The Legal and Government Legal Environment of Business
What does a person need to do to starts his/her own business as the only owner?
All that an individual need to start business as a sole proprietor is register himself with HM Revenue & Customs as self-employed. They are required to complete their own tax returns and maintain clear and accurate records of all transactions entered into.
What are some of the ways that businesses can influence governments and policies? Explain.
Businesses are able to influence government policies in a number of ways: Employ lobbyists to put their case to individual ministers or civil servants Give MP's non-executive directorships in the hope that the MP will take an interest in all legislation that affects them. They can try to influence public opinion and hence the legislative agenda by advertising. Fund certain campaigns and candidates that share their visions and values.
What are 3 different types of agents? Explain.
Commission: An agent that works independently with the sellers and buyers. A commission agent buys the goods from the producers and sells them at a slightly higher price to the buyers. Del Credere: A sales agent who guarantees that a buyer is trustworthy and, in case the buyer defaults, compensates the principal (the seller). A del credere agent guarantees that the buyer will buy the goods. In case the buyer defaults, the agent is liabe and has to compensate the seller. Mercantile: a mencantile agent is an agent authorized by a principal to buy or sell goods, and/or to raise a loan by using the principal's goods as a collateral. A mercantile agent may have the total authority to sign documents and enter into deals without the the principal's information.
When is drug testing typically used?
Drug testing is typically used on three different occasions: Pre-employment screening Random testing of employees Testing for cause
Name 5 employee and employer rights/duties.
Employee rights: Right to privacy Right to fair and decent wages Right to a safe and healthy workplace Right to be treated equally, fairly and respectfully Right to blow the whistle Employer rights: Loyalty and commitment No drug or alcohol abuse No actions that would endanger the others Treat others with respect and no harrassment Respect for employer's property and intellectual capital
What are the three components of the fiscal policy?
Expenditure Revenues Borrowing
True/false? If Government spending increases then the overall aggregate demand will decrease.
FALSE If Government spending increases then the overall aggregate demand will increase. AD=G+I+C+X-M
True/false? If importing goods increases then the overall aggregate demand will increase.
FALSE If importing goods increases then the overall aggregate demand will decrease. AD=G+I+C+X-M
True/false? Government can affect aggregate demand through monetary policy (the blend of government spending and taxation).
False Government can affect aggregate demand through fiscal policy (the blend of government spending and taxation). AD=G+I+C+X-M
What are the five factors that influence what products the consumers buy?
Five main variables influence the quantity of each product that is demanded by each individual consumer: 1.- The price of the product - creates a movement in the demand curve 2.- The prices of other products - creates a shift in the demand curve 3.- The consumer's income and wealth - creates a shift in the demand curve 4.- Various sociological factors - creates a shift in the demand curve . 5.- The consumer's tastes - creates a shift in the demand curve A basic economic hypothesis is that the lower the price of a product, the larger the quantity that will be demanded, other things being equal.
Name 3 arguments for and against drug and alcohol tests.
For: It improves employee productivity. Promotes safety in the workplace. Reduces absentism and employee theft Reduces health and insurance costs Against: Invades an employee's privacy May be unrelated to the employee's performance The results may not be reliable (Type 1 error) It could lower morale in the workplace
Give 3 reasons why businesses should and shouldn't be involved in politics and government?
For: a pluralistic system invites many participants. Business is a vital stakeholder of government. Economic stakes are high for firms. Against: Managers are not qualified enough to engage in political debate. Business is too big and too powerful. Smaller businesses are at a disadvanntage. Businesses often have their interests in mind and wouldn't care about the common good.
What is price elasticity?
It measures how much consumers respond in their buying decisions to a change in price.
What are the four factors of production? (LLCE)
Land, labor, capital, entrepreneurship
Explain the difference between macro and microeconomics.
Macro-economic policy / macroeconomics is concerned with the overall economic performance of the nation, rather than that of particular individuals (microeconomics) The main issues and economic variables in the study of macroeconomics are: - unemployment rate - productivity - interest rate - inflation rate - government budgeting and expenditure - foreign trade deficit Each of the previous economic variables tend to have an effect on the factors of production: - land, - labour, - capital and - entrepreneurship. The basic task of macroeconomics is to study the behaviour of the policy objectives, namely economic growth, inflation, unemployment and balance of payments and why each matter to individuals and what the government can do (if anything) to improve macroeconomic performance. Thus, one can say that the study of economics can be divided into two - macroeconomics and microeconomics. Macroeconomics considers aggregate behaviour, and the study of the sum of individual economic decisions. Microeconomics is the study of the economic behaviour of individual consumers, firms and industries. Microeconomics shows how individuals and firms respond to changes in price and why they demand what they do at particular price levels.
What does the monetary policy focus on?
Monetary Policy looks at the supply of money, the monetary system, interest rates, exchange rates and the availability of credit. All of which are highly important to organisations, households and individuals.
Why do organizations exist?
Organisations can achieve results that cannot be produced by individuals on their own. This is because organisations enable people to: > Share skills and knowledge > Specialise and > Pool resources
Give 2 examples of public sector organizations.
Public Sector organisations are owned or run by the government. They are funded by and accountable to the government. A major challenge that any government faces is that of balancing their limited resources with a huge demand for public services. Examples of a public sector organisation are: > Hospitals > Armed Forces > Centrally funded agencies Most schools & Universities > Government Departments
What are different types of unemployment?
Seasonal - Jobs that come and go depending on the season e.g. ski trainer Technological - Jobs that are replaced with technology e.g. robots in a factory frictional - structural - Jobs that are lost when there is a change in the community e.g. mines
What are the six dynamic forces that powerfully shape the business and society?
Six dynamic forces powerfully shape the business and society relationship: Changing societal expectations Growing emphasis on ethical reasoning and actions Globalization Evolving government regulations and business response Dynamic natural environment Explosion of new technology and innovation
Give examples of "connected stakeholders" and their interests.
Some examples Connected stakeholders: Shareholders - interested in shareholders' wealth measured by profitability Customers - interested in the company´s products. Suppliers - interested in building long term relationship, on time payment of goods and profitable sales. Finance providers - like banks interested in loan security.
What is stagnation/stagflation?
Stagnation or stagflation: A combination of unacceptably high levels of unemployment and inflation. E.g. what's happening in Venezuela (hyperflation)
Who is a stakeholder and what are the two types of stakeholders? Give examples
Stakeholders are persons or groups that affect, or are affected by, a firm's decisions, policies, and operations. There are market and non-market stakeholders. Market stakeholders are the ones who engage in economic transactions with the company as it carries out its primary purpose of providing society with goods and services. Examples of market stakeholders are the employees and the directors of a company. Non-market stakeholders are the people or groups who—although they do not engage in direct economic exchange with the firm—are affected by or can affect its actions. Examples of non-market stakeholders are the communities, competitors, governments, shareholders, suppliers and even the environment.
What are the three sources of legal authority?
Supranational: United Nations resolutions (can be either substantive or procedural) International Court of Justice Other international agreements that apply to signatories (e.g. The World Trade Organisation sets rules on trade between member states) European Parliament European Courts NATIONAL National Governments through Acts of Parliament Senior Courts (e.g. House of Lords in UK, The Supreme Court in the USA) Other major courts through the principles of case law and the setting of precedents REGIONAL Regional/Federal Government (e.g. Welsh assembly in the UK, State Government in the USA) Local councils can issue by-laws in many countries (a law that is less important than a general law or constitutional provision)
True/false? Advancements in technology results in efficient work practices and can improve productivity
TRUE Advancements in technology results in efficient work practices and can improve productivity
True/False? Lower interest rates will make capital cheaper
TRUE Lower interest rates will make capital cheaper
Whatare the main components that an organization should study to carry our an external analysis?
The main components that an organisation should study in order to carry out an external analysis (PEST analysis) are: Political environment/ Legal environment Economical environment/ Demographics Social environment /Environmental environment Technological environment
Who appoints the directors in a limited company?
The owners of a limited company are shareholders. They provide capital and receive return. Directors are appointed by shareholders to run the company. Executive directors participate in the daily operations of the organisation and non-executive directors are invited to join in an advisory capacity to exercise overall guidance.
Can the owners/shareholders of a limited company be sued?
The owners/shareholders of a limited company cannot normally be sued for the debts of the business unless they have given some personal guarantee. Their risk is generally restricted to the amount that they have invested in the company when buying the shares (limited liability).
What's the primary goal of a for-profit company?
The primary goal of a profit making company is to maximise shareholders' wealth.
What's the purpose of a for-profit firm/business?
The purpose of the firm is to maximize its long-term market value and money for its shareholders.
How many different forms of partnership are there? Explain.
There are three different forms of partnership: 1.- The ordinary partnership (usually referred to simply as a 'partnership'), 2.- The limited partnership, which is a form of partnership that can be formed under the Limited Partnerships Act 1907. Limited partnerships are extremely rare and need not be discussed further here. All limited partnerships must have at least one general partner, whose liability will be unlimited 3.- The limited liability partnership which, being an incorporated business structure is discussed later.
What are the advantages and disadvantages of a sole proprietorship?
+ Notably sole proprietorships involve little formality and regulation, + They can be run flexibly and in private, + Setting up a sole proprietorship is quick, simple and cheap, and + Sole proprietorships are free to take on employees. + The owner is entitled to the entire profit. - The success of most sole proprietorships is so closely tied to the owner that the business may be unable to survive the loss of the owner through illness or death. - There is no legal distinction between the business and owner in a sole proprietorship, and therefore any assets owned by either are financially at risk. - Banks may be unwilling to lend to a sole proprietor, and it is likely that they will need to invest their own capital into the business. - Limited expertise.
Name the two types of organizations.
1. For-profit 2. Non-profit
Name 3 different forms of business.
1. sole trader / proprietorship 2. partnership 3. company/corporation
what are the main determinants of the level of business activity in the economy?
1.- Confidence 2.- Aggregate demand 3.- Capital 4.- Use of resources 5.- Government policy 6.- Exchange rate movements
What are the 4 conditions that must be met to justify whistle-blowing?
4 conditions must be satisfied to justify whistle-blowing: Organization is doing (or will do) something that seriously harms others Employee has tried and failed to resolve the problem internally Reporting the problem publicly will probably stop or prevent the harm The harm is serious enough to justify the probable costs of disclosure to the whistle-blower
What are some of the terms of a partnership?
> All of the partners are entitled to share equally in the profits of the firm and must also contribute equally towards the firm´s losses. > Every partner may take part in the management of the firm. > No new partners may be admitted to the firm without the consent of all the other partners. > The agreement between the partners can only be altered with the express consent of all the partners. > The majority of the partners cannot expel a partner unless an express power to do so has been agreed upon by all the partners.
Name 3 features of a business organization.
> made up by a group of people who work together for the achievement of set goals - different people do different things or specialise in one activity > have business strategies to achieve goals/objectives have a vision and a mission > have a culture which is formed by the organisational values > have structures (such as department, teams and divisions) and a sound system i.e. systems and procedures > have inputs which are processed and provide an output > have customers besides other stakeholders
A ____________ company has a separate legal personality from its owners (shareholders).
A Limited company has a separate legal personality from its owners (shareholders).
What is a non-governmental organisation?
A non-governmental organisation is an independent voluntary association of people acting together for some common purposes. These organisations often support such things as: conservation issues, environmental change etc.
What's the primary goal of a non-profit business?
A non-profit organisation (NFP) works with a prime intention (primary goal) of providing a good or a service to different sectors of society for which they are set up to provide a benefit. For example, a school is set up to provide education. Charities, such as, the Red Cross is set up to provide a medical service.
Name 3 types of tax with examples.
A proportional tax imposes the same percentage of taxation on everyone, regardless of income. If the percentage tax rate is constant, the average tax rate is constant, regardless of income. This means that if a person's income goes up, the percentage of total income paid in taxes doesn't change. The second tax, the progressive tax, imposes a higher percentage rate of taxation on those with higher incomes. Progressive taxes use a marginal tax rate that increases as the amount of taxable income increases. Therefore, the percentage of income paid in taxes increases as income goes up. The final tax is the regressive tax, which imposes a higher percentage rate of taxation on low incomes than on high incomes. For example, if the state sales tax were 5%, the person with the lower income would pay a greater percentage of their total income in sales tax.
A sole proprietor who is engaged in business as a professional is known as a ________________________.
A sole proprietor who is engaged in business as a professional is known as a sole practitioner.
What is a stakeholder map and why is it useful?
A stakeholder map is a graphical representation of the relationship of stakeholder salience to a particular issue. A stakeholder map is a useful tool, because it enables managers to see quickly how stakeholders feel about an issue.
What is the aggregate demand?
Aggregate demand is an economic measurement of the sum of all final goods and services produced in an economy, expressed as the total amount of money exchanged for those goods and services. Since aggregate demand is measured through market values, it only represents total output at a given price level, and does not necessarily represent quality or standard of living. AD = C + I + G + X - M AD-Aggregate Demand C - Consumer Spending I - Investment by firm G - Government Spending X - Demand for exports M - Imports
Name the 5 powers the stakeholders have and explain them.
Voting power: Company shareholders have the most direct power over companies through voting. Prior to or during annual meetings, shareholders may cast votes proportionate to the amount of stock they hold to influence or direct a business's future actions. This power is unique to shareholders unless contractually awarded to other parties; for example, a few companies have given labor unions a voting voice. Economic power: Anyone who can influence a business's profits or losses holds economic power over that business. Customers and shareholders commonly hold great economic power over a business, but the banks that lend to it, creditors who extend credit and even governments (through tax levies) also wield economic power. Suppliers and retailers also hold economic power in that they may refuse to supply to or sell products from a company. Workers, particularly workers organized into unions, have great economic power through work slowdowns or strikes. Political power: Governments hold direct political power over companies, most often expressed through how those companies are taxed, regulated and permitted to exist. In democratically organized countries, voters and activist organizations may use voting and political pressure to influence political power. In countries with other types of governance, political power may be wielded for or against companies in different ways, as when a country decides to nationalize a privately held business. Legal power: Employees have rights, customers have protections, your contracts with vendors carry legal obligations, and your loan with a bank must meet legal standards pertaining to a few stakeholders that could have legal claims on your business. You must deal with all of these stakeholders in a manner that meets the requirements of the law. Informational power:
When supply and demand are equal the economy is said to be at ___________________.
When supply and demand are equal the economy is said to be at equilibrium.