LEGAL ASPECTS OF BUSINESS
1. What is agreement?
2. List the types of negotiable instrument.
3. Mention the characteristics of a company.
4. What is Corporate Governance?
5. Define factory,
6. List out the Deductions can be made from the wages of the workers.
7. Who is a casual dealer?
8. 'What is Interstate tax?
A business operates within a legal framework that, for the most part, works. This legal framework has a long history and many reams of laws and regulations that will make your head spin. At some point, most companies will have to deal with some sort of legal issue related to their business. Don’t be afraid of this. I won’t lie. It’s scary when someone wants to sue your company but the legal system, for all it faults and issues, does provide a reasonable framework for resolving business disputes.
What follows is meant as an overview to get you exposed to the legal aspects of running a business. As most of you know, I am not a lawyer nor do I play one on TV. So, if you have legal questions, please seek out professional advice.
All businesses are categorized as some sort legal entity that governs the way they are treated under the law. Some structures (like LLC’s, C-Corps, S-Corps or LLPs) are considered free standing entities that have special rights (e.g. They can enter into contracts) and the owners have limited liabilities. While others, most notability the sole-proprietorship, the owner assumes all the liability and rewards. The type of entity you pick will depend a lot on your liability profile and whether or not you will have investors. Just remember that the law treats different entities according to criteria that will vary, so make sure to become familiar with you structures particular laws.
Compliance to local (city and county), state and federal laws will be something that all businesses will need to deal with. Unfortunately, these laws vary enough that it makes sense to call up your local chamber of commerce or local government and have them give you a reference. In general, your biggest compliance headache will be in trying to figure out what taxes you owe, employee rules and safety laws.
In most cases, compliance is left to the business owner and as long as the taxes are paid on time and no one registers a complaint, most government departments will not be knocking at your door. Compliance becomes challenging when the law changes or you assumed you did not have to perform a certain task. In these cases, ignorance of the law is no excuse. So, to cover yourself and your business, ensure that you get “no need to comply” decisions in writing. That way, at least you will have a something in writing as to why you did not comply.
Most businesses will enter into a contract with a person or another business at some point in their existence. These contacts are what define how the working relationship will be carried out and who is responsible for what deliverables or payments. Contact language can vary but in general, most contacts will have standard boilerplate provisions such as:
Definitions: All contracts will have a section that will define the terms used in the contact. The most typical terms that will be defined include the parties entering into the contract and what the project is they will be working on.
Notice: This refers to where any communications should be sent or which parties are responsible for the contract.
Governing Law: What laws govern the contract. This is usually a county, state or country.
Entire Agreement: Says that no other agreements are required to execute the contact. This is usually done so that it’s clear what the contact is and what it depends on.
Force Majeure: Extraordinary event or circumstance beyond the control of the parties such as riots, acts of nature, government collapse, etc. This term says that if these types of events happen, that the parties are not responsible for the consequences.
Term and Termination: How long the contact is good for and what causes the contract to terminate.
Payment Schedules or Deliverables: All payments related to the contract and what tangible thing (be it code, hardware or documents) will be delivered in order to receive payment.
Severability: This means that if a term in the contract is determined to be illegal that does not nullify the entire contact, just that section or provision.
Warranties And Indemnities: Usually deliverables are warranted against defects of craftsmanship or other things. Indemnification says that the seller says that they have the right to sell or transfer the properly and will fight any lawsuit against the receiving party.
Default: What is consider a breaking or breach of the contract. This usually spells out specific instances or events that trigger remedies or ways that a party can collect when the other party triggers a default event.
Counterparts: Means that the contact can be signed in parts and put together as a whole document without everyones signature appearing on the same page.
Confidentiality: Says that certain items, terms or pricing will remain confidential. It sometimes deals with intellectual property disclosure but those types of issues are usually handled via a Non Disclosure Agreement (NDA).
There are many, many more sections of a contract, depending on the type but the ones above are almost always in a contract. Make sure you do a little research before you contact a lawyer since that will save you time and money.
The legal system is setup to resolve disputes. These disputes usually revolve around some sort of breach of contract, violation of intellectual property or breaking a law. When you are faced with a legal action, it’s best (and I mean it) to seek out counsel to assist you in navigating the nuances of the legal system. Once you have contacted a lawyer, there are a couple of things you should do right away. These include:
Remain calm: Lawsuits happen. Don’t freak out just because someone wants to sue you. Relax. Take a deep breath and go find a lawyer.
Don’t call your adversary: Whatever you do, don’t call your adversary until you have talked to a lawyer. Whatever you say in the heat of passion will be used against you. If you have to vent, go yell at a wall.
Gather up all your documents: Start to collect any and all documents that relate to the matter. Be as detailed as you can be.
Keep a Notebook: Any conversation or phone call or meeting related to the law suit or action you should write down in a dedicated notebook just for the particular matter. This is important since you can use these notes during a trail. Remember to number, date and sign the page.
Write down everything you know: In your notebook, write down as much as you can recall about the matter. Keep a list of questions you need answered and things that may be fuzzy.
Read the contract: Go dig up all the old contracts related to the matter and reread them to ensure you understand what’s in them.
Discuss with your partners/employees: When appropriate, disclose as many details about the suit as you can. It’s important to be open with partners and employees about legal dealings. In some cases, your partner or employees may hold valuable insights into the matter.
There are a lot of companies who abuse the legal system and these companies make it miserable for everyone else. So, don’t fly off the handle and sue people. Rather, a lawsuit should be your absolute last resort if you can’t find a equitable solution to your problem.
A NECESSITY THAT’S NOT THAT EVIL
Having good corporate counsel will make your business better. I know, it feels like a necessary evil but it’s really just part of doing business. Just like all your hires, you need to find the right lawyer for your stage of business and work with them like they are part of your team.
1. Look up a lawsuit among two businesses in your market. What is the lawsuit about? What are the major points of contention? Write a couple of paragraphs on how you would approach resolving the conflict.
2. Review one of your companies contracts. List the terms and sections. How many of them seem generic? What are some of the default conditions that could lead to a lawsuit? Write a paragraph on why the contract was written the way it was.
3. What type of legal entity does your business operate under? What special privileges does that grant it?
Question No. 1 Marks - 10
Determining whether or not the parties entered an agreement freely _____.
- depends on the motives of each party
- deals only with an agreement
- will not enforce an outcome
- is the underlying objective of contract law
Question No. 2 Marks - 10
The law presumes that anyone entering a contract has _____.
- nothing better to do
- legally surrendered negotiation
- the legal capacity to do so
- something to gain or receive
Question No. 3 Marks - 10
Maria offers to pay Alsad $100 if he makes and A in his business law class. While the business law class is in progress, Maria's promise is _____.
- unilateral and executed
- unilateral and executory
- bilateral and executed
- bilateral and executory
Question No. 4 Marks - 10
Betty is awarded $10,000 damages against Ethyl in a damage suit arising from an auto accident. Betty and Ethyl agree to the payment of this judgment at $100 per month. This payment agreement is confirmed by the court and recorded. Betty and Ethyl now have a _____.
- contract under seal
- formal contract
- contract of record
- contract to contract
Question No. 5 Marks - 10
Phillip needs money and decides to paint Donna's house while she is out of town and bill her for the work. Donna refuses to pay Phillip and Phillip sues. A court _____.
- will not apply quasi contract doctrine
- will apply quasi contract doctrine
- might apply quasi contract doctrine if the painting were done very well
- cannot apply quasi contract doctrine since Phillip and Donna did not have a written contract.
Question No. 6 Marks - 10
Avia silently takes one candy bar each day from Jerry's candy store and pays for them at the end of the week. On this particular day, Avia silently takes two candy bars from Jerry's candy store. At the end of the week Avia only wants to pay for one candy bar since she believed that she should get one free for being a good customer. A court will _____.
- apply Avia's belief in resolving this dispute
- be unable to resolve the dispute unless the parties agree
- create a contract since no words were spoken
- view Avia's actions as a reasonable person would have
Question No. 7 Marks - 10
Sarah purchases a car when she is a 15-year-old from OK Motors Inc. Sarah's contract is _____.
Question No. 8 Marks - 10
Karaya contracts with Lance to have him mow her yard every two weeks while she spends the summer in India. Lance only mows every four weeks and Karaya's yard looks very ugly. Karalya's neighbor, Zaya, sues Lance for his failure to maintain Karaya's yard properly. A court will _____.
- allow Zaya to sue since she sees the ugly yard next door
- dismiss Zaya's suit since privity is lacking
- allow Zaya to sue as an intended beneficiary
- allow Zaya to sue as an incidental beneficiary
Question No. 9 Marks - 10
This theory of contract law focuses on the outward actions and the words of the parties:
- equal value
- good faith
Question No. 10 Marks - 10
Jared, age 18, agrees not to smoke when his uncle Brandon, age 40, promises to pay him $1,000 for not smoking until age 22. Will a court compel uncle Brandon to pay Jared $1,000 if Jared does not smoke?
- No, because Jared has better health for having not smoked.
- No, because uncle Brandon did not benefit from Jared's action.
- Yes, because Jared and uncle Brandon are adults.
- Yes, because Jared gave up a legal right.
Question No. 11 Marks - 10
Charlie tells Bo that he is looking for a new car. Bo says that he will sell Charlie his car for $12,000. Charlie says he wants to think it over. In what stage of contract formation are Charlie and Bo?
Question No. 12 Marks - 10
How certain and definite must an offer be?
Question No. 13 Marks - 10
Alpha Inc. offers to purchase all the coal it needs from Mountain Mining Inc. Alpha and Mountain have what type of agreement?
Question No. 14 Marks - 10
Janet promises to pay Roberto $20 to wash her car. Roberto may accept Janet's offer by _____.
- promising to wash the car
- specifying to wash the car
- preparing to wash the car
- washing the car
Question No. 15 Marks - 10
Norm offers to sell his horse to Gary for $1,000. Gary states that he accepts the offer provided Norm includes a month of riding lessons. What is the legal status of Gary's statement?
- implied acceptance
Question No. 16 Marks - 10
Cindi receives via FedEx a new DVD player that she did not order. What is Cindi's legal obligation?
- hold the DVD player for a reasonable time
- promptly return the DVD player
- pay for the DVD player
Question No. 17 Marks - 10
Grandma Jones offers by mail to sell her house to Allen for $80,000. She dies unexpectedly. Allen sends his acceptance the next day after her death. Is there an enforceable contract?
- Yes, if Allen did not know of the death.
- No, the death terminated the offer.
- Yes, if Allen responded in a reasonable time.
- No, since the death was unexpected.
Question No. 18 Marks - 10
Dexter is considering purchasing from Lisa a vacant lot and opening a fast food restaurant. However, he heeds a month to obtain his financing. How may Dexter secure an enforceable offer to purchase the lot?
- requirement contract
- firm offer contract
- option contract
- security contract
Question No. 19 Marks - 10
Which of the following contains rules regarding cyber contract law:
- The Uniform Electronic Transactions Act
- The C-Sign Act
- The Internet Contract Act
- The Cyberspace Transactions Act
Question No. 20 Marks - 10
A cyberofferor should include the following terms in their offer:
- payment criteria
- liability disclaimer
- return procedures
- all of the above
Question No. 21 Marks - 10
In the granting of mutual assent, a "meeting of the minds" means that _____.
- there were lengthy negotiations.
- there is a complete understanding of all aspects of the agreement
- both parties know the terms and have willingly agreed to be bound by them
- both parties know the terms, have willingly agreed to be bound by them, and have had a face-to-face meeting
Question No. 22 Marks - 10
Eva intentionally and falsely states that an old ring that she is selling to Julia was made in France. Julia, a collector of French jewelry, pays $3,000 for the ring based upon these statements. Julia later learns that the ring was made in Poland and is worth $6,000. May Julia successfully sue Eva for fraud?
- No, because Julia has not suffered a loss.
- Yes, because where the ring was made was a material fact to Julia.
- No, because Julia was free to inspect the ring before purchasing it.
- Yes, because Eva intentionally and falsely misstated a material fact.
Question No. 23 Marks - 10
Ichi covers the rust damage to a car he is selling to Henry with a new paint job. Henry does not ask about rust damage. Has Ichi committed fraud?
- No, because Henry didn't ask about rust.
- Yes, because Henry cannot be expected to discover the rust.
- No, because rusting is a natural process that Henry should understand.
- Yes, because Ichi made the car look nicer than it really was.
Question No. 24 Marks - 10
Yes, because Ichi made the car look nicer than it really was.
- rescission and damages
- rescission, damages, and an injunction
Question No. 25 Marks - 10
Beth contracts to sell Minda merchandise stored in a warehouse. Unknown to either person, the warehouse burned the night before the contract was made, totally destroying the merchandise. In this situation, Minda _____.
- is bound to the contract
- may successfully assert fraud
- may successfully assert fraud and cancel the contract
- may cancel the contract
Question No. 26 Marks - 10
Duress is characterized by _____ while undue influence is characterized by _____. What word goes in each blank in order?
- threats, pressure
- pressure, threats
- emotional appeals, mistaken beliefs
- confusion, indecision
Question No. 27 Marks - 10
James operates the only gasoline station along a one hundred mile stretch of desert road and charges four times the normal price for gasoline. A motorist purchasing gasoline from James _____.
- experiences wrongful economic duress
- experiences wrongful emotional duress
- experiences wrongful undue influence
- experiences no duress or undue influence
Question No. 28 Marks - 10
Bethany is an exceptionally persuasive sales representative. After signing a contract, customers frequently feel that they were swept along without a meanful way to say no. Bethany has engaged in _____.
- undue influence
- both undue influence and duress
- neither undue influence or duress
Question No. 29 Marks - 10
A fiduciary relationship involves _____.
- trust and dependence
- trust, dependence, and domination
Question No. 30 Marks - 10
Aza and Ersaid both believe that a particular horse descended from a Kentucky Derby winner when in fact the horse descended from a horse that came in last in the Kentucky Derby. This is most clearly an example of _____.
- mistake as to existence
- mistake as to value
- mistake as to description
- mistake of law
Question No. 31 Marks - 10
Jay, age 16, purchases a new sports car with his inheritance from his grandfather. Nine months later he wrecks the car, which is a total loss. What are Jay's disaffirmance rights in most states?
- He may disaffirm.
- He may disaffirm but must pay nine months rental value.
- He may disaffirm but must pay the salvage value of the car.
- He may not disaffirm.
Question No. 32 Marks - 10
LaVall, age 18, lives in a state in which the age of adulthood is nineteen. May she legally vote in a U.S. Presidential election?
- No, since adulthood in her state is nineteen.
- Yes, since she is eighteen.
- No, since it would be an unreasonable burden to separate federal and state elections.
- Yes, since she pays federal income taxes on her wages.
Question No. 33 Marks - 10
A minor may become emancipated by _____.
- giving up all parental support
- a legally sanctioned court procedure
- giving up all parental support or by a legally sanctioned court procedure
- only becoming married or joining the armed forces
Question No. 34 Marks - 10
What constitutes as necessary _____.
- is the same for all minors
- varies according to local standards
- varies according to the age of the minor
- varies according to the minor's social status
Question No. 35 Marks - 10
Leo, age 16, has his wisdom teeth removed by Jane, a local dentist. Jane charges Leo $1,200 while most dentists would have charged $900. Leo must pay _____.
- nothing if he disaffirms the contract
Question No. 36 Marks - 10
Margarita does not like the dinner her parents have prepared and leaves the house to purchase a $50 steak dinner at a local restaurant. How much must Margarita's parents pay the restaurant if Margarita refuses to pay anything?
- a reasonable price
- an amount to be determined in arbitration
Question No. 37 Marks - 10
Hector, age 16, decides to get free use of a computer by purchasing it and later disaffirming the contract. Hector is using minority as _____.
- a sword
- a shield
- both a sword and a shield
- neither a sword or a shield
Question No. 38 Marks - 10
A minor may disaffirm a contract _____.
- only while a minor
- only after becoming and adult
- both while a minor and after becoming an adult
- only with the permission of a court
Question No. 39 Marks - 10
Which of the following circumstances always produces a lack of contractual capacity?
- mental retardation
- brain damage
- appointment of a guardian
Question No. 40 Marks - 10
Vonnie appeared normal but in fact is mentally incompetent. If she decides to disaffirm a contract, Vonnie _____.
- has no obligation beyond disaffirming
- must return all consideration received
- must pay a reasonable price for any goods or services she received
- must petition a court for permission to disaffirm