Chapter 21 A
TAX LAWS 3 w image of list of laws
Taxes are levied from a variety of sources. Income taxes (personal and business), sales taxes, and property taxes are the major bases of tax revenue. The federal government receives its largest share of taxes from income. States and local communities make extensive use of sales taxes. School districts generally depend on property taxes.
BANKRUPTCY LAWS 2
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was passed to reduce the total number of bankruptcy filings and to eliminate the perceived ease of filing for bankruptcy. The legislation increased the cost of filing and made it difficult for people (especially those with high incomes) to escape overwhelming debt from credit cards, medical bills, student loans, or other loans not secured through a home or other asset. It also requires debtors to receive credit counseling.
History of Antitrust Legislation items
The Clayton Act of 1914. The Federal Trade Commission Act of 1914. The Robinson-Patman Act of 1936.
Negligence
, in tort law, describes behavior that causes unintentional harm or injury.
The contract covers a legal act.
A contract covering the sale of illegal drugs or stolen merchandise is unenforceable since such sales are violations of criminal law. (If gambling is prohibited by state law in your state, you cannot sue to collect the poker debt.)
DEREGULATION VERSUS REGULATION
A movement toward deregulation took hold. Deregulation means that the government withdraws certain laws and regulations that seem to hinder competition. The most publicized examples of deregulation first occurred in the airline and telecommunications industries.
Both parties are competent.
A person under the influence of alcohol or drugs, or a person of unsound mind (one who has been legally declared incompetent), cannot be held to a contract. In many cases, a minor may not be held to a contract either. If a 15-year-old agrees to pay $10,000 for a car, the seller will not be able to enforce the contract due to the buyer's lack of competence.
The contract is in proper form.
An agreement for the sale of goods worth $500 or more must be in writing. Contracts that cannot be fulfilled within one year also must be put in writing. Contracts regarding real property (land and everything attached to it) must be in writing.
An offer is made.
An offer to do something or sell something can be oral or written. If I agree to sell you my bike for $100, I have made an offer. That offer is not legally binding, however, until the following other conditions are met.
PROMOTING FAIR AND COMPETITIVE BUSINESS PRACTICES cont w image
Antitrust oversight was not always the rule, however. Big businesses were once able to force smaller competitors out of business with little government resistance. The following brief history details how government responded to past problems and some new challenges government regulators face today.
strict product liability
At one time the legal standard for measuring product liability was whether a producer knowingly placed a hazardous product on the market. Today, many states have extended product liability to the level of strict product liability—legally meaning liability without regard to fault. That is, a company that places a defective product on the market can be held liable for damages—a monetary settlement awarded to a person injured by another's actions—even if the company did not know of the defect at the time of sale.
BANKRUPTCY LAWS 3
Bankruptcy can be either voluntary or involuntary. In voluntary bankruptcy, the debtor applies for bankruptcy; in involuntary bankruptcy, the creditors start legal action against the debtor. Most bankruptcies are voluntary, since creditors usually wait in hopes they will be paid all the money due them rather than settle for only part of it.
BANKRUPTCY LAWS 1
Bankruptcy is the legal process by which a person, business, or government entity, unable to meet financial obligations, is relieved of those debts by a court. The 1984 law allows a person who is bankrupt to keep part of the equity (ownership) in a house and car, and some other personal property.
BANKRUPTCY Procedure
Bankruptcy procedures begin when a petition is filed with the court under one of the following sections of the Bankruptcy Code: Chapter 7—"straight bankruptcy" or liquidation (used by businesses and individuals). Chapter 11—reorganization (used almost exclusively by businesses). Chapter 13—repayment (used by individuals).
Criminal Law vs Civil Law cont
Both federal and state systems have appellate courts that hear appeals from the losing party about decisions made at the trial-court level. Appellate courts can review and overturn these decisions. The judiciary also governs the activities and operations of business, including hiring and firing practices, unpaid leave for family emergencies, environmental protection, worker safety, freedom from sexual harassment at work, and more. As you may suspect, businesspeople prefer to set their own standards of behavior and often complain that the government is overstepping its bounds in governing business. The financial crisis of 2008 highlighted that the U.S. business community did not follow acceptable standards, particularly in financial markets. This caused the government to expand its control and enforcement procedures.1 This chapter will look at specific laws and regulations and how they affect businesses.
Breach of Contract
Both parties in a contract may voluntarily choose to end the agreement. Breach of contract occurs when one party fails to follow the terms of a contract. A contract does not have to be complicated as long as (1) it is in writing, (2) it specifies mutual consideration, and (3) it contains a clear offer and agreement. Specific performance. Payment of damages. Discharge of obligation.
Chapter 13—repayment (used by individuals). Chapter 7—"straight bankruptcy" or liquidation (used by businesses and individuals).
Chapter 13 permits individuals, including small-business owners, to pay back creditors over three to five years. Chapter 13 proceedings are less complicated and less expensive than Chapter 7 proceedings. The debtor files a proposed plan with the court for paying off debts. If the plan is approved, the debtor pays a court-appointed trustee in monthly installments as agreed on in the repayment plan. The trustee then pays each creditor.
Both parties give consideration.
Consideration means something of value. If I agree to sell you my bike for $100, the bike and the $100 are consideration, and we have a legally binding contract. If I agree to sing at your wedding and you do not give me anything in return (consideration), we have no contract.
LAWS TO PROTECT CONSUMERS w List of Laws
Consumerism is a social movement that seeks to increase and strengthen the rights and powers of buyers in relationship to sellers.
Deregulation example
Consumers clearly benefited from the Airline Deregulation Act of 1978 that ended federal control of commercial airlines. Before passage of the act, the government restricted where airlines could land and fly. When the restrictions were lifted, airlines began competing for different routes and charging lower prices. The skies were also opened to new competitors, such as Southwest and JetBlue, to take advantage of new opportunities. Passage of the Telecommunications Act in 1996 brought similar deregulation to telecommunications and gave consumers a flood of options in local telephone service markets. There was also a significant increase in retail video competition. At one time, most homes received only four TV channels (the three major networks—NBC, CBS, and ABC—and public broadcasting). Today most households receive multiple over-the-air stations and hundreds more on cable, satellite, and the Internet. Deregulation efforts also occurred in the electric power industry. California was the first state to deregulate electric power in the late 1990s and experienced significant problems, especially with large-scale blackouts (loss of power). This caused other states to question the logic of deregulation. Today, dozens of states have deregulated electric power with some success.
Criminal Law vs Civil Law
Criminal law defines crimes, establishes punishments, and regulates the investigation and prosecution of people accused of committing crimes. Civil law proceedings cover noncriminal acts—marriage, personal injury suits, and so on.
BANKRUPTCY Procedure detail
First, creditors with secured claims receive the collateral for their claims or repossess the claimed asset (such as an automobile, equipment, or building); then unsecured claims (backed by no asset) are paid in this order: Costs of the bankruptcy case. Any business costs incurred after bankruptcy was filed. Wages, salaries, or commissions owed. Contributions to employee benefit plans. Refunds to consumers who paid for products that weren't delivered. Federal and state taxes.
TAX LAWS 1
Governments primarily use taxes as a source of funding for their operations and programs. Taxes can also help discourage or encourage certain behaviors among taxpayers. If the government wishes to reduce consumer use of certain classes of products like cigarettes or liquor, it can pass sin taxes on them to raise their cost.
Payment of damages.
If I fail to live up to a contract, you can sue me for damages, usually the amount you would lose from my nonperformance. If we had a legally binding contract for me to sing at your wedding, for example, and I failed to come, you could sue me for the cost of hiring a new singer.
Discharge of obligation.
If I fail to live up to my end of a contract, you can agree to drop the matter. Generally, you would not have to live up to your end of the agreement either.
Chapter 11—reorganization (used almost exclusively by businesses).
In Chapter 11 bankruptcy, a company sued by creditors continues to operate under court protection while it tries to work out a plan for paying off its debts. Under certain conditions it may sell assets, borrow money, and change company officers to strengthen its market position. A court-appointed trustee supervises the proceedings and protects the creditors' interests. A company does not have to be insolvent to file for relief under Chapter 11. In theory, it is a way for sick companies to recover, designed to help both debtors and creditors find the best solution. In reality, however, less than one-third of Chapter 11 companies survive—usually those with lots of cash available. The Bankruptcy Reform Act of 1994 provides a fast-track procedure for small businesses filing under Chapter 11.
TAX LAWS 2
In other situations, the government may encourage businesses to hire new employees or purchase new equipment by offering a tax credit, an amount firms can deduct from their tax bill.
History of Antitrust Legislation
In that atmosphere, Congress passed the Sherman Antitrust Act in 1890 to prevent large organizations from stifling the competition of smaller or newer firms. The Sherman Act forbids (1) contracts, combinations, or conspiracies in restraint of trade; and (2) the creation of actual monopolies or attempts to monopolize any part of trade or commerce.
LAWS TO PROTECT CONSUMERS Notes:
It is the people's way of getting a fair share and equitable treatment in marketing exchanges. The Public Company Accounting Reform and Investor Protection Act (better known as the Sarbanes-Oxley Act) was passed to allay concerns about falsified financial statements from companies like Enron and World-Com in the early 2000s. The financial crisis of 2008 again fueled consumer anger, this time against the Treasury Department, Federal Reserve, and Securities and Exchange Commission (SEC) for their lack of oversight of the financial markets. The collapse of the real estate market, crisis in the banking industry, and failure of quasi-governmental mortgage agencies such as Fannie Mae and Freddie Mac led to passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act. This legislation created the Consumer Financial Protection Bureau that provides government oversight involving consumers in areas such as online banking, home mortgage loans, and high-interest payday loans. Figure A.4 lists other major consumer protection laws.
copyright
Just as a patent protects an inventor's right to a product or process, a copyright protects a creator's rights to materials such as books, articles, photos, paintings, and cartoons. Copyrights are filed with the Library of Congress and require a minimum of paperwork. They last for the lifetime of the author or artist plus 70 years and can be passed on to the creator's heirs.
TAX LAWS
Mention taxes and most people frown. Taxes are the way federal, state, and local governments raise money. They affect almost every individual and business in the United States.
PATENTS, COPYRIGHTS, AND TRADEMARKS
PATENTS, COPYRIGHTS, AND TRADEMARKS section
The Clayton Act of 1914.
The Clayton Act prohibits exclusive dealing, tying contracts, and interlocking directorates. It also prohibits buying large amounts of stock in competing corporations. Exclusive dealing is selling goods with the condition that the buyer will not buy from a competitor (when the effect lessens competition). A tying contract requires a buyer to purchase unwanted items in order to purchase desired ones. Let's say I wanted to purchase 20 cases of Pepsi-Cola per week to sell in my restaurant. Pepsi, however, says it will sell me the 20 cases only if I also agree to buy 10 cases each of its Mountain Dew and Diet Pepsi products. My purchase of Pepsi-Cola would be tied to the purchase of the other two products. An interlocking directorate occurs when a company's board of directors includes members of the boards of competing corporations.
copyright date
The Copyright Act of 1978, however, gives a special term of 75 years from publication to works published before January 1, 1978, whose copyrights had not expired by that date.
The Federal Trade Commission Act of 1914.
The Federal Trade Commission Act prohibits unfair methods of competition in commerce. This legislation set up the five-member Federal Trade Commission (FTC) to enforce compliance with the act. The FTC deals with a wide range of competitive issues—everything from preventing companies from making misleading "Made in the USA" claims to insisting funeral providers give consumers accurate, itemized price information about funeral goods and services. Along with the Department of Justice, the FTC has the added responsibility to oversee proposed mergers and acquisitions (Chapter 5) to prevent anticompetitive mergers or acquisitions that would "substantially reduce competition". The Wheeler-Lea Amendment of 1938 also gave the FTC additional jurisdiction over false or misleading advertising, along with the power to increase fines if its requirements are not met within 60 days.
PROMOTING FAIR AND COMPETITIVE BUSINESS PRACTICES
The Justice Department's antitrust division has investigated the competitive practices of market giants such as Microsoft, Apple, Visa, and Google. Figure A.3 highlights several high-profile antitrust cases.
The Robinson-Patman Act of 1936.
The Robinson-Patman Act prohibits price discrimination and applies to both sellers and buyers who knowingly induce or receive price discrimination. Certain types of price cutting are criminal offenses punishable by fine and imprisonment. That includes price differences that "substantially" weaken competition unless they can be justified by lower selling costs associated with larger purchases. The law also prohibits advertising and promotional allowances unless they are offered to all retailers, large and small. Remember, this legislation applies to business-to-business transactions and not to business-to-consumer transactions.
Law Organization
The U.S. court system is organized at the federal, state, and local levels. At both the federal and state levels, trial courts hear cases involving criminal and civil law.
THE UNIFORM COMMERCIAL CODE cont
The UCC has 11 articles, which contain laws covering sales; commercial paper such as promissory notes and checks; bank deposits and collections; letters of credit; bulk transfers; warehouse receipts, bills of lading, and other documents of title; investment securities; and secured transactions.
U.S. Patent and Trademarks Office (USPTO)
The USPTO does not take action on behalf of patent holders if patent infringement occurs. The defense of patent rights is solely the job of the patent holder.
THE UNIFORM COMMERCIAL CODE
The Uniform Commercial Code (UCC) is a comprehensive commercial law that covers sales laws and other commercial laws.
Deregulation bad example
The financial crisis reopened the question of how much deregulation is too much. Deregulation in the banking and investment industries had changed the nature of financial and mortgage markets and created huge problems. The Federal Reserve System's reluctance to toughen mortgage regulations and the government's insistence on providing more home loans to high-risk borrowers contributed to the collapse in the real estate market. The financial crisis that followed led to passage of the most sweeping regulation of financial markets since the Great Depression.
THE CASE FOR LAWS
The judiciary is the branch of government chosen to oversee the legal system through a system of courts.
Specific performance.
The party who violated the contract may be required to live up to the agreement if money damages would not be adequate. If I legally offered to sell you a rare painting, I would have to sell you that painting.
There is a voluntary acceptance of the offer.
The principle of mutual acceptance means that both parties to a contract must agree on the terms. If I use duress—coercion through force or threat of force—in getting you to agree to buy my bike, the contract will not be legal. You couldn't use duress to get me to sell my bike, either. Even if we both agree, though, the contract is still not legally binding without the next four conditions.
TAX LAWS 4
The tax policies of states and cities are important considerations when businesses seek to locate operations. They also affect personal decisions such as retirement. As government revenues at all levels become more challenging, new tax issues are debated. One such issue involves taxing Internet sales. Many states claimed they were losing billions in sales taxes by not collecting from Internet sales transactions. Large states like California, New York, and Illinois have already taken action on Internet sales taxes, as have many smaller states.23 Other states are petitioning Congress to pass a law permitting them to collect sales taxes from e-commerce transactions. The European Union levies certain Internet taxes, so expect the U.S. debate to intensify. Figure A.5 highlights the primary types of taxes levied on individuals and businesses.
Negotiable Instruments cont
They must (1) be written and signed by the maker or drawer, (2) be made payable on demand or at a certain time, (3) be made payable to the bearer (the person holding the instrument) or to specific order, and (4) contain an unconditional promise to pay a specified amount of money. Checks or other forms of negotiable instruments are transferred (negotiated for payment) when the payee signs the back. The payee's signature is called an endorsement.
Statutory and Common Law
Two major fields of law are important to businesspeople: statutory law and common law.
Administrative Agencies
are federal or state institutions and other government organizations created by Congress or state legislatures with delegated power to create rules and regulations within their given area of authority.
Negotiable Instruments
forms of commercial paper (such as checks) that are transferable among businesses and individuals; they represent a promise to pay a specified amount.
Warranties
guarantees that the product sold will be acceptable for the purpose for which the buyer intends to use it. There are two types of warranties. Express warranties are specific representations by sellers that buyers rely on regarding the goods they purchase. The warranty you receive in the box with an iPad or a toaster is an express warranty. Implied warranties are legally imposed on the seller, specifying that a product will conform to the customary standards of the trade or industry in which it competes. Warranties can be either full or limited. A full warranty requires a seller to replace or repair a product at no charge if the product is not functioning or defective, whereas a limited warranty typically limits the defects or mechanical problems the seller covers. Companies often offer extended warranties
Product Liability
holds businesses liable for harm that results from the production, design, or inadequate warnings of products they market. The average product liability case can cost businesses millions, including defense costs, out-of-court settlements, and jury awards.
Statutory law
includes state and federal constitutions, legislative enactments, treaties of the federal government, and ordinances—in short, written law. You can read the statutes that make up this body of law, but they are often written in language whose meaning must be determined in court. With over 1.3 million licensed lawyers, the United States has more lawyers per citizen than any country in the world.2
A patent
is a document that gives inventors exclusive rights to their inventions for 20 years from the date they file the patent applications. Patent owners have the right to sell or license the use of their patent to others.
CONTRACT LAW
is a legally enforceable agreement between two or more parties. Contract law specifies what constitutes a legally enforceable agreement. A contract is legally binding if the following conditions are met: An offer is made. There is a voluntary acceptance of the offer. Both parties give consideration. Both parties are competent. The contract covers a legal act. The contract is in proper form.
A trademark
is a legally protected name, symbol, or design (or combination of these) that identifies the goods or services of one seller and distinguishes them from those of competitors. Trademarks generally belong to the owner forever, as long as they are properly registered and renewed every 10 years.
TORT LAW
is a wrongful act that causes injury to another person's body, property, or reputation. Legally, an intentional tort is a willful act that results in injury. The question of intent was a major factor in the lawsuits against the U.S. tobacco industry. Courts had to decide whether tobacco makers intentionally withheld information from the public about the harmful effects of their products.
Common law
is the body of law that comes from decisions handed down by courts. We often call it unwritten law because it does not appear in any legislative enactment, treaty, or other written document. Under common law principles, what judges have decided in previous cases is very important in deciding today's cases. Such decisions are called precedent, and they guide judges in the handling of new cases. Common law evolves through decisions made in trial courts, appellate courts, and special courts (e.g., probate courts or bankruptcy courts). Lower courts (trial courts) must abide by the precedents set by higher courts (e.g., appellate courts) such as the U.S. Supreme Court.
Business law
refers to the rules, statutes, codes, and regulations that provide a legal framework for the conduct of business and that are enforceable by court action.
American Inventors Protection Act
was passed to require that patent applications be made public after 18 months regardless of whether a patent has been awarded. This law was passed in part to address critics who argued that some inventors intentionally delayed or dragged out a patent application because they expected others to eventually develop similar products or technology. Then when someone (usually a large company) filed for a similar patent, the inventor surfaced to claim the patent—referred to as a submarine patent—and demanded large royalties (fees) for its use.