Study Guide Legal Environment Of Business

OBJECTIVESWhen you complete this lesson, you’ll be able tonnnnnnnnnnnnnn10Identify the four major sources of U.S. law and explainthe objectives of the lawDescribe the functions of articles and amendments of theU.S. ConstitutionDiscuss the differences between preemption and the doctrine of devolution and between statutory interpretationand judicial reviewExplain the roles of administrative agencies, precedent,and common lawExplain how courts are structured, determine the jurisdiction of federal courts and the U.S. Supreme Court,and discuss the effect of the Internet on jurisdictionDescribe the litigation process in criminal and civil casesDiscuss the advantages and disadvantages of ADR,proactive ADR options, and methods of ADR, such asmediation, arbitration, med-arb, summary judgmenttrials, and private civil trialsIdentify and describe sole proprietorships, partnerships,corporations, and limited liability companies (LLCs)Summarize the advantages and disadvantages of doingbusiness as a sole proprietorshipDistinguish between a general partnership and a limitedpartnershipDiscuss the rights and duties of partnersExplain how to form a corporation and the features ofdifferent types of corporationsExplain how corporations and LLCs are financed,governed, and dissolvedDiscuss issues of control and responsibility incorporations and LLCsLegal Environment of Business

nnDescribe the rights of shareholders in corporationsExplain how corporations are regulated and lawsimportant to regulationASSIGNMENT 1Read this introduction to Assignment 1. Then read Chapter 2of your textbook.The beginning of this assignment offers insight regardingwhat the term law generally means. Basically, law is the setof rules that individuals in a society are supposed to follow.The government establishes rules to promote harmony, stability, and justice. You can think of the legal system as acomplex adaptive system.A constitution is the basic law of a nation or state. Each statehas a constitution, and the nation has a constitution. TheU.S. Constitution provides the structure of U.S. government.The articles of the Constitution give government power, andthe amendments create the rights of the people. The courtsinterpret the broad terms used in the Constitution. TheConstitution is the first source of law.Statutes—the laws created by legislative bodies—are the second source of law. At the federal level, statutes are made byCongress and signed by the president. A similar processoccurs on the state level. Statutes are organized into codes, anumbered and indexed compilation of the statutes in a particular jurisdiction. Codes usually are subdivided into titles(groupings that deal with a particular subject area of law).Titles are subdivided into chapters, and chapters are subdivided into sections.Statutes made in one state are different from those ofanother state. To reduce the differences between statestatutes, the National Conference of Commissioners onUniform State Laws was created to propose uniform or modellaws that can then be adopted by states if they choose to doso. The Uniform Commercial Code (UCC) is an importantuniform law in the area of business. While not all states haveadopted the UCC in full or in exactly the same form, it helpsLesson 111

provide uniformity, which facilitates conduct of businessnationwide. Of recent interest are uniform acts concerningelectronic transactions.Court decisions are the third source of law. Early courts oflaw in England, from which the United States inherits muchof its law, developed a set of rules known as common law.Common law is the body of previously recorded legal decisions made by courts in specific cases. Early common lawattempted to identify legal principles that could be usedrepeatedly in the same situations so results would beconsistent between cases. Courts also interpret statutes andengage in judicial review of the constitutionality of statutes,administrative regulations, and executive actions. Courts givereasons for their decisions, and these interpretations of thelaw then become precedent—a rule that can be used todecide future cases involving the same issue. The practice ofrelying on previously recorded cases is called stare decisis.Administrative agencies administer certain laws adopted bythe legislative branch. These agencies create rules, regulate,supervise, and render decisions that have the force of law.Administrative rules and regulations are the fourth sourceof law.All law must be consistent with the U.S. Constitution. Courtscan rule a federal or state law that conflicts with the U.S.Constitution unconstitutional (invalid). The U.S. Constitutionis the supreme law of the land, followed by federal law. If astate law conflicts with a federal law, the federal law preempts the state law. Whether preemption applies depends onthe expressed intent of Congress, the objectives of the federallegislation, and if the law involves an area traditionally handled by the federal government.The doctrine of devolution is the idea that a central authority,such as the federal government, may, in certain circumstances, choose to delegate the power to define and enforce aright to a smaller authority, such as a state government.Future assignments will build on the information you learnedin Assignment 1. Make sure you’re familiar with the materialin this assignment before you go on to the next assignment.12Legal Environment of Business

After you read the pages assigned in your textbook andunderstand the material, complete Self-Check 1. Then, whenyou’re ready, you can move on to Assignment 2.Self-Check 1At the end of each section of Legal Environment of Business, you’ll be asked to pause andcheck your understanding of what you’ve just read by completing a “Self-Check” exercise.Answering these questions will help you review what you’ve studied so far. Pleasecomplete Self-Check 1 now.Answer the “Questions for Review and Discussion” on pages 41–42 of your textbook.Check your answers with those on page 119.ASSIGNMENT 2Read this introduction to Assignment 2. Then read Chapter 3of your textbook.Chapter 3 introduces you to the judicial branch of government and the role of courts in the U.S. legal system. The U.S.government has three branches: the legislative branch, theexecutive branch, and the judicial branch. This is true onboth federal and state levels.The legislative branch makes the law, the executive branchenforces or carries out the law, and the judicial branch interprets the law. You may immediately notice the power of thejudicial branch. The judicial branch has the final say as towhat a particular law actually means. If the legislative branchdisagrees with a court’s interpretation of a particular law, thelegislative branch has the power to redraft the law at issue orto pass another law that clearly gives the legislature’s intent.Lesson 113

A court must have jurisdiction to decide a case. Two types ofjurisdiction are necessary. A court must have subject-matterjurisdiction, which means that the court has the power tohear the type of case in question. Usually state courts havejurisdiction to hear cases involving something that happenedwithin the geographic jurisdiction of the court. Also, within acourt system, different courts are set up to hear differenttypes of matters. The type of case a court can hear is calledthe court’s subject-matter jurisdiction.However, whether the court possesses personal jurisdictionover the parties is a separate issue. Personal jurisdictionis typically an issue if the defendant lives outside the state.A long-arm statute identifies circumstances in which theamount of contact a defendant has with the home state issufficient to make it fair to exercise personal jurisdiction overthe defendant. Your book gives examples on page 47 of circumstances typically considered sufficient contact underlong-arm statutes. With the advent of Internet transactions,new questions have arisen about personal jurisdiction andminimum contacts. Although businesses may not physicallybe in a particular state, they do business in that statethrough e-commerce.Some courts hear a case for the first time at the trial level;these courts have original jurisdiction. Other courts, calledappellate courts, hear appeals from lower courts. A distinctionalso exists between state courts and federal courts. Federalcourts may hear only specific types of cases. The two mainways federal courts have subject-matter jurisdiction is ifthe case involves a question about federal law or diversityjurisdiction, in which the suit (1) is between citizens ofdifferent states, (2) is between citizens of a state or statesand citizens of a foreign nation, or (3) involves a foreigngovernment suing a U.S. citizen. However, to have diversityjurisdiction, the suit must also involve an amount more than 75,000. In contrast, jurisdiction based on a federal questiondoesn’t require any dollar amount be at issue. You’ll want toremember these two bases for federal subject-matter jurisdiction to know whether a particular case can be brought infederal court.14Legal Environment of Business

In the federal court system, the trial court is called districtcourt. The first level of appeal is the U.S. Circuit Courts ofAppeal, which is an intermediate appellate court. The map onpage 49 of your textbook shows the 13 circuits. The U.S.Supreme Court is the highest level of appeal in the federalsystem. In most cases, the U.S. Supreme Court has the discretion to choose whether to hear an appeal. For appeals itwill hear, the Court issues a writ of certiorari. The U.S.Supreme Court might hear a case because of the importanceof the issue or the need to resolve conflicting interpretationsof the law that have occurred in lower courts.State court systems have a structure similar to the federalsystem, with a few exceptions. States usually have inferiortrial courts that hear only certain types of cases andhigher-level trial courts that have broader jurisdiction.Approximately half of the states don’t have intermediateappellate courts.Most civil court cases begin with a pleading called acomplaint. The plaintiff is the person suing, and thedefendant is the person being sued. The complaint sets forththe facts from the plaintiff’s perspective, the defendant’s legalviolations, the harm that the plaintiff suffered, and the remedy that the plaintiff seeks. The complaint is served on thedefendant along with a summons, which is the official noticefrom the court that suit has been filed and that the defendant must answer within a certain period of time (usually20–30 days). In the defendant’s answer, the defendant admitsor denies the allegations in the complaint and may raiseaffirmative defenses, which are reasons the defendant shouldwin even if the allegations in the complaint are true.The next stage of litigation is discovery. In most states, discovery is limited in criminal cases, but broad in civil cases. Incivil cases, the discovery process can be lengthy, consistingof depositions (questions asked by attorneys and answered bypersons under oath) and interrogatories (written questions towhich persons submit written responses signed under oath).Pages 55–56 of your textbook lists other forms of discovery.If discovery reveals no material disagreement about the facts,a party may make a summary judgment motion. A summaryjudgment motion states that there’s no need for a trialLesson 115

because the parties don’t disagree about the facts. Thejudge needs only to apply the law to the facts and enter ajudgment.If a case isn’t settled during discovery, the case proceeds totrial. A pretrial conference is held before trial to discuss thepossibility of a settlement and the details involved in bringingthe case to trial, such as witnesses to be called. Recently,many courts have begun to use pretrial conferences early inthe litigation to manage a case’s discovery phase.Cases may be tried by a jury or judge. Parties dissatisfiedwith the result can appeal. In a criminal trial, unlike a civilcase, the defendant can’t be compelled to testify againsthim- or herself.Pages 61–63 of your textbook list these stages of a criminaltrial:nnnnnnArrest and initial appearance, at which time the defendant may ask for bailPreliminary hearing, at which the prosecution presentsevidence to a judge of probable cause that the defendantcommitted a crime (This evidence doesn’t prove a defendant’s guilt; it simply shows the reason to proceed withthe charge.)Formal charges, which are brought by a grand jurythrough an information or indictmentArraignment, at which the defendant must enter a plea ifformally chargedTrial, at which the prosecution must prove guilt beyonda reasonable doubt (The standard of proof in a civil caseis a preponderance of the evidence.)If the verdict is guilty, a sentence, which in most statesis given by a judgeAfter you read and understand the assigned pages in yourtextbook, complete Self-Check 2. Then, when you’re ready,you can move on to Assignment 3.16Legal Environment of Business

Self-Check 2Answer the “Questions for Review and Discussion” on page 65 of your textbook.Check your answers with those on page 122.ASSIGNMENT 3Read this introduction to Assignment 3. Then read Chapter 4of your textbook.Chapter 4 introduces you to alternatives to litigation, whichhave become more popular in recent years, partly due tocrowded dockets and the time and expense of litigation.Alternatives to litigation are called alternate disputeresolutions (ADR). Many different ADR techniques, includingmediation, arbitration, med-arb, early neutral evaluation,summary jury trials, and private civil trials, can be used. Asyou read Chapter 4, pay careful attention to the differencesamong ADR methods. Mediation involves a neutral thirdparty, who helps involved parties reach a settlement but can’timpose a decision. In arbitration, on the other hand, theinvolved parties chose a decision maker. With mediation, theparties retain control of the outcome—there’s no resultunless both parties agree. With binding arbitration, anarbitrator acts as a judge, hears evidence, and decidesthe case.Chapter 4 discusses proactive use of ADR. Different featuresof proactive techniques include partnering, ADR contractclauses, settlement week, negotiated rule making, international arbitration agreements, the post-appellate option(which provides a potential remedy after exhausting remediesavailable through litigation), and the science court proposal.Lesson 117

After you read and understand the assigned pages in yourtextbook, complete Self-Check 3. Then, when you’re ready,you can move on to Assignment 4.Self-Check 3Answer the “Questions for Review and Discussion” on page 83 of your textbook.Check your answers with those on page 124.ASSIGNMENT 4Read this introduction to Assignment 4. Then read Chapter 25of your textbook.Assignment 4 discusses two important types of businessentities: sole proprietorships and partnerships.Sole proprietorships are the easiest business organization tocreate—you simply begin doing business. An advantage tosole proprietorships is complete control, while a disadvantageis unlimited liability.A partnership involves two or more co-owners carrying onbusiness for profit. Under the Revised Uniform PartnershipAct, the partnership entity has continuity of existence, whichwasn’t the case under earlier law. Partnerships can be created without a written agreement, but a written agreement isbetter to prevent misunderstandings and disputes later. Ifthere’s a change in the partners, this is called dissociation.For example, dissociation could occur by reason of withdrawal or death of a partner. Dissociation terminates thepartnership unless there’s a written partnership agreementproviding otherwise.18Legal Environment of Business

A disadvantage of general partnerships is personal liability.Note that certain types of partnership can avoid this problem.Limited partnerships (LPs) and limited liability partnerships(LLPs) are special kinds of partnerships that provide protection from personal liability for the actions of the otherpartners or the partnership. An LP has two kinds of partners—limited partners (who are investors not subject to personalliability but who aren’t involved in running the business) andgeneral partners (who are involved in carrying on the business and remain personally liable). In a LLP, all partnershave the management rights of general partners, but noneare personally liable.After you read and understand the assigned pages in yourtextbook, complete Self-Check 4. Then, when you’re ready,you can move on to Assignment 5.Self-Check 4Answer the “Questions for Review and Discussion” on page 557 of your textbook.Check your answers with those on page 126.ASSIGNMENT 5Read this introduction to Assignment 5. Then read Chapter 26of your textbook.In this assignment, you’ll focus on the formation and characteristics of corporations and how they’re financed. You’ll alsostudy a similar entity called a limited liability company (LLC).A corporation is a legal entity empowered by a state or federalstatute authorizing individuals to operate such an entity.Corporations are legal persons and have many of the samerights as people.Lesson 119

Certain corporations have special features that distinguishthem. One such corporation is a close corporation, in whichshares are held by a small number of people and transfer ofshares is limited.One disadvantage of corporations is double taxation,which happens because corporate income tax is followedby individual income tax on dividends distributed to shareholders. Small corporations can generally avoid this problemby qualifying as sub-S corporations (the name refers to thesection of the Internal Revenue Code where this loopholeappears). The corporate income tax also can be avoided byusing an LLC as the vehicle for conducting business.Corporations can be incorporated in any state and don’tneed to incorporate in the same state the corporation doesbusiness in. Corporations are created by filing articles ofincorporation with the secretary of state in the state ofincorporation. A similar process is used to create LLCs.A de jure corporation is one that’s formed legally. Nonetheless,a defectively formed corporation may be treated as a corporation for liability purposes. A de facto corporation exists if agood faith, but defective, effort was made to incorporate, andthe corporation exercises corporate power. The doctrine ofcorporation by estopp

Welcome to Legal Environment of Business. This course will explore the legal aspects of business today. In addition, this course offers a good overall picture of the American legal system and how it affects business on a daily basis. Your course material is divided into five lessons based on your textbook, Business Law with UCC Applications.This