The Legal Environment

Chapter 8

Upon completion of this chapter you will be able to:

List ways to get legal protection for the business products you create.

Describe laws related to starting your business.

List the laws affecting the hiring of employees.

Discuss the laws that deal with trade issues. Identify some of the taxes for which business

owners are responsible.

Legal Issues Facing Start-Ups

Section 8.1

Protecting Your Product Ideas

The group of laws that affect how ideas are protected is called intellectual property law. Protect an invention -------- Patent Law Protect a logo ---------------- trademark issue Protect music, software, or books --------copyright Protect recipes for food ----------------- trade secrets

Patents

Patent = a grant to an inventor that gives him or her the exclusive right to produce and sell an invention.

Last 21 years from date of application.

Patent Process

The Process: File a disclosure with the patent and trade office

(PTO) stating that you are the inventor - $25. Within 2 years file an application with the PTO.

While PTO researches the application the patent is in patent-applied-for status.

Once the PTO declares that your claims are accepted, your patent is in patent-pending status until it is officially issued.

Copyrights

Protects original works of authors. 2 Steps: Place notice in prominent location (© or the word copyright),

the year of publication, & name of copyright holder. Register your work with the Copyright office.

Protects only the form in which the idea is presented – not the idea itself.

Lasts for life of author + 50 years. After that it goes into public domain, which means that it can be used by anyone.

Trademarks

A word, symbol, design, or combination of these that a business uses to identify itself or something it sells.

Trademark is followed by trademark symbol - ® or ™ A design or symbol that describes a service business is

called a service mark. (ex: M for McDonalds)

Trademarks can be held indefinitely unless it becomes common usage in the English language

Ex: aspirin, yo-yo, thermos

Patent & Trademark Rules

1. The invention must not contain prior art.

2. The invention must fit into one of five classes: machine, a process, articles of manufacture, a composition, or a new use for one of the four categories.

3. The invention must be unobvious

4. The invention must have utility.

Laws Affecting Starting Up Your Business

3 categories of laws you should be aware of before you start your business: Permits and Licenses Contracts Choosing a Location

Permits and Licenses

Before you can open the doors you must get a business permit from your local government.

Renewed annually Pay periodic fees based on how much the business earns

Check to see if you need a license. Doctors, nurses, pharmacists, barbers, accountants, etc. all

need special licenses. Protects consumers from unskilled or unqualified operators.

Contracts

A legal binding agreement between two or more persons or parties.

To be valid it must contain certain elements: Agreement – by both parties Consideration – what is exchanged for the

promise. Capacity – legally able to enter into agreement. Legality – cannot have anything illegal in the

contract.

Choosing a Location

Zoning Laws and Building Codes Is it a commercial or residential zone? Zoning laws cover environmental issues Building codes set standards for construction or

modification of buildings. Leasing

Make sure that your lease contract is thorough and detailed.

Should consult an attorney before signing one.

Laws that Affect Your Employees

Discrimination in Hiring: Equal Employment Opportunity Commission

(EEOC) protects against discrimination because of age, race, color or national origin, religion, gender, or physical challenge.

Any tests given must relate directly to the job Wrongful Termination:

When an employee is fired for wrongful reasons Notify employees in writing when they violate

rules to protect yourself

Laws that Affect Your Employees

Equal Pay Act of 1963: Must pay men and women the same wage for the

same work. Fair Labor Standards Act:

Established minimum wage and maximum working hours. Also ensured that children under 16 could not be employed full-time except by their parents.

Occupational Safety & Health Act (OSHA): Ensures safe and healthy work conditions. Large amount of paperwork and heavy fines.

Dealing With Trade Issues

Price Discrimination: Selling the same product to different people at different

prices. Must justify why (bought more, bought lower quality, etc)

Clayton Act & Robinson-Patman Act prohibit price discrimination.

Consumer Protection: Unscrupulous sellers Unreasonable credit terms Unsafe products Mislabeling of products

Consumer Protection cont…

The food and drug administration (FDA): Responsible for researching and testing new

products and inspections of food and drug manufacturers.

The Consumer Product Safety Commission (CPSC): Establishes product safety standards and recalls

products. The Fair Packaging & Labeling Act:

Requires that manufacturers truthfully label all raw materials used in production. Must list size and weight of product as well.

The Uniform Commercial Code

Group of laws that cover everything from sales to bank deposits.

Different rules, with regards to contracts, apply for merchants than would non-merchants. (ex: no price set in contract, UCC will set it for them)

Warranties under UCC: Warranty of merchantability – assures the buyer

that the product purchased is at least average quality and fit for their purpose, whether the merchant expresses it or not.

Truth in Lending

Consumer Credit Protection Act - Requires those who give credit to reveal all terms and conditions of their credit agreements.

Applies to anything purchased over a period of time greater than four months.

Truth in Advertising

Protects from false and misleading advertisements. When you advertise beware of:

Misleading ads – can’t claim something product cannot do. Sales prices – cannot offer a reduced price until offered to

public at regular price for a period of time. Price comparisons- Must have proof that your prices are

lower than competitors. Bait-and-switch- advertising bargain prices to lure customer

in and then try to sell them higher-priced merchandise.

Paying Taxes

Sales Tax - % of price goes to state or local government. Retailers pay every 3 months

Payroll Taxes: Employers must deduct a % of gross pay from paychecks for taxes.

FICA, or Social Security must be deducted Employer is required to contribute equal amount.

Federal and State is also required.

Paying Taxes

Federal Unemployment Tax (FUTA): Helps employees temporarily unemployed, except those

who are fired.

Business Income Taxes: Sole proprietors or a partner in a partnership, the income

your business earns is considered your personal income, so you are taxed at your personal rate. You pay double the FICA because you are the employer and the employee.

If you are a corporation you pay personal income tax based on the salary you earn and any other income derived from the business. Shareholders will pay personal income tax on salaries as well.