BLAW110 - Business Organizations III PDF

Legal Environment of Business BLAW110 Business Organizations III  Agency Intro Fiduciary: A relationship between two people involving a certain professional level of trust and confidentiality Includes the duty of care and the duty of loyalty Agency Law:...

Legal Environment of Business BLAW110 Business Organizations III  Agency Intro Fiduciary: A relationship between two people involving a certain professional level of trust and confidentiality Includes the duty of care and the duty of loyalty Agency Law: Employees are agents of employers, and are responsible for any contracts entered into by its employees Employees = Agents; Employers = Creating an Agency Relationship Agency relationships can be created through: Written Agreement – Employment contract Conduct – Implied contract Ratification – Agent acts outside the scope of employment but the company approves the contract and assumes its rights and obligations Estoppel – Agent relies on the principal to assume the rights and obligations under the contract (reliance must be reasonable) Operation of Law  Agent’s Duties to a Principal 1 – Performance – Use ordinary care (the “reasonable person” standard) 2 – Notification – Communicate all business matters/deals to principal 3 – Loyalty – Act in the company’s best interest and not divert corporate opportunities to their own 4 – Obedience – following the law and all company rules and procedures (employee handbook) 5 – Accounting – keeping accurate records of revenues/expenses  Classification of Agency Relationship Agents/employees are classified as either employees (EE’s) OR independent contractors (IC’s) EE’s are issued IRS Form W-2; IC’s are issued IRS Form 1099 A “work for hire” occurs where a company either hires/commissions someone to perform a service or works for a company If unclear whether IC or EE, look to the level of control the company has over the worker Control Factors: whether the worker has sufficient knowledge or skill; whether the worker owns their own business/hires their own workers/has their own equipment; whether the worker chooses their own work schedule/works out of their own office/is supervised Employers/principals are generally not liable for the actions of an IC (but are liable for EE’s)  The “Gig” Economy Employers/principals attempt to get more workers classified as IC’s so that they don’t have to pay minimum wage/overtime/other benefits CA Bill AB-5: (1) worker can perform services without the control or direction of the company; (2) worker performing tasks outside the usual course of the company’s business activities; (3) worker is customarily engaged in their own independently established trade 2018: Gig economy drivers not entitled to EE protections 2020: Prop 22 passes, giving companies the right to classify workers as IC’s  Principal’s Duties to Agent Principals must compensate the agent, reimburse for any expenses, provide safe working conditions and train/supervise the agent Indemnity: Principal agrees to hold agent harmless from liability and will defend/pay legal fees if sued Agent not liable if acting within scope of authority Authority established expressly (through contract) or impliedly/apparent (agent reasonably believes they have authority) Agency relationships end if term ends, purpose achieved or by  Antitrust Antitrust law is governed by the Sherman Act, and is designed to protect against unfair competition or anti-competitive behavior Section 1: “every contract in restraint of trade is hereby declared illegal” Section 2: “every person who monopolizes (or attempts or conspires to monopolize) is guilty of a felony” Monopoly – A limited number of companies or one company will set the price for a given product or service (known as “price- fixing”) Ex: Bundling/tying in the cable TV industry Vertical and Horizontal Restraints Horizontal Restraints: Agreements between competitors that place limits or restrictions on trade Group Boycotts – Refusal to deal with a particular person or company Market Division – Advance agreements to divide up territories or customers Trade Associations – Industry partners who agree to exclude competitors Vertical Restraints: Companies who typically purchase inventory, manufacture, sell to wholesalers and/or retail; involved in each step in the production chain Must intend to monopolize or price-fix to be liable under Section 2 of the Act  Major League Baseball and Antitrust 1969: St. Louis Cardinals outfielder Curt Flood refuses a trade to Philadelphia MLB contracts previously contained a reserve clause, which “reserved” a player’s services to a club once their contracts ended SCOTUS Holding: Baseball exempt from antitrust rules 1976: Two players (Andy Messersmith and Dave McNally) play season without a contract, leading to the repeal of the reserve clause and the birth of free agency  Secured Transactions Securities are financial instruments that hold some monetary value (can include stocks, bonds, interests) All securities must be registered in accordance with the 1933 Securities Act Companies will issue a prospectus, which includes information for potential investors about the security  Registration Exemptions “Regulation A” offerings allow securities which do not exceed $50M during a 12-month period to be exempt Rule 504 - The same reasoning applies to Regulation D offerings, which are for non-investment company offerings up to $1M Rule 505 – Applies to companies which offer up to $5M to accredited or sophisticated investors within 12-month period Rule 506 – “Private Placement” Exemption – securities which are not generally solicited or  Violations of the Securities Act Companies cannot mislead or defraud investors in its prospectus, either through providing false information or omitting key information Section 10(b)(5) prohibits any material misrepresentations made by a company in connection with the purchase and sale of securities Investors must prove scienter (wrongful intent), reliance on incorrect information (reliance must be reasonable), some economic loss and causation (connection between company’s misrepresentation and economic loss) Each State also has its own securities laws and registration requirements