employee
- Federal income tax withholding – paid by employee only
- Federal Unemployment tax – paid by business only
Excise taxes – broad category of taxes covering certain types of businesses
- Environmental taxes.
- Communications and air transportation taxes.
- Fuel taxes.
- Tax on the first retail sale of heavy trucks, trailers, and tractors.
- Manufacturers taxes on the sale or use of a variety of different articles

OA2 Apply knowledge of business ownership to establish and continue business operations

BL1 Student Handout.pdf

Corporation

Many large businesses, like General Electric and AT&T, operate as corporations. A corporation is a distinct legal entity with a separate existence from the shareholders of the business. One of the biggest advantages of a corporation is the limited liability protection provided to owners of the business. A shareholder’s liability for company debts and obligations does not extend beyond the amount he invests in the company. Double taxation is one of the biggest drawbacks of an incorporated business. A corporation must file a corporate tax return and pay taxes on profits at the company’s corporate tax rate. The second layer of tax occurs when dividends are distributed to shareholders. A shareholder must report dividends on her personal income tax return and pay taxes on the dividends at her personal income tax rates.

An organization owned by one or more shareholders and managed by a board of directors.
Ownership
- - Determined by purchase of stock
  - A stockholder, or shareholder, owns a 'piece' of the company
  - One share of common stock equals one vote

Partnership

A partnership is a business formed and operated by two or more individuals who hope to generate a profit. One of the biggest advantages of a partnership is the ability to collaborate with others to achieve company goals. Partners can share managerial responsibilities and make decisions together. This alleviates the strain of having all the work fall on one person. However, the potential for conflicts and disputes is one of the biggest drawbacks of a partnership. Partners may disagree on how to manage the company’s affairs or allocate the company’s resources. Having a written operating agreement helps eliminate some of the confusion, but the potential for conflict is ever-present when operating a partnership.

A business owned and controlled by two or more people who have entered a written agreement
The management of the company depends on the partnership agreement.

Sole Proprietor

A sole proprietorship is a business owned by a single person. A sole proprietorship is the easiest type of organizational structure to adopt because there are no documents needed to begin the legal existence of a sole proprietorship. One of the biggest advantages is the amount of control the owner has over the business. Sole proprietors control every aspect of the company’s affairs, from hiring employees to making managerial decisions. A big disadvantage of a sole proprietorship is the lack of liability protection for the business owner. Sole proprietors have unlimited liability for company debts and obligations, meaning a business creditor can pursue the owner’s personal assets as compensation for business debts.

A business owned and run by one person
The business is typically managed by the owner.
Formation varies by state.

LLC

Limited liability companies combine the personal asset protection of a corporation with the simplicity and flexibility of a partnership. One of the biggest drawbacks of a limited liability company is the cost involved to establish the business. For example, Illinois charges $500, as of 2011, for a company to file articles of organization. Furthermore, the company will incur additional expenses if a lawyer is hired to prepare the company’s articles of organization and operating agreement. Taxation is one of the biggest advantages in a limited liability company. Members of an LLC can pass their share of company profits and losses directly to their personal income tax return. An LLC does not have to file a tax return as a business entity.

Franchise

franchising~a business relationship in which the developer of a business idea sells others the rights to the idea as well as the name

Permission to operate a business to sell products and services in a set way
Begins with a parent company who owns the product or service and grants the right to another business
Franchiser: the company that owns the product
Franchisee: the company purchasing the right to run the business
Types of Franchises
Business-format - Requires franchisee to sell products or service in a specific format
Product trade-name - Allows franchisee to sell specific products. This format is usually formed by automobile, appliance, and petroleum product

Types of Business Ownership Advantages and Disadvantages

Sole Proprietorship A and D

A: • Easy to start up • Complete control of the business • Owner receives all the profits • Limited taxes (one time taxation)

D: • Limited capital (money) • Unlimited liability (responsible for ALL debt) • The business is limited to the lifetime of the owner

Partnership A and D

A: • More capital and credit available than a sole proprietorship

• Combined resources (money, expertise) • Shared management responsibilities • Shared risk • Work load easier to manage than a sole proprietorship

D: • Profits are shared • Responsible for each others decisions • Potential for disagreement among partners • Unlimited liability (depending on type)

Corporation A and D

A: • Easier to obtain capital • Limited liability for shareholders • Life of the corporation is unlimited

D: • Double taxation (profits and earnings) • Government regulations and legal restrictions • Decision-making shared among managers, board of directors, and shareholders

Types of Partnership

Limited Liability Partnership
- - Identifies some investors who cannot lose more than the amount of their investment
  - Investors are not allowed to participate in the day-to-day business management
General Partnerships - a partner plays an active role and has unlimited liability (every partnership must have at least one general partner).

Specialized Corporations

Subchapter S (S-corporation) - treats partners as individuals by taxing them once
Limited Liability Company - Provides limited liability protection for owners
Nonprofit corporation - A group of people who join to do some activity that benefits the public
Public-established for a governmental purposes - Example:
- - National Science Foundation • Export-Import Bank of the United States
Private-established by individuals for business or charitable purposes - Example:
- - Enterprise Rent-A-Car
  - American Cancer Society

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