Legal Aspects of Business (VV2)
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1. Legal Aspectsof Business (VV2)
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1 . What isagreement?
2 . List the typesof negotiable instrument.
3 . Mentionthe characteristicsof a company.
4 . What isCorporate Governance?
5 . Define factory,
6 . List outthe Deductionscanbe made fromthe wagesof the workers.
7 . Who isa casual dealer?
8 . 'What is Interstate tax?
Case Detail :
A businessoperateswithinalegal frameworkthat,forthe mostpart,works.Thislegal frameworkhasa
longhistoryandmany reamsof lawsandregulationsthatwill make yourheadspin.Atsome point,most
companieswill have todeal withsome sortof legal issue relatedtotheirbusiness.Don’tbe afraidof
this.I won’tlie.It’sscarywhensomeone wantstosue yourcompanybut the legal system, forall itfaults
and issues,doesprovide areasonable frameworkforresolvingbusinessdisputes.
What followsismeantasan overview togetyouexposedtothe legal aspectsof runningabusiness.As
mostof youknow,I am not a lawyernordo I playone on TV.So, if youhave legal questions,pleaseseek
out professional advice.
LEGAL ENTITY
All businessesare categorizedassome sortlegal entitythatgovernsthe waytheyare treatedunderthe
law.Some structures(like LLC’s,C-Corps,S-CorpsorLLPs) are consideredfree standingentitiesthathave
special rights(e.g.Theycanenterintocontracts) and the ownershave limitedliabilities.Whileothers,
mostnotabilitythe sole-proprietorship,the ownerassumesall the liabilityandrewards.The type of
entityyoupickwill dependaloton yourliabilityprofileandwhetherornotyouwill have investors.Just
2. rememberthatthe lawtreatsdifferententitiesaccordingtocriteriathatwill vary,somake sure to
become familiarwithyoustructuresparticularlaws.
COMPLIANCE
Compliance tolocal (cityandcounty),state andfederal lawswill be somethingthatall businesseswill
needtodeal with.Unfortunately,these lawsvaryenoughthatitmakessense tocall upyour local
chamberof commerce orlocal governmentandhave themgive youa reference.Ingeneral,yourbiggest
compliance headache will be intryingtofigure outwhattaxesyouowe,employee rulesandsafetylaws.
In mostcases,compliance islefttothe businessownerandas longas the taxesare paid ontime and no
one registersacomplaint,mostgovernmentdepartmentswill notbe knockingatyourdoor. Compliance
becomeschallengingwhenthe lawchangesoryouassumedyoudidnot have to performa certaintask.
In these cases,ignorance of the lawisno excuse.So,tocoveryourself andyourbusiness,ensure that
youget “no needtocomply”decisionsinwriting.Thatway,at leastyouwill have asomethinginwriting
as to whyyou didnotcomply.
CONTRACTS
Most businesseswill enterintoacontract witha personor anotherbusinessatsome pointintheir
existence.These contactsare whatdefine how the workingrelationshipwill be carriedoutandwhois
responsible forwhatdeliverablesorpayments.Contactlanguage canvarybut ingeneral,mostcontacts
will have standardboilerplateprovisionssuchas:
Definitions:All contractswillhave asectionthatwill define the termsusedinthe contact.The most
typical termsthat will be definedincludethe partiesenteringintothe contractandwhatthe projectis
theywill be workingon.
Notice:Thisreferstowhere anycommunicationsshouldbe sent orwhichpartiesare responsible forthe
contract.
GoverningLaw:What lawsgovernthe contract. Thisisusuallya county,state or country.
Entire Agreement:Saysthatnootheragreementsare requiredtoexecutethe contact.Thisisusually
done so thatit’sclear whatthe contact isand whatit dependson.
Force Majeure:Extraordinaryeventorcircumstance beyondthe control of the partiessuchas riots,acts
of nature,governmentcollapse,etc.Thistermsaysthat if these typesof eventshappen,thatthe parties
are notresponsible forthe consequences.
Term andTermination:Howlongthe contact isgood forand whatcausesthe contract to terminate.
PaymentSchedulesorDeliverables:All paymentsrelatedtothe contractand whattangible thing(be it
code,hardware or documents) willbe deliveredinordertoreceive payment.
3. Severability:Thismeansthatif a term inthe contract is determinedtobe illegal thatdoesnotnullifythe
entire contact,justthat sectionorprovision.
WarrantiesAndIndemnities:Usuallydeliverablesare warrantedagainstdefectsof craftsmanshipor
otherthings.Indemnificationsaysthatthe sellersaysthattheyhave the right to sell ortransferthe
properlyandwill fightanylawsuitagainstthe receivingparty.
Default:Whatis considerabreakingorbreach of the contract.This usuallyspellsoutspecificinstances
or eventsthattriggerremediesorwaysthata party can collectwhenthe otherpartytriggersa default
event.
Counterparts:Meansthat the contact can be signedinparts andput togetherasa whole document
withouteveryonessignature appearingonthe same page.
Confidentiality:Saysthatcertainitems,termsorpricingwill remainconfidential.Itsometimesdealswith
intellectual propertydisclosure butthose typesof issuesare usuallyhandledviaaNonDisclosure
Agreement(NDA).
There are many,manymore sectionsof a contract, dependingonthe type butthe onesabove are
almostalwaysina contract. Make sure youdo a little researchbefore youcontacta lawyersince that
will save youtime andmoney.
RESOLVINGDISPUTES
The legal systemissetuptoresolve disputes.Thesedisputesusuallyrevolvearoundsome sortof breach
of contract,violationof intellectual propertyorbreakingalaw.Whenyou are facedwitha legal action,
it’sbest(andI meanit) to seekoutcounsel toassistyou innavigatingthe nuancesof the legal system.
Once you have contacteda lawyer,there are a couple of thingsyoushoulddorightaway.These include:
Remaincalm:Lawsuits happen.Don’tfreakoutjustbecause someone wantstosue you.Relax.Take a
deepbreathandgo finda lawyer.
Don’tcall youradversary:Whateveryoudo,don’tcall your adversaryuntil youhave talkedtoa lawyer.
Whateveryousay inthe heatof passion will be usedagainstyou.If youhave tovent,go yell ata wall.
Gather upall your documents:Startto collectanyand all documentsthatrelate tothe matter.Be as
detailedasyoucan be.
Keepa Notebook:Anyconversationorphone call ormeetingrelatedtothe law suitor actionyou should
write downina dedicatednotebookjustforthe particularmatter.Thisisimportantsince youcanuse
these notesduringatrail.Remembertonumber,date andsignthe page.
Write downeverythingyouknow:Inyour notebook,writedownasmuchas you can recall aboutthe
matter.Keepa listof questionsyouneedansweredandthingsthatmaybe fuzzy.
4. Readthe contract: Go digup all the oldcontracts relatedtothe matterand rereadthemto ensure you
understandwhat’sinthem.
Discusswithyourpartners/employees:Whenappropriate,disclose asmanydetailsaboutthe suitasyou
can. It’simportantto be openwithpartnersandemployeesaboutlegaldealings.Insome cases,your
partneror employeesmayholdvaluable insightsintothe matter.
There are a lotof companieswhoabuse the legal systemandthese companiesmake itmiserablefor
everyone else.So,don’tflyoff the handleandsue people.Rather,alawsuitshouldbe yourabsolute last
resortif you can’t finda equitablesolutiontoyourproblem.
A NECESSITYTHAT’S NOT THAT EVIL
Havinggood corporate counsel will make yourbusinessbetter.Iknow,itfeelslike anecessaryevil but
it’sreallyjustpartof doingbusiness.Justlikeall yourhires,youneedtofindthe rightlawyerforyour
stage of businessandworkwiththemlike theyare partof your team.
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1. Look upa lawsuitamongtwobusinessesinyourmarket.Whatisthe lawsuitabout?Whatare
the major pointsof contention?Write acouple of paragraphson how youwouldapproachresolvingthe
conflict.
2. Reviewone of yourcompaniescontracts.Listthe termsand sections.How manyof themseem
generic?Whatare some of the defaultconditionsthatcouldleadtoa lawsuit?Write aparagraph on
whythe contract waswrittenthe wayit was.
3. What type of legal entitydoesyourbusinessoperate under?Whatspecial privilegesdoesthat
grant it?
1. Determiningwhetherornotthe partiesenteredanagreementfreely_____.
dependsonthe motivesof eachparty
dealsonlywithanagreement
will notenforce anoutcome
isthe underlyingobjectiveof contractlaw
5. 2. The lawpresumesthatanyone enteringacontract has _____.
nothingbettertodo
legallysurrenderednegotiation
the legal capacityto doso
somethingtogainor receive
3. Maria offerstopay Alsad$100 if he makesandA in hisbusinesslaw class.Whilethe business
lawclass isinprogress,Maria's promise is_____.
unilateral andexecuted
unilateral andexecutory
bilateral andexecuted
bilateral andexecutory
4. Bettyisawarded$10,000 damagesagainstEthyl ina damage suitarisingfroman auto accident.
Bettyand Ethyl agree to the paymentof thisjudgmentat$100 per month.Thispayment
agreementisconfirmedbythe courtandrecorded.BettyandEthyl now have a _____.
contract underseal
formal contract
contract of record
contract to contract
5. PhillipneedsmoneyanddecidestopaintDonna'shouse while she isoutof townandbill herfor
the work.Donna refusestopayPhillipandPhillipsues.A court_____.
will notapplyquasi contractdoctrine
will applyquasi contractdoctrine
mightapplyquasi contractdoctrine if the paintingwere done verywell
6. cannotapplyquasi contract doctrine since PhillipandDonnadidnothave a writtencontract.
6. Aviasilentlytakesone candy bareachday fromJerry'scandy store and paysfor themat the end
of the week.Onthisparticularday,AviasilentlytakestwocandybarsfromJerry's candystore.
At the endof the weekAviaonlywantstopayfor one candy bar since she believedthatshe
shouldgetone free forbeinga goodcustomer.A court will _____.
applyAvia'sbeliefinresolvingthisdispute
be unable toresolve the dispute unlessthe partiesagree
create a contract since no wordswere spoken
viewAvia's actionsasa reasonable personwouldhave
7. Sarah purchasesa car whenshe isa 15-year-oldfromOKMotors Inc. Sarah's contract is _____.
valid
void
voidable
unenforceable
8. Karaya contracts withLance to have himmow heryard everytwoweekswhile she spendsthe
summerinIndia.Lance onlymowseveryfourweeksandKaraya'syard looksveryugly.Karalya's
neighbor,Zaya,suesLance forhisfailure tomaintainKaraya'syard properly.A courtwill _____.
allowZayato sue since she seesthe ugly yardnextdoor
dismissZaya'ssuitsince privityislacking
allowZaya tosue as an intendedbeneficiary
allowZaya tosue as an incidental beneficiary
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9. This theoryof contract lawfocusesonthe outwardactions andthe wordsof the parties:
will
7. equal value
goodfaith
formalistic
10. Jared,age 18, agreesnotto smoke whenhisuncle Brandon,age 40, promisestopayhim $1,000
for notsmokinguntil age 22. Will a court compel uncle Brandontopay Jared$1,000 if Jared
doesnotsmoke?
No,because Jaredhasbetterhealthforhavingnotsmoked.
No, because uncle Brandondidnotbenefit fromJared'saction.
Yes,because Jaredand uncle Brandonare adults.
Yes,because Jaredgave up a legal right.
11. Charlie tellsBothathe islookingfora new car. Bo says thathe will sell Charlie hiscarfor
$12,000. Charlie sayshe wantsto thinkit over.Inwhat stage of contract formationare Charlie
and Bo?
negotiation
intention
acceptance
contract
12. How certainand definitemustanofferbe?
absolutely
somewhat
convencienly
reasonably
13. AlphaInc. offerstopurchase all the coal itneedsfromMountainMiningInc.Alphaand
Mountainhave whattype of agreement?
8. output
requirement
illusory
cost-plus
14. Janetpromisestopay Roberto$20 to washher car. Robertomay acceptJanet'sofferby_____.
promisingtowashthe car
specifyingtowashthe car
preparingto washthe car
washingthe car
15. Norm offerstosell hishorse toGary for $1,000. Gary statesthat he accepts the offerprovided
Normincludesamonthof ridinglessons.Whatisthe legal statusof Gary's statement?
counteroffer
acceptance
offer
impliedacceptance
16. Cindi receivesviaFedEx anewDVDplayerthatshe didnot order.What isCindi'slegal
obligation?
none
holdthe DVD playerfora reasonable time
promptlyreturnthe DVD player
pay for the DVD player
17. Grandma Jonesoffersbymail tosell herhouse to Allenfor$80,000. She diesunexpectedly.
Allensendshisacceptance the nextdayafterherdeath.Isthere anenforceable contract?
Yes,if Allendidnotknowof the death.
9. No, the deathterminatedthe offer.
Yes,if Allenrespondedinareasonable time.
No, since the deathwasunexpected.
18. DexterisconsideringpurchasingfromLisaavacant lotand openingafast foodrestaurant.
However,he heedsamonthto obtainhisfinancing.How mayDextersecure anenforceable
offertopurchase the lot?
requirementcontract
firmoffercontract
optioncontract
securitycontract
19. Which of the followingcontainsrulesregardingcybercontractlaw:
The UniformElectronicTransactionsAct
The C-SignAct
The InternetContractAct
The Cyberspace TransactionsAct
20. A cyberofferorshouldincludethe followingtermsintheiroffer:
paymentcriteria
liabilitydisclaimer
return procedures
all of the above
21. In the grantingof mutual assent,a"meetingof the minds"meansthat_____.
there were lengthynegotiations.
10. there isa complete understandingof all aspectsof the agreement
both partiesknowthe termsandhave willinglyagreedtobe boundbythem
both partiesknowthe terms,have willinglyagreedtobe boundbythem, andhave had a face-to-face
meeting
22. Eva intentionallyandfalselystatesthatanoldringthat she is sellingtoJuliawasmade in
France.Julia,a collectorof Frenchjewelry,pays$3,000 forthe ringbaseduponthese
statements.Julialaterlearnsthatthe ring was made inPolandandis worth$6,000. May Julia
successfullysue Evaforfraud?
No,because Juliahasnotsufferedaloss.
Yes,because where the ringwasmade was a material factto Julia.
No, because Juliawasfree toinspectthe ringbefore purchasingit.
Yes,because Eva intentionallyandfalselymisstatedamaterial fact.
23. Ichi coversthe rust damage to a car he issellingtoHenrywitha new paintjob.Henrydoesnot
ask aboutrust damage.Has Ichi committedfraud?
No,because Henrydidn'taskabout rust.
Yes,because Henrycannot be expectedtodiscoverthe rust.
No, because rustingisanatural processthatHenry shouldunderstand.
Yes,because Ichi made the car looknicerthan itreallywas.
24. Yes,because Ichi made the car look nicerthan itreallywas.
damages
rescissionanddamages
rescission
rescission,damages,andaninjunction
11. 25. Beth contractsto sell Minda merchandise storedinawarehouse.Unknowntoeitherperson,
the warehouse burnedthe nightbeforethe contractwasmade,totallydestroyingthe
merchandise.Inthissituation,Minda_____.
isboundto the contract
may successfullyassertfraud
may successfullyassertfraudandcancel the contract
may cancel the contract
26. Duressis characterizedby_____ while undue influence ischaracterizedby_____. What word
goesineach blankinorder?
threats,pressure
pressure,threats
emotional appeals,mistakenbeliefs
confusion,indecision
27. Jamesoperatesthe onlygasoline stationalongaone hundredmile stretchof desertroadand
chargesfour timesthe normal price forgasoline.A motoristpurchasinggasoline fromJames
_____.
experienceswrongfuleconomicduress
experienceswrongfulemotionalduress
experienceswrongful undueinfluence
experiencesnoduressorundue influence
28. Bethanyisan exceptionallypersuasive salesrepresentative.Aftersigningacontract,customers
frequentlyfeelthattheywere sweptalongwithoutameanful waytosayno. Bethanyhas
engagedin_____.
undue influence
duress
12. both undue influence andduress
neitherundue influence orduress
29. A fiduciaryrelationshipinvolves_____.
trust
dependence
trust and dependence
trust, dependence,anddomination
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30. Aza and Ersaid both believe thataparticularhorse descendedfromaKentuckyDerbywinner
wheninfact the horse descendedfromahorse that came in lastinthe KentuckyDerby.Thisis
mostclearlyan example of _____.
mistake asto existence
mistake asto value
mistake asto description
mistake of law
31. Jay, age 16, purchasesa newsportscar withhisinheritance fromhisgrandfather.Ninemonths
laterhe wrecksthe car, whichisa total loss.Whatare Jay's disaffirmance rightsinmoststates?
He may disaffirm.
He may disaffirmbutmustpaynine monthsrental value.
He may disaffirmbutmustpaythe salvage value of the car.
He may not disaffirm.
13. 32. LaVall,age 18, livesinastate inwhichthe age of adulthoodisnineteen.Mayshe legallyvote in
a U.S. Presidential election?
No,since adulthoodinherstate isnineteen.
Yes,since she is eighteen.
No, since itwouldbe anunreasonable burdentoseparate federal andstate elections.
Yes,since she pays federal income taxesonherwages.
33. A minormay become emancipatedby_____.
givingupall parental support
a legallysanctionedcourtprocedure
givingupall parental supportor by a legallysanctionedcourtprocedure
onlybecomingmarriedorjoiningthe armedforces
34. What constitutesasnecessary_____.
isthe same for all minors
variesaccordingto local standards
variesaccordingto the age of the minor
variesaccordingto the minor'ssocial status
35. Leo, age 16, has hiswisdomteethremovedbyJane,alocal dentist.Jane chargesLeo$1,200
while mostdentistswouldhave charged$900. Leo mustpay _____.
1200
1050
900
nothingif he disaffirmsthe contract
14. 36. Margarita doesnotlike the dinnerherparentshave preparedandleavesthe housetopurchase
a $50 steakdinnerata local restaurant.How much mustMargarita's parentspaythe restaurant
if Margarita refusestopayanything?
50
a reasonable price
an amount tobe determinedinarbitration
nothing
37. Hector, age 16, decidestogetfree use of a computerbypurchasingitand laterdisaffirmingthe
contract. Hector isusingminorityas_____.
a sword
a shield
both a swordand a shield
neitherasword or a shield
38. A minormay disaffirmacontract _____.
onlywhile aminor
only afterbecomingandadult
both while aminorandafterbecomingan adult
onlywiththe permissionof acourt
39. Which of the followingcircumstancesalwaysproducesalackof contractual capacity?
mental retardation
brain damage
drinking
appointmentof aguardian
15. 40. Vonnie appearednormal butinfactismentallyincompetent.If she decidestodisaffirma
contract, Vonnie _____.
hasno obligationbeyonddisaffirming
must returnall considerationreceived
must paya reasonable price forany goodsor servicesshe received
must petitionacourtfor permissiontodisaffirm
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