1. CHAPTER 8
Legal Aspects and Ethics in
Business
By: Nor Aida Abdul Rahman

2. 8.1 Legal Structure For New Business Venture
Identifying Legal Structures
Before deciding how to organize an operation, prospective
entrepreneurs need to identify the legal structure that will best suit
the demands of the venture
Three primary legal forms of organization are the sole
proprietorship, the partnership and the corporation .
Sole Proprietorship
- Is a business that is owned and operated by one person.
- The individual also has unlimited liability, which means his or her
business and personal assets stand behind the operation.
- If the company cannot meet its financial obligations, the owner can
be forced to sell the family car, house and whatever assets that
would satisfy the creditors.
- To establish a sole proprietorship, a person merely needs to obtain
whatever local and state licenses are necessary to begin operations.
By: Nor Aida Abdul Rahman

3. cont..
Partnerships
- A partnership is an association of two or more persons acting as coowners of a business for profit. Each partner contributes money,
property, labor or skills and each shares in the profits (as well as
the losses) of the business
- The following are examples of the types of information customarily
written into the agreement:
• Name
• Duration of agreement
• Character of partners (general or limited, active or silent)
• Contributions by partners (at inception, at later date)
• Division of profits and losses
• Draws or salaries
• Death of a partner (dissolution and windup)
• Release of debts
• Business expenses (method of handling)
• Authority (individual partner’s authority on business conduct)
By: Nor Aida Abdul Rahman

4. Cont..
Corporation
A corporation is an “artificial being, invisible, intangible, and
existing only in contemplation of the law
A corporation is a separate legal entity apart from the individual
who own it.
A corporation is created by the authority of state laws and is
usually formed when a transfer of money or property by
prospective shareholders (owners) takes place in exchange for
capital stock (ownership certificates) in the corporation
The procedure ordinarily required to form a corporation are
i.
Subscription for capital stock must be taken and a tentative
organization created.
ii.
Approval must be obtained from the secretary of state in the
state in which the corporation is to formed.
iii.
Corporations that do business in more than one state must
comply with federal laws regarding interstate commerce and
with the varying state laws that cover foreign (out-of-state)
corporations.
By: Nor Aida Abdul Rahman

5. Franchise
A franchise is any arrangement in which the owner of a trademark,
trade name, or copyright has licensed others to use it in selling
goods or services.
A franchisee (a purchaser of a franchise) is generally legally
independent but economically dependent on the integrated
business system of the franchisor (the seller of the franchise).
In other words, a franchisee can operate as an independent
business person but still realize the advantages of a regional or
national organization.
Franchise Fees
-
In business, no one gets something for nothing. The larger and
more successful the franchisor, the greater the franchise fee.
Franchisor Control
-
The franchisor generally exercises a fair amount of control over the
operation in order to achieve a degree of uniformity.
If entrepreneurs do not follow franchisor directions, they may not
have their franchise license renewed when the contract expires.
By: Nor Aida Abdul Rahman

6. 8.2 Laws Governing Intellectual Property
What is Intellectual Property?
- Intellectual includes patents,
trademarks, copyrights and trade
secrets- represents important assets
to the entrepreneur and should be
understood even before engaging the
services of an attorney.
By: Nor Aida Abdul Rahman

7. Intellectual Property
–
protected by laws governingTrademarks
Copyright
Patents
Intellectual
Property
Licensing
Trade
Secrets
By: Nor Aida Abdul Rahman

8. 1 Trademarks
A trademark may be a distinguishing
word, name, or symbol design used
to identify a product.
2 Patent
A patent is a contract between the
government and an inventor. Grants
holder protection from others making,
using or selling similar idea.
Right given to prevent others from
printing, copying or publishing any
original works of authorship.
3 Copyright
4 Trade Secrets
Protection against others revealing or
disclosing information that could be
damaging to business.
5 Licensing
Constractual agreement giving rights
to others to use intellectual property
in return for a royalty or fee.
By: Nor Aida Abdul Rahman

9. Benefits of a Registered Trademark
It provides notice to everyone
that you have exclusive rights
to the use of the mark
throughout the territorial
limits of the United States
It entitles you to sue in
federal court for trademark
infringement, which can result
in recovery of profits,
damages and costs.
It establishes incontestable
rights regarding the
commercial use of the mark.
It establishes the right to
deposit registration with
customs to prevent
importation of goods with a
similar mark.
It entitles you to use the
notice of registration
It provides a basis for filling
trademark application in
foreign countries.
By: Nor Aida Abdul Rahman

10. Product Safety and Liability
It is very important
for the
entrepreneur to
assess whether
any product that is
to be marketed in
the new venture is
subject to any
regulations under
the Consumer
Product Safety Act.
Claims regarding
product liability
usually fall under
one of the
following
categories
This occurs when
advertising, labels, or
other information
misrepresent material facts
concerning the character
or quality of the product
Misrepresentation
Misrepresentation
Strict Liability
Strict Liability
In this action, aa
In this action,
Consumer is suing because
Consumer is suing because
The product in question was
The product in question was
Defective before its receipt
Defective before its receipt
Warranty
Warranty
Consumers may sue if advertising
Consumers may sue if advertising
Or information overstate the
Or information overstate the
Benefits of aaproduct
Benefits of product
NEGLIGENCE
NEGLIGENCE
Extend to all parts of the production and
Extend to all parts of the production and
marketing process
marketing process
By: Nor Aida Abdul Rahman

11. 8.3 Ethics and Business Decision
Ethical
Quadrant II.
Quadrant I.
Ethical and
Illegal
Ethical and
legal
Corporate
Decisions
Manifestation
Codification
Illegal
Legal
Quadrant IV:
Unethical and
Illegal
Quadrant III.
Unethical and
Legal
Unethical
By: Nor Aida Abdul Rahman
Ethics provide the
basic rules or
parameters for
conducting any activity
in an “acceptable”
manner.
More specifically,
ethics represent a set
of principles
prescribing a
behavioral code that
explains what is good
and right or bad and
wrong; ethics may, in
addition, outline moral
duty and obligations

12. Cont..
In addition, the entrepreneur is faced with specific ethical dilemmas. There are
4 main themes of ethical dilemmas – conflict of interests, personality traits,
responsibility to stakeholders and level of openness.
Conflict of
Interests
Personality
Traits
Small
Business
Ethical
Dilemmas
Social
Responsibility
To
stakeholders
Level of
openness
By: Nor Aida Abdul Rahman