CHAPTER 7 LEGAL ASPECTS OF BUSINESS

CHAPTER 7 LEGAL ASPECTS OF BUSINESS

COMPETITION-- The rivalry among companies for customers dollars. IF THERE IS NO COMPETITION-- One producer can control the supply and price of the product or service, which is called a MONOPOLY. Patents, Copyrights, Public Utilities, Postal Service what do they all have in common?

There are three department stores in Mentor. Only one carries a new product that many teenagers would crave. The price is high. The product was recently advertised by the manufacturer, who is located 500 miles away. 1) Is this a temporary monopoly? 2) Why will the price come down when the other two department stores carry the new product? 3) What needs to happen to create a significant drop in the price?

LAWS CREATED TO ENFORCE THE LAWS OF FAIR COMPETITION SHERMAN ANTITRUST ACT 1890 Created to promote competition Created to discourage monopolies SHERMAN ACT VIOLATION Two shoe stores operating on opposite sides of the street on a main intersection kept running special sales in order to attract more customers. Neither store was making a fair profit. Both owners agreed to continue to advertise, to mark down shoes by only 10%, and to limit the number of shoe styles sold in both stores.

CLAYTON ACT OF 1914 Two-part law Forbids corporations from acquiring ownership rights in other corporations if purpose is to create monopoly or discourage competition. Forbids business contracts that require customers to purchase certain goods to get other goods. 1995--Microsoft Corporation required computer makers that wanted to buy its Windows operating system to also accepts its Internet Explorer browser. Violation!!!

ROBINSON-PATMAN ACT OF 1936 To prevent price discrimination setting different prices for different customers. Ex: seller cannot offer a price of $5 a unit to Buyer A and sell the same goods to Buyer B at $6 a unit----unless quantity/quality is different

WHEELER-LEA ACT OF 1938 Unfair or deceptive acts/practices are unlawful. Example: false advertising which is advertising that is misleading in some important way, failure to reveal facts about possible results from using the advertising product.

FTC FEDERAL TRADE COMMISSION Administers most of the federal laws dealing with fair competition Examples of practices prohibited by FTC: Retraint of trade, illegal monopolies, price fixing, misleading/false information; offering free merchandise when in reality it is not, advertising as being sold at discount when no reduction in price, misrepresentation of quality; privacy of Internet. WOULD THE FTC PROHIBIT THE FOLLOWING? 1) Firm A advertised a product as being greatly discounted when in fact it was being sold at the regular price. 2) Firm B advertised a breakfast cereal as buy one, get one free. So that it would not lose money, it doubled the price of the first box of cereal.

BANKRUPTCY Legal process that allows the selling of assets to pay off debts. Chapter 7 known as Straight bankruptcy. Chapter 11 Bankruptcy for businesses. Provides time for companies to reorganize themselves and present a recovery plan to the court Chapter 13 Organizational Bankruptcy

PROTECTING THE RIGHTS OF THOSE WHO CREATE NEW PRODUCTS/IDEAS PATENTS federal government gives inventor sole right for 20 years to make, use and sell an invention or process. Ex: Nutra-sweet s patent on artificial sweeteners for diet drinks/food expired December 1992.

COPYRIGHTS federal government gives author sole right to reproduce, publish and sell literary or artistic work for the life of the author, plus 70 years. Includes CD games and music, software. (ex: Mickey Mouse) Walt Disney died in 1966. Copyright protection til 12/15/2061.

TRADEMARKS Distinguished name, symbol, or special mark placed on a good/service that is legally reserved for the sole use of the owner. Can continue indefinitely as long as mark not abandoned by trademark owner (ex: golden arches, Nike swoosh Coca-Cola OR loses its significance in the marketplace by becoming a generic term. (ex: zipper, escalator, linoleum all of which were once trademarks)

INTERSTATE INTRASTATE COMMERCE Interstate business operations/transactions that cross state lines. (ex: products produced in one state, sold in another state. Intrastate business transactions within a state. IDENTIFY WHICH IS INTERSTATE & INTRASTATE Firm A buys merchandise from other states but sells it only in its own state Firm B buys merchandise from one other state and sells it in all states but its own Firm C buys merchandise in its state and sells it to customers located in the same state.

TAXATION SIN TAX tax on tobacco, alcohol. FYI: raising cigarette taxes substantially 1/3 of the population stopped smoking over a 10-year period. PROPORTIONAL TAXATION (FLAT TAX) tax rate remains the same regardless of the amount on which the tax is proposed. Ex: State imposes a flat tax of 5% on personal income. Taxable income is $300,000 for Taxpayer A and $100,000 for Taxpayer B. How much with each taxpayer owe? Taxpayer A ($300,000 x.05) ; Taxpayer B ($100,000 x. 05) 5% is the tax rate; A is greater than B because taxable income is three times greater.

TAXATION (continued) PROGRESSIVE TAXATION - tax based on the ability to pay. As income increases, tax rate increases. State of Ohio Income Tax chart below: If your income range is between $0 and $5,000, your tax rate on every dollar of income earned is 0.587%. If your income range is between $5,001 and $10,000, your tax rate on every dollar of income earned is 1.174%. If your income range is between $10,001 and $15,000, your tax rate on every dollar of income earned is 2.348%. If your income range is between $15,001 and $20,000, your tax rate on every dollar of income earned is 2.935%. If your income range is between $20,001 and $40,000, your tax rate on every dollar of income earned is 3.521%. If your income range is between $40,001 and $80,000, your tax rate on every dollar of income earned is 4.109%. If your income range is between $80,001 and $100,000, your tax rate on every dollar of income earned is 4.695%. If your income range is between $100,001 and $200,000, your tax rate on every dollar of income earned is 5.451%. If your income range is $200,001 and over, your tax rate on every dollar of income earned is 5.925%. FEDERAL INCOME TAX combination of progressive and proportional STATE OF OHIO INCOME TAX progressive -- considered fair by most people

TAXATION (continued) REGRESSIVE TAXATION tax rate decreases as taxable amount increases. People with lower incomes pay large proportion of their income in taxes than those with higher income. (ex: sales tax, VAT value added tax)

KINDS OF TAXES INCOME TAX tax on the profits of a business and on earnings of individuals Tax for individuals based on salaries and other incomes earned after certain deductions (ex: children deductions) Individuals pay 70% of total federal income tax collected Tax on businesses applies to net profits (receipts less expenses Business pay the remaining 30% of total federal income tax collected SALES TAX tax levied on retail price of goods and services at time sold Main source of revenue for states, some cities and counties PROPERTY TAX tax on material goods owned (property, possessions) Main source of revenue for local governments