CHAPTER 8
Legal Aspects and Ethics in
Business

By: Nor Aida Abdul Rahman
8.1 Legal Structure For New Business Venture
Identifying Legal Structures
Before deciding how to organize an operation, pr...
cont..
Partnerships
- A partnership is an association of two or more persons acting as coowners of a business for profit. ...
Cont..
Corporation
A corporation is an “artificial being, invisible, intangible, and
existing only in contemplation of the...
Franchise
A franchise is any arrangement in which the owner of a trademark,
trade name, or copyright has licensed others t...
8.2 Laws Governing Intellectual Property

What is Intellectual Property?
- Intellectual includes patents,
trademarks, copy...
Intellectual Property
–

protected by laws governingTrademarks

Copyright

Patents
Intellectual
Property

Licensing

Trade...
1 Trademarks

A trademark may be a distinguishing
word, name, or symbol design used
to identify a product.

2 Patent

A pa...
Benefits of a Registered Trademark
It provides notice to everyone
that you have exclusive rights
to the use of the mark
th...
Product Safety and Liability
It is very important
for the
entrepreneur to
assess whether
any product that is
to be markete...
8.3 Ethics and Business Decision
Ethical
Quadrant II.

Quadrant I.

Ethical and
Illegal

Ethical and
legal

Corporate
Deci...
Cont..
In addition, the entrepreneur is faced with specific ethical dilemmas. There are
4 main themes of ethical dilemmas ...
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C7 legal & ethics in business

  1. 1. CHAPTER 8 Legal Aspects and Ethics in Business By: Nor Aida Abdul Rahman
  2. 2. 8.1 Legal Structure For New Business Venture Identifying Legal Structures Before deciding how to organize an operation, prospective entrepreneurs need to identify the legal structure that will best suit the demands of the venture Three primary legal forms of organization are the sole proprietorship, the partnership and the corporation . Sole Proprietorship - Is a business that is owned and operated by one person. - The individual also has unlimited liability, which means his or her business and personal assets stand behind the operation. - If the company cannot meet its financial obligations, the owner can be forced to sell the family car, house and whatever assets that would satisfy the creditors. - To establish a sole proprietorship, a person merely needs to obtain whatever local and state licenses are necessary to begin operations. By: Nor Aida Abdul Rahman
  3. 3. cont.. Partnerships - A partnership is an association of two or more persons acting as coowners of a business for profit. Each partner contributes money, property, labor or skills and each shares in the profits (as well as the losses) of the business - The following are examples of the types of information customarily written into the agreement: • Name • Duration of agreement • Character of partners (general or limited, active or silent) • Contributions by partners (at inception, at later date) • Division of profits and losses • Draws or salaries • Death of a partner (dissolution and windup) • Release of debts • Business expenses (method of handling) • Authority (individual partner’s authority on business conduct) By: Nor Aida Abdul Rahman
  4. 4. Cont.. Corporation A corporation is an “artificial being, invisible, intangible, and existing only in contemplation of the law A corporation is a separate legal entity apart from the individual who own it. A corporation is created by the authority of state laws and is usually formed when a transfer of money or property by prospective shareholders (owners) takes place in exchange for capital stock (ownership certificates) in the corporation The procedure ordinarily required to form a corporation are i. Subscription for capital stock must be taken and a tentative organization created. ii. Approval must be obtained from the secretary of state in the state in which the corporation is to formed. iii. Corporations that do business in more than one state must comply with federal laws regarding interstate commerce and with the varying state laws that cover foreign (out-of-state) corporations. By: Nor Aida Abdul Rahman
  5. 5. Franchise A franchise is any arrangement in which the owner of a trademark, trade name, or copyright has licensed others to use it in selling goods or services. A franchisee (a purchaser of a franchise) is generally legally independent but economically dependent on the integrated business system of the franchisor (the seller of the franchise). In other words, a franchisee can operate as an independent business person but still realize the advantages of a regional or national organization. Franchise Fees - In business, no one gets something for nothing. The larger and more successful the franchisor, the greater the franchise fee. Franchisor Control - The franchisor generally exercises a fair amount of control over the operation in order to achieve a degree of uniformity. If entrepreneurs do not follow franchisor directions, they may not have their franchise license renewed when the contract expires. By: Nor Aida Abdul Rahman
  6. 6. 8.2 Laws Governing Intellectual Property What is Intellectual Property? - Intellectual includes patents, trademarks, copyrights and trade secrets- represents important assets to the entrepreneur and should be understood even before engaging the services of an attorney. By: Nor Aida Abdul Rahman
  7. 7. Intellectual Property – protected by laws governingTrademarks Copyright Patents Intellectual Property Licensing Trade Secrets By: Nor Aida Abdul Rahman
  8. 8. 1 Trademarks A trademark may be a distinguishing word, name, or symbol design used to identify a product. 2 Patent A patent is a contract between the government and an inventor. Grants holder protection from others making, using or selling similar idea. Right given to prevent others from printing, copying or publishing any original works of authorship. 3 Copyright 4 Trade Secrets Protection against others revealing or disclosing information that could be damaging to business. 5 Licensing Constractual agreement giving rights to others to use intellectual property in return for a royalty or fee. By: Nor Aida Abdul Rahman
  9. 9. Benefits of a Registered Trademark It provides notice to everyone that you have exclusive rights to the use of the mark throughout the territorial limits of the United States It entitles you to sue in federal court for trademark infringement, which can result in recovery of profits, damages and costs. It establishes incontestable rights regarding the commercial use of the mark. It establishes the right to deposit registration with customs to prevent importation of goods with a similar mark. It entitles you to use the notice of registration It provides a basis for filling trademark application in foreign countries. By: Nor Aida Abdul Rahman
  10. 10. Product Safety and Liability It is very important for the entrepreneur to assess whether any product that is to be marketed in the new venture is subject to any regulations under the Consumer Product Safety Act. Claims regarding product liability usually fall under one of the following categories This occurs when advertising, labels, or other information misrepresent material facts concerning the character or quality of the product Misrepresentation Misrepresentation Strict Liability Strict Liability In this action, aa In this action, Consumer is suing because Consumer is suing because The product in question was The product in question was Defective before its receipt Defective before its receipt Warranty Warranty Consumers may sue if advertising Consumers may sue if advertising Or information overstate the Or information overstate the Benefits of aaproduct Benefits of product NEGLIGENCE NEGLIGENCE Extend to all parts of the production and Extend to all parts of the production and marketing process marketing process By: Nor Aida Abdul Rahman
  11. 11. 8.3 Ethics and Business Decision Ethical Quadrant II. Quadrant I. Ethical and Illegal Ethical and legal Corporate Decisions Manifestation Codification Illegal Legal Quadrant IV: Unethical and Illegal Quadrant III. Unethical and Legal Unethical By: Nor Aida Abdul Rahman Ethics provide the basic rules or parameters for conducting any activity in an “acceptable” manner. More specifically, ethics represent a set of principles prescribing a behavioral code that explains what is good and right or bad and wrong; ethics may, in addition, outline moral duty and obligations
  12. 12. Cont.. In addition, the entrepreneur is faced with specific ethical dilemmas. There are 4 main themes of ethical dilemmas – conflict of interests, personality traits, responsibility to stakeholders and level of openness. Conflict of Interests Personality Traits Small Business Ethical Dilemmas Social Responsibility To stakeholders Level of openness By: Nor Aida Abdul Rahman
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