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Fin 3074 Final

by: Sydney Corey

Fin 3074 Final FIN 3074

Sydney Corey
Virginia Tech

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Notes for final exam on all chapters covered in class
Professor Sullivan
Study Guide
business, Law, finance, ethics
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This 13 page Study Guide was uploaded by Sydney Corey on Wednesday September 7, 2016. The Study Guide belongs to FIN 3074 at Virginia Polytechnic Institute and State University taught by Professor Sullivan in Spring 2016. Since its upload, it has received 6 views. For similar materials see LEGAL, ETHICAL, AND FINANCING ISSUES FOR ENTREPRENEURS in Finance at Virginia Polytechnic Institute and State University.

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Date Created: 09/07/16
Fin 3074 Final Exam CHAPTER 2: Leaving Your Employer § No Moonlighting Clause - prohibits the employee from engaging in any business activities (even after hours) unrelated to the employee’s job with the employer § Non Compete- an agreement between an employer and an employee that is designed to protect the employer from potentially unfair competition from a former employee § Trade Secret- information used in one’s business that is neither generally known nor readily ascertainable in the industry and that provides the business owner a competitive advantage over competition who do not have access to this information § Non-Disclosure Agreement- a specialized agreement that included the prohibition on the use or disclosure of trade secrets and confidential information § Inevitable Disclosure Doctrine- prohibits a former employee from working for a competitor firm for a limited period of time if the former employer is able to prove that the employee’s new employment will inevitably lead him or her to rely on the former employer’s trade secrets CHAPTER 3: Selecting and Working with an Attorney § Attorney Client Privilege- communications between a client and a lawyer when the client is seeking confidential legal advice CHAPTER 4: Deciding Whether to Incorporate § Sole Proprietorship- a business owned by one person § Corporation- distinct legal entity owned by its shareholders o C-Corp- taxed under subchapter C of the Internal Revenue Code o S-Corp- do not pay federal income tax but pass the tax liability for their profits through the shareholders § Limited Liability Company- combines the pass through federal tax treatment of a partnership with the liability protections of a corporation o owners are referred to as members and have no personal liability for the obligations of the LLC § Articles of Organization- document filed with the secretary of state which sets forth the name, address, agent for service of process, the term, and whether the LLC is governed by its members or by managers appointed by the members § Operating Agreement- specifies how the LLC will be governed CHAPTER 5: Structuring the Ownership § Bylaws- the operating rules of the company set forth in a document § Common Stock- stock initially issued to founders upon formation of the new company § Preferred Stock- stock issued to venture capital investors § Vesting- the process by which an employee gains non-forfeitable rights over employer-provided stock incentives § Buy Sell Agreements- another device used to provide some liquidity to shareholders while limiting stock ownership to a small group CHAPTER 6: Forming and Working with the Board § Board of Directors- Corporations are legally required to have a board to protect the interests of the corporation and its equity/share holders. Board members can bring perspective and experience to the table, help top management recognize the need for long-term planning, and provide framework for control and discipline o Between 5-9 members is ideal o Duty of Loyalty and Duty of Care § Duty of Loyalty- acting in good faith in the best interests of the corporation § Duty of Care and Oversight- acting with the level of care that a reasonably prudent person would use under similar circumstances CHAPTER 7: Raising Money and Securities Regulation § Angel Investors- private sales of debt or equity securities directly to qualified individual investors § Family & Friends Financing- borrowing money from or selling equity in the company to friends and family, typically in the earliest stages of the company’s development § Venture Capital Financing- money provided by professional investors for investment in new or developing businesses § Placement Agent- distributes documents describing the company and the offering to suitable persons and assists in the private sale of securities § Bootstrapping- generating capital by carefully managing the company’s internal funds and reinvesting them into the company § Business Plan- a formal statement of the business’s goals; includes: the nature of the company and its business, markets and technology; the qualifications of the management team; the size of the market for the company’s products; financial goals of the venture, amount of capital required to achieve these goals, and in detail how the required capital will be spent. The plan should also include information such as competition, barriers to entry, and any research based projections § Private Placement Memorandum- selling and disclosure document stating that the company is seeking funds through the sale of securities § Dilution- the amount by which the founders’ percentage interest in the company will be reduced § Common Stock- all shares of stock have the same rights § Preferred Stock- additional rights granted by amending the corporations certificate of incorporation to authorize a second class of stock with more rights § Convertible Preferred Stock- preferred stock that can be converted into common stock at a specified exchange ratio § Warrant- a right, for a given period of time, to purchase a stated amount of stock at a stated exercise price (sold to investors) § Dividend Preference- no individuals may be paid on the common shares until a specified amount of dividends is paid to holders of preferred stock § Conversion Rights- holders of preferred stock have the right to convert their preferred stock into common stock at any time § Stock Purchase Agreement- definitive agreement that finalizes the terms and conditions related to the purchase and sales of the shares of a company. Typically includes: security description, representations and warranties, conditions to closing, covenants, investor’s rights, and investor’s representations § The Securities Act of 1933- Congress sought to give purchasers of securities adequate information relating to the issuer and the offering. The act requires that the promoters of securities offerings register them with the SEC and provide prospective purchasers with a prospectus containing material information about the issuer and the offering § Private Offering- the securities are offered only to a limited number of selected qualified investors who can understand and bear the risk of the investment § Accredited Investors- Defined by the Rule 501 as any one of the following: 1. National bank, savings and loan association, registers broker-dealer, registered investment company 2. Any private business development company 3. Any corporation, business trust or partnership not formed for the purpose of acquiring offered securities with total assets in excess of $5 million 4. Any director, executive officer, or general partner of the issuer 5. Any natural person with individual income in excess of $200,000 in each of the last 2 years or joint income with spouse in excess of $300,000 6. Any natural person whose individual net worth exceeds $1 million at the time of the purchase 7. Any trust with total assets in excess of $5 million when purchase is directed by a financially sophisticated person 8. Any entity in which all of the equity owners are accredited investors CHAPTER 8: Marshaling Human Resources § Employee- a person employed for wages or salary, at nonexecutive level § Independent Contractor- a worker who provides unsupervised special work that is needed only sporadically § Temporary Worker- variation of employee/ independent contractor known as hybrid employee, typically hired through a temp. agency § Title VII Civil Rights Act of 1964- protects employees from discrimination based on race, color, religion, sex, or national origin § Damages under Title VII- o Back Pay- compensation for lost salary and benefits until the date of trial o Front Pay- pay for a limited period of time in lieu of reinstatement § Disparate Treatment- intentional discrimination against him/ her by denying employment because of race, color, sex, or national origin § Disparate Impact- a specific employment practice, policy, or rule that disproportionally affects a certain protected group § Harassment- unwanted actions or demands made based on sex, race, color, religion, or national origin that create a hostile work environment § Bona Fide Occupational Qualifications- qualifications necessary to the normal operation of the business that allows an employer to lawfully hire someone on the basis of religion, sex, or national origin § Age Discrimination in Employment Act- prohibits employers with at least 20 employees from age-discriminating employment practices- covers workers 40 years of age and over § Immigration Reform and Control Act- 1986, makes it unlawful for an employer with 4 or more employees to discriminate against applicants or employees on the basis of either their national origin or their citizenship status § Americans with Disabilities Act- covers all employers with 15 or more employees who work at least 20 calendar weeks or more in a given year. Prohibits discrimination against qualified individuals with known disabilities in employee job application procedures, hiring, promotions, training, compensation, and discharge § Disability- defined as (1) mental or physical impairment that substantially limits one or more of a person’s major life activities (2) a record of such impairment, or (3) being regarded as having such an impairment § Reasonable Accommodations- making work facilities accessible, restructuring jobs or modifying work schedules, acquiring or modifying equipment or devices, modifying examinations, training materials, or polices, and providing qualified readers or interpreters for individuals with disabilities § Undue Hardship- an activity requiring significant difficulty or expense when in light of (1) the nature and cost of accommodation needed, (2) overall financial resources of the facility, the number of person’s employees at the facility, the effect on expenses and resources, or any other impact of the accommodation on the facility; (3) the overall financial resources of the employer and the overall size of the business, and (4) the type of operation of the employer § Family and Medical Leave Laws- requires employers with 50 employees or more to provide eligible employees up to 12 weeks of unpaid leave per year § Equal Employment Opportunity Commission- federal administrative agency created for the purpose of enforcing Title VII and other federal antidiscrimination statutes § Fair Labor Standards Act- regulates employee classification, minimum wage, overtime pay, and the use of child labor by all employers who participate in interstate commerce § Worker’s Compensation- require most employers to obtain insurance for income and medical expenses for employees who suffer work-related accidents or illnesses § Occupational Safety and Health Act (OSHA)- employer must provide a place of employment that is free from recognized hazards that are causing or are likely to cause death or serious physical harm to employees § National Labor Relations Act- protects employees from adverse employment action because of their union activities or nonunion concerted activities for mutual benefit § Actual Authority- when the employer expressly or implicitly authorizes the employee to enter into agreement § Apparent Authority- binding the employer if the employer engages in conduct that would reasonably lead a third party to believe that the employee has authority CHAPTER 9: Contracts and Leases § Contract- a legally enforceable promise or set of promises § Common Law- body of unwritten laws based on precedents established by the courts. Contracts for sale of land or securities, loan agreements, and provision of services § Article 2 of the Uniform Commercial Code (UCC)- a statute governing the sale of goods in every state (except Louisiana), DC, and Puerto Rico. Designed to codify certain aspects of the common law and free those engaging in commercial transactions from some of the more onerous requirements of the common law. Statute of Fraud applies for sales of $500 or more § Choice of Law Provision- specifies which state’s law is to govern the contract § 4 Basic Requirements for a Contract- (1) Agreement between the parties formed by an offer and acceptance, (2) parties’ promises must be supported by something of value, known as consideration, (3) both parties must have the capacity to enter into a contract, and (4) the contract must have a legal purpose § Offer- statement by a person that indicates a willingness to enter into a bargain on the terms stated § Acceptance- occurs when the person to whom the offer was addressed indicated a willingness to accept the offeror’s proposed bargain § Consideration- a legal concept that means a bargained-for exchange o anything of value that is exchanged by the parties § Implied Contract- a contract that is not explicitly articulated but is held to exist based on certain circumstances or on the conduct of the parties § Option Contract- to keep an offer open for a longer time parties can enter into a separate agreement which requires the offeree to pay something to the offeror for the privilege of having the offer left open § Counteroffer- if the offeree does not accept the terms specified in the offer but instead offers different terms § Illusory Promise- occurs when one party fails to provide anything of value § Requirements Contract- a buyer’s agreement to purchase all of a specified commodity it needs from a particular seller § Output Contract- a seller’s agreement to sell all of its output to a particular buyer § Bilateral Contracts- one promise is exchanged for another promise § Unilateral Contracts- a promise is exchanged for the performance of a certain act § Statute of Frauds- requires parties to put certain types of agreements in writing. 5 Types of Contracts that are subject to the statute of frauds: 1. Contracts that cannot be performed within one year 2. Contracts that involve the transfer of interests in real property 3. Contracts by which someone agrees to assume another’s debt 4. Prenuptial contracts for how assets are to be allocated if divorced 5. Contracts for the sale of goods for $500 or more § Merger Clause- a clause stating that “this agreement constitutes the entire agreement of the parties and supersedes all prior and contemporaneous agreements, representations, and understandings of the parties § Force Majeure- unanticipated governmental action (superior force) § Mitigation of Damages- non-breaching party is required to make reasonable efforts to minimize damages in the event of a breach § Promissory Estoppel- legal principle that a promise is enforceable by law when the promisor makes a promise to the promise who relies on it to his or her detriment § Lease- a contract between a landlord and tenant § Indemnification- part of an agreement that provides for one party to bear the monetary costs, either directly or by reimbursement, for losses incurred by the second party CHAPTER 11: Operational Liabilities andInsurance § Negligence- conduct that creates an unreasonable risk of causing injury to another person or damage to another person’s property § Tort- a civil wrong that injures a person, property, or certain economic interests and business relationships § Duty- required to act responsibly under the circumstances to avoid harming the other person § Contributory Negligence- if the plaintiff was also negligent in any manner, he or she cannot recover any damages from the defendant o Virginia has contributory negligence laws, even if only 1% your fault still NO case § Comparative Negligence- allows the plaintiff to recover the proportion of his or her loss attributable to the defendant’s negligence o Ex. Plaintiff 5% negligent, Defendant 95% negligent, Plaintiff can recover 95% of the loss- Plaintiff must be less than 50% negligent § Battery- harmful or offensive contact with the plaintiff’s body or something (such as a coat) touching it § False Imprisonment- intentional restraint of movement, imposed against someone’s will by physical barriers, physical force, or threats of force § Defamation- the communication to a third party of an untrue statement of fact that injures the plaintiff’s reputation § Nuisance- non-trespassory interference with the use and enjoyment of real property o Public- unreasonable and substantial interference with the public health, safety, peace, comfort, convenience, or utilization of land o Private- unreasonable and substantial interference with an individual’s use of his or her land § Conversion- the exercise of dominion and control over the personal property, rather than the real property, or another § Fraudulent Misrepresentation- protects economic interests and the right to be treated fairly and honestly. Requires proof that the defendant knowingly and intentionally misled the plaintiff by making a material misrepresentation of fact on which the plaintiff justifiably relied o Also required plaintiff suffered injury as a result of the reliance § Strict Liability- liability without fault, that is, without negligence or intent o Product liability cases and for ultra hazardous cases § Ultra Hazardous- activity that is so dangerous that no amount of care could protect others from the risk of harm § Toxic Tort- wrongful act that causes injury by exposure to a harmful, hazardous, or poisonous substance § Respondeat Superior- “Let the Master Answer”- an employer is vicariously liable for the torts of an employee acting within the scope of his or her employment § Actual Damages/ Compensatory Damages- based on the cost to repair or replace an item, or the decrease in market value caused by the tortious conduct § Punitive Damages/ Exemplary Damages- amount of damages based on the defendant’s wealth and must be reasonably proportional to the actual damages or proportionate to the wrong § Equitable Relief- if a money award cannot adequately compensate for the plaintiff’s loss courts may grant equitable relief o Ex. Injunction: court order to stop doing certain activity § Joint Liability- multiple defendants are jointly liable, the plaintiff may collect the entire judgment from any one of the defendants regardless of their degree of fault § Contribution- distributes the loss among several defendants by requiring each to pay its proportionate share (often based on relative fault) to the defendant that discharges the joint liability § Indemnification- allows a defendant to shift some of its individual loss to other defendants whose relative blame is greater § Horizontal Agreement- between firms that directly compete with one another § Vertical Agreement- between firms at different levels of production or distribution (such as retailer and manufacturer) CHAPTER 12: Creditors’ Rights and Bankruptcy § Term Loan- specified amount is borrowed, either in lump sum or installments § Revolving Loan/ Revolving Line of Credit- allows the borrower to borrow whatever sum it requires, up to a specified maximum amount § Collateral- property belonging to the borrower that the lender can sell or retain if the loan is not repaid § Debtor- person who has an interest in the collateral whether or not such person owes payment or performance of the obligation secures § Secured Party- the lender, seller, or other person whose favor there is a security interest § Security Agreement- an agreement that creates or provides for a security interest § Article 9- provides a single source of reference for most consensual security interests § After Acquired Property- property that the debtor acquires after the execution of the security agreement § UCC 1 Financing Statement- a form for a perfected security interest in goods § Fraudulent Transfers- includes transfers made by the debtor with actual intent to hinder, delay, or defraud creditors § Exclusivity Period- during the first 120 days after a bankruptcy petition is filed, the debtor has the exclusive right to propose a plan of reorganization CHAPTER 13: Venture Capital § Due Diligence- the process through which venture capitalists examine a company’s concept, product, potential market, financial health, and legal situation § Sideways- earns only a modest return on capital invested § Liquidation Preference- provides that upon a liquidation or dissolution of the company, or upon any sale of the business or sale of substantially all of the company’s assets, the preferred shareholders must be paid some amount of money before the common shareholders are paid anything § Participating Preferred Stock- after the preferred stock is paid its liquidation preference it also receives its pro rata share of what remains as though the preferred stock had converted to common stock § Pari Passu- whether all series of stock will be treated equally § Milestones- certain goals within a specified time CHAPTER 14: Intellectual Property and Cyberlaw § Improper Means- of acquiring trade secrets include: theft, misrepresentation, bribery, breach of contract, and espionage § Copyright- gives the owner of an original work of authorship the exclusive legal right to obtain certain economic benefits from the work, including the right to prevent reproduction and distribution of the work o Last the life of the creator plus 70 years § Word Made for Hire- the employer owns works created by its employees in the scope of their employment § Patent- exclusive right granted by the federal government that entitles the inventor or patent assignee to prevent anyone else from making, using, selling, or offering to sell the patented process or product in the United States for a specified period of time o Utility Patent- covers a machine or a process o Design Patent- protects ornamental designs § Trade Mark- any word (or phrase), name, symbol, sound, or design that identified and distinguishes one company’s products from those made or sold by others § Arbitrary Marks- real words that have nothing to do with the product category o Ex. Apple § Dilution- involves using another’s trademark on goods or in connection with services or as a trade name if the use is likely to cause harm to the reputation of the mark’s owner or likely to lessen the distinctiveness of the mark § License- gives a person the right to do something he or she would not otherwise be permitted to do, but it does not transfer the related property rights CHAPTER 16: Buying and Selling a Business § Target Company- the entity whose assets are being sold, or whose stock is being sold, or which is being merged with the acquirer or a subsidiary of the acquirer in a transaction that will result in control being shifted § Asset Purchase- the acquiring company purchases some or all of the target company’s assets and assumes some or all of its liabilities § Stock Purchase- acquirer purchases all outstanding shares of the target company’s capital stock from the targets shareholders in exchange for cash, stock, or other consideration § Merger- two corporations combine into one surviving corporation § Exclusivity Agreement- the target company agrees for a specified period of time not to solicit or encourage an acquisition proposal from another company that may be interested in entering into merger negotiations and will not provide another company nonpublic information or participate in any potential merger- related discussions or negotiations § Letter of Intent- Document in which one or more parties signify an intention to do or refrain from doing one or several actions COURT TERMS § Jurisdiction- the official power to make legal decisions and judgements; a system of law courts § Service of Process- procedure by which a party to a lawsuit gives an appropriate notice of initial legal action to another party, court, or administrative body in an effort to exercise jurisdiction over that person § Warrant- specific type of authorization § Subpoena- summon, a writ ordering a person to attend court § Plaintiff- person who brings a case against another in a court of law § Defendant- person accused of a crime in criminal prosecution or entity against whom some type of civil relief is being sought in a civil case § Civil Cases- legal dispute between two or more parties § Small Claims Cases- informal proceedings where litigants can present their own evidence and make their own arguments directly to the judge § Appeal- apply to a higher court for a reversal of the decision of a lower court § Warrant in Debt- a legal document that advises a you that a plaintiff is suing you in court for money that they claim are owed to them


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