Final Exam Flashcards
Entrepreneur
a person who forms and operates a business. An entrepreneur may start a business alone or may cofound a business with others. Most businesses started by entrepreneurs are small or midsize businesses.
Importance of choosing the right business organization
- Easiest for one person to own a business, but also riskiest because sole proprietor holds all liabilities 2. Incorporating allows you to protect personal assets (same with LLC’s).
due diligence
- A defense that accountants, lawyers, directors, managers, and others can assert, which, if proven, avoids liability under Section 11(a) of the Securities Act of 1933.
-Reasonable steps taken by a person in order to satisfy a legal requirement, especially in buying or selling something. Investigation of business or person prior to signing a contract.
Business Judgement Rule
A rule that protects the decisions of a board of directors of a corporation where the board has acted on an informed basis, in good faith, and in the honest belief that the action taken was in the best interests of the corporation and its shareholders.
Securities Act of 1933
-a federal statute that regulates primarily the issuance of securities by companies and other businesses.
-The primary purpose of this act is to require full and honest disclosure of information to investors at the time of the issuance of the securities. The act also prohibits fraud during the sale of issued securities.
Securities Act of 1934
-a federal statute designed primarily to prevent fraud in the subsequent trading of securities.
-This act has been applied to prohibit insider trading and other frauds in the purchase and sale of securities in the after markets, such as trading on securities exchanges and other purchases and sales of securities
IPO (initial public offering)
A situation in which a company or other issuer sells securities to the public for the first time.
preliminary prospectus
A written disclosure document that must be submitted by an issuer of securities to the Securities and Exchange Commission (SEC) with the registration statement and is provided to potential investors to enable them to evaluate the financial risk of an investment.
registration statement
A document that an issuer of securities files with the Securities and Exchange Commission (SEC) that contains required information about the issuer, the securities to be issued, and other relevant information.
Final Prospectus
A document that must be made available either in writing or electronically by the issuer of securities to purchasers of issued securities before or at the time of the purchase of the securities
Securities and Exchange Commission (SEC)
A federal administrative agency that is empowered to administer federal securities laws. The Securities and Exchange Commission (SEC) can adopt rules and regulations to interpret and implement federal securities laws.
short-swing profits
Profits that are made by statutory insiders on trades involving equity securities of their corporation that occur within six months of each other.
Insider Trading
A situation in which an insider makes a profit by personally purchasing shares of the corporation prior to public release of favorable information or by selling shares of the corporation prior to the public disclosure of unfavorable information.
Misappropriation Theory
A rule that imposes liability under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 on an outsider who misappropriates information about a company in violation of his or her fiduciary duty and then trades in the securities of that company.
Vicarious Liability
Liability without fault that occurs when a principal is liable for an agent’s tortious conduct because of the employment contract between the principal and agent, not because the principal was personally at fault.
Agency
A fiduciary relationship that results from the manifestation of consent by one person to act on behalf of another person, with that person’s consent.
employer-employee
exists when an employer hires an employee to perform some form of physical service but does not give that person authority to enter contracts.
Employer-Independent Contractor Relationship
The relationship between a principal and an independent contractor who is not an employee of the principal but has been employed by the principal to perform a certain task on behalf of the principal.
Respondeat Superior
-Let the master answer
-A rule that says an employer or a principal is liable for the tortious conduct of its employees or agents while they are acting within the scope of its authority.
Liability for Intentional Torts/ Fraud
- A principal is not liable for the intentional torts of agents and employees that are committed outside the principal’s scope of business.
- However, a principal is liable under the doctrine of vicarious liability for intentional torts of agents and employees committed within the agent’s scope of employment.
Contract Liability of principal and agent
-Liability of principals and agents for contracts entered into with third parties.
-A principal who authorizes an agent to enter into a contract with a third party is liable on the contract. Thus, the third party can enforce the contract against the principal and recover damages from the principal if the principal fails to perform it.
Principal-agent
-The principal owes certain duties to an agent and independent contractor. Duty to compensate, reimburse, indemnify, cooperate
- The agent owes certain duties to a principal. Duty to perform
Line and scope of employment
The scope of an agent’s or employee’s duties while conducting work for his or her principal or employer.
Defenses for employer/ principal
Affirmative Defense- A defense that an employer may raise against a charge of sexual, racial, or other harassment.
- Worker is an independent contractor and NOT an employee
- Worker was not operating in the line and scope of employment at the time of the incident*
Frolic and detour
A situation in which an agent does something during the course of his or her employment to further his or her own interests rather than the principal’s.
Coming and Going Rule
A rule that says a principal is generally not liable for injuries caused by its agents and employees while they are on their way to or from work. Also known as the going and coming rule.
fiduciary relationship
A relationship that exists among general partners where they owe each other a duty of loyalty.
termination of agency/ operation of law
- An agency contract can be terminated by an act of the parties, by an unusual change of circumstances, by impossibility of performance, and by operation of law.
- An agency contract is terminated by operation of law in
The death of either the principal or the agent
The insanity of either the principal or the agent
The bankruptcy of the principal
The outbreak of a war between the principal’s country and the agent’s country.
American Disabilities Act
A federal statute that imposes obligations on employers and providers of public transportation, telecommunications, and public accommodations to accommodate individuals with disabilities.
Protected Class
- Race. A broad class of individuals with common characteristics (e.g., African American, Caucasian, Asian, Native American).
- Color. The color of a person’s skin (e.g., light-skinned person, dark-skinned person).
- National origin. A person’s country of origin or national heritage (e.g., Italian, Hispanic).
- Sex. A person’s sex, whether male or female. Includes sexual harassment and discrimination against females who are pregnant.
- Religion. A person’s religious beliefs. An employer has a duty to reasonably accommodate an employee’s religious beliefs if doing so does not cause an undue hardship on the employer.
EEOC (Equal Employment Opportunity Commission)
-is the federal agency responsible for enforcing most federal antidiscrimination laws.
-is empowered to conduct investigations, interpret the statutes, encourage conciliation between employees and employers, and bring suits to enforce the law.
Title VII of the Civil Rights Act of 1964
A title of a federal statute enacted to eliminate job discrimination based on five protected classes: race, color, religion, sex, and national origin. Also known as the Fair Employment Practices Act.
