Legal Issues in Business

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LEGAL ISSUES IN BUSINESS 27

LegalIssues in Business

1. Introduction

1.1. Opening paragraph

1.2. Overview of business dynamics

2. What are the major internal mechanisms necessary to achieve acompetitive advantage from the law?

2.1. Internal mechanisms

2.1.1. Managing people

2.1.1.1. Verbal Communication

2.1.1.2. Nonverbal Communication

2.1.1.3. Employee misconduct

2.1.2. Ethics

2.1.2.1. Corporate and social responsibility

2.1.2.2. Code of conduct

2.1.2.3. Compliance and ethics programs

2.1.2.4. Framework selection

3. What are the common legal issues faced by business?

3.1. Five common legal issues facing businesses in America.

3.1.1. Disgruntled Employees

3.1.2. Discrimination/Harassment Cases

3.1.3. Immigration Audits

3.1.4. Copyright and Patent Issues

3.1.5. Dissatisfied Customers

4. What are some steps to differentiating legal issues by businesstype?

4.1. Developing legal strategies is a fundamental part of businessformation

4.2. Incorporate legal planning into the business planning process

4.3. An analysis of the legal issues and business data indicatedthat:

4.3.1. Certain legal issues are relevant to all new ventures

4.3.2. Certain legal issues are relevant to specific types of newventures

4.3.3. The relevancy of individual legal issues will vary dependingon business category

4.4. What are the political and legal challenges faced byinternationally operating an internet firm?

4.4.1. The conceptual framework

4.4.2. Intellectual property rights

4.4.3. Sourcesof policy risk in international e‐commerce

5. What are the legal implications for US businesses that engage injoint acquisitions?

5.1. What are the benefits for strategic buyers?

5.1.1. Pooling of capital, knowledge and skills unique to eachacquiring party

5.5.2.Opportunity to generate synergies or establish a long-termoperational arrangement

5.5.3. Opportunity to divide the target`s business among theacquiring parties according to their respective investmentobjectives.

5.5.4. Reduction in the potential risk of competing bids by theacquiring parties

5.5.5. Ability to retain management and employees of the targetthrough incentive plans

5.2. What are some legalities to consider when operating under thejoint acquisition construct?

5.2.1. Securities and other regulatory considerations

5.2.2. Governance and veto rights

5.2.3. Management

5.2.4. New corporate opportunities

5.2.5. Transfer restrictions

5.2.6. Initial public offering and registration rights

6. Conclusion

6.1. Closing paragraph

Abstract

The purposeof this paper is to highlight the legal issues in business. Theability to incorporate legal planning into the business planningprocess allows entrepreneurs to strategically plan their operationsto minimize risks arising from legal and regulatory governance andbetter protect the assets of the business and entrepreneur. Thispaper will explore a fundamental part of business formation andstrategic operation the U.S.Constitution and the Bill of Rights. The major components of thispaper will consist of: taxation, trends, labor law, internationallabor, consumer protection legislation, securities laws and jointacquisition. “By anticipating these complex regulatory and businessissues, companies can better prepare to ensure their long-term healthand protect their reputation.”

Legal Issues inBusiness

Entrepreneurshipis the heart of modern economic life in the United States of America.The core economic dynamism entails the opening and growth of neworganizations as well as the shrinkage and closure of existingbusinesses (Gordon &amp Brayden, 2014).

TheUnited States Constitution stipulates the laws used in the regulationof entrepreneurship. The constitution, through the commerce clause,grants the federal government the power to standardize the tradebetween states, the Indian tribes, and other nations. The ability ofthe policy to authorize the federal government to control businessimplies that the article has a greater impact on business than anyother section of the constitution. The article provides protection toconsumers as well as the businesses (McBride, 2015).

Thebroad legal organization of firms in the US includes soleproprietorships, partnerships, and corporations. The legal forms ofbusinesses dictate how the company operates and pays taxes. It alsodictates the owner’s liability, the treatment of income andexpenses, and potential liabilities incurred by the owners (Gordon &ampBrayden, 2014).

Thecreation of hybrid businesses has led to the development of new kindsof businesses such as the General, Limited, Family limited, andprofessional partnerships. The corporations have increased to includeC corporations, S corporations, Limited liability companies,professional corporations and personal service companies. The legalforms differ in various ways such as how the business is created andthe way it carries out the daily operations. The hybrids differ onthe ownership of the assets, the sharing of profits, legalresponsibilities, taxation and the length of company life (Gordon &ampBrayden, 2014).

1.2.Overview of Business Dynamics

Businessstatistics point out that there were 23 million sole proprietorships,7.4 million partnerships and S corporations, and 1.7 million Ccorporations in the year 2014 (McBride, 2015). The number oftraditional C corporations in the United States have taken adeclining trend since the year 1986. There were 1.6 millionconventional C corporations in the year 2011, which is the lowestnumber of companies since 1974. The companies reached a peak of 2.6million in the year 1986, but began to decline after the tax reformAct of established on the same year. Specifically, the United Stateshas lost approximately 60,000 corporations per annum since 1986,which sums up to more than one million companies within a period oftwenty-nine years. More businesses have encountered structuralchanges from C corporations’ business structures to pass throughentities like partnerships, S corporations, and sole proprietorships(McBride, 2015).

SMEsare the pillar of the American economy. In addition to providingemployment to more than half of the private sector workforce, theyhave generated the majority two-thirds of the new jobs since 1995.The principal aim of restructuring is to facilitate the passage ofprofits to the owners and a plan of reducing the rate of tax.Besides, the capability to avoid corporate tax eliminates theinstances of double taxation. Consequently, a majority 6% or morebusinesses are taxed according to the provisions of the individualtax code and explain the reduction in government tax returns despitethe high rates of corporate taxation (Hodge, 2014).

2.1.1.Managing People

Inthe ordinary course of business, employers fail to consider thepotential impact of litigation associated with people management.Litigation is a time consuming and expensive approach forcorporations. The current trends towards people management have ledto the growth of alternative dispute resolution (ADR) processes inthe form of mandatory employment arbitration. Since the decision ofthe Circuit City Stores Inc. v. Adams case, the courts indicated thatthe law permits employers outside the transportation industry toarbitrate employment disputes under certain requirements.

However,research has indicated that arbitration and litigation are associatedwith similar costs. The average total costs of arbitration andwitness fees amounted to $921,042.22 compared to $704,908.20 forlitigation. Besides, investigations have indicated that the totalcosts for arbitration and settlement for arbitration amount to$938,509.15 compared to $935,086.03 for litigation (Smita &ampViviers, 2016).

Dispositiontime profoundly affects the costs of litigation due to the time thatis taken in resolving the disagreement. The placement time alsoaffects the employees` morale since ‘justice delayed is justicedenied.’ Although the employer uses the arbitration process tominimize the costs and the time, the overall approach towards workrelated conflict is avoidance (Smita &amp Viviers, 2016).

Companiesare obliged to practice ethical management processes to avoidwork-related suits. Employee management manuals and businesscontracts require critical evaluations to make sure that they coverall aspects of employer-employee relationships (Smita &amp Viviers,2016).

2.1.1.1.Verbal Communication

Verbalcommunication involves the direct exchange of information between twoindividuals. It may occur as face-to-face or through electrical ormechanical devices such as computers and telephones. Avoidinglitigation related to verbal communication requires the use oftelephones or facial modes of communication on sensitive subjectmatters. The use of written communications requires the sender toreflect on the purpose of communication before relaying the message.The need to reflect emanates from the evidence related to writtencommunication. Although papers can be destroyed and discarded, emailsmay reside in multiple places even after all efforts are made todiscard the information work (Smita &amp Viviers, 2016).

2.1.1.2.Nonverbal Communication

Nonverbalcommunication in business may occur alone or as a supplement toverbal communication. It is recognized universally as a body languagethat entails eye contact, gestures, facial expressions, and postureused to relay information. Other forms include appearance, dressingand speech rate. Nonverbal communication occurs since most people areuncomfortable in stating their needs. Consequently, avoidinglitigation requires sensitivity and perception to negative nonverbalsituations by providing a workplace that is respectful to everyone.Besides, employers should provide employees with training onprofessional behavior as a strategy to maintain a professionalatmosphere at work (Smita &amp Viviers, 2016).

2.1.1.3.Employee misconduct

Dealingwith misconduct of workers serves as a potential source of Employeepractices liability (EPL). The lawsuits may turn out to beemotionally and financially draining even after the employer isdeclared innocent. Avoiding claims requires businesses to establishconsistent methodologies of employee policies, dealing with legalcounsels, insurance and valid documentation of records. The keystrategy to avoid litigation includes investigating potential workersduring the hiring process. After recruitment, the employees shouldsign an employment at will policy. The human resource managers shouldalso provide training on safety and professionalism in the conduct ofwork duties and responsibilities. The company should place a zerotolerance policy regarding harassment and discrimination at the placeof work. Besides, it is necessary to provide various means ofreporting harassment at work (Smita &amp Viviers, 2016).

2.1.2.Ethics

Businessethics entails a set of moral principles applied by a company in theconduct of its operations. Ethics helps the business indistinguishing between the right and wrong choices. The Bureau ofEconomic and Business Affairs (EB) has the role of providing guidanceand support to the U.S. companies in undertaking ethical businesspractices as a strategy to promote sustainable development. Thebureau works closely with unions and the civil society to embrace andimplement spontaneous corporate policies. It also operates inconjunction with the Organization for Economic Cooperation andDevelopment (OECD) to create the guidelines for multinationalbusinesses. The U.S. Department of State promotes and recognizes theapplication of ethical practices through the yearly states Awards forCorporate Excellence (ACE). The Bureau of Democracy also works withthe International Labor Affairs, Internet Freedom, and the HumanRights and labor‘s offices to ensure the creation of regulationsthat respect labor and human rights in a manner that positivelycontributes to the global development (Corporate SocialResponsibility and the U.S. Department of State, 2013).

2.1.2.1.Corporate and social responsibility

Corporateresponsibility is a set of actions undertaken by a business as astrategy to promote its vision and exhibit accountability to thestakeholders. The key areas of concern include environmentalprotection, ensuring the wellbeing of employees, the surroundingcommunity, and the general civil society. The idea behind corporateresponsibility lies behind the fact that organizations can no longeract as single entities in the business world. The idea developedafter the erosion of traditional views on the need forcompetitiveness, profitability, and survival. The first drivingfactor on corporate responsibility is the shrinking role of thegovernment. Consequently, organizations have adopted a voluntaryapproach to non-regulatory initiatives (Corporate SocialResponsibility, 2013).

2.1.2.2.Code of conduct

Thecode of conduct is a critical element in the efficient governance ofan organization. The systems help in guiding employees on how thecompany operates and how it embeds on its core values. The code ofconduct helps in reflecting the organization’s core values to thestakeholders and therefore, strengthens relationships that furtherpromote the firm’s relationships. Employees prefer working ingroups that strongly adheres to their established policies.Similarly, customers prefer buying products from organizations thatdemonstrate a high social-sensitive behavior. The systems help inreassuring the investors and other relevant stakeholders in search ofresponsible investment, integrity and commitment to theorganization’s ethics (Smita &amp Viviers, 2016).

2.1.2.3.Compliance and ethics programs

Complianceand ethics programs are company policies created to promote andenhance lawful practices and the ethical conduct of the business.Programs require the support from procedures, communication, and thebusiness cultural attributes to be effective. Laws provide theleniency required by companies and serve as the key drivers ofconformity and ethics programs. The rules enable the creation ofsound management practices (Compliance &amp Ethics Programs, n.d).

2.1.2.4.Framework selection

Abusiness framework describes the corporate organization of a companyor the governance structure. It may also explain the organization`spolicies or a strategy developed by the management to guide in theachievement of a given goal. The best frameworks take amulti-stakeholder approach in establishing the major actions requiredto successfully achieve a given objective. The framework entails thepurposes and strategies, the policies, organization culture, businessprocesses, roles, tools, systems, objectives, measures, andincentives (University Alliance, 2016).

3.Common legal issues faced by business

Amongthe top priorities of any business is respecting the law as astrategy to avoid litigation. Lawsuits have the potential ofsignificantly altering the success of the firm (University Alliance,2016).

Liu(2013) Observes that corporates face three broad types of legalactions. First, environmental prosecution occurs despite thetraditional notion that environmental performance is attainable atthe expense of the organization’s financial performance. The boardsof directors are endowed with the responsibility of ensuring thattheir organizations comply with environmental laws (Mayer et al.,2012).

Second,organizations face security related litigation that are broughtagainst by either the shareholders or the Securities and ExchangeCommission (SEC). The SEC serves as the supplementary corporategovernance mechanism that takes over upon the failure of the board ofdirectors to correct the misconduct of the management (Mayer et al.,2012).

Thethird type of cases organizations face is the antitrust proceedings.The policies are used by the constitution to maximize economicefficiency and for the protection of consumers’ welfare bypreserving adequate markets. Antitrust violations cover a variety ofcorporate conducts such as collusion, anti-competitive mergers, andmonopolization.

Thefourth type of proceedings facing corporations is intellectualproperty cases. The US constitution categorizes the intellectual lawsinto the trademark, patent, trade secrets, copyrights and othermiscellaneous aspects (Mayer et al., 2012).

Thefifth type of prosecutions is contractual litigation. Contracts arethe legal concept of the contemporary society. They are central tothe political, social and economic life. Contracts are used inexchange for bargains, agreements deals or undertakings (Mayer etal., 2012).

3.1.Five common legal issues facing businesses in America.

The United States business lawshave different meanings and different functions. The issues ofjustice and lawhas been considered by philosophers for centuries. Based on the abovelitigation categories, United States businesses are faced by fivecommon types of legal issues emanating from disgruntled employees,discrimination cases, immigration audits, copyright and patent issuesand consumer related litigations. Each category is discussed in thefollowing text.

3.1.1.DisgruntledEmployees

The first critical legal issueemanates from unhappy employees. Employee dissatisfaction is likelyto cause trouble for US business due to the high protection accordedby the American Constitution. For example, the termination of anemployee due to the provision of poor services is bound to causelitigation. Consequently, employers are obliged to providetermination contracts prepared by lawyers and points out the reasonsfor litigation (University Alliance, 2016).

3.1.2.Discrimination/Harassment Cases

The second problem is harassment.Any discrimination, sexual, ethnic and age-related harassment isbound to cause significant legal issues. Consequently, organizationsare obliged to have competitive human resources anda legal team(University Alliance,2016).

3.1.3.Immigration Audits

The thirdproblem facing businesses in the USA is litigation caused byimmigration audits. The immigration law obliges American companies toverify their employee’s identity during the hiring process. Theyare also required to complete and file a formI-9 for each employee. Failure to comply with the law has thepotential of subjecting the business to civil fines, criminalpenalties, debarment from government contracts or a court orderrequiring payments to a discriminated employee. Besides, the courtmay also give an order to the business requiring it to hire thediscriminated individual . Provision of employment to individuals notauthorized to work in the United States is subject to attract civilfines ranging from 375 to 16,000United States Dollars. Failure to comply with the I-9 documentsattracts fines ranging from 100 to 1,100 for each form(University Alliance,2016).

3.1.4.Copyright and Patent Issues

Companies in the US are known for their history in guarding theirpatents as a strategy to land easy money. Consequently, violation ofpatents is bound to raise significant legal issues. The plan to avoidthe related battles entails having a highly skilled research anddevelopment team to review the patents and copyrights (UniversityAlliance, 2016).

3.1.5.Dissatisfied Customers

American customers are fond offiling the class action against companies. The actions are done inlarger numbers. Besides, the customers sue for various reasons suchas poor services or products and false promises. Customer relatedlitigations have the potential to cause significant damage to anybusiness. Companies are hence required to establish constantinteractions with their clients as a process of determining the levelof satisfaction. Businesses have an obligation to employ vigilantmeans to oversee the full documentation of employee reviews,benchmarks, attendance records and performance evaluations(University Alliance, 2016).

4.Steps to differentiating legal issues by business type

There are three key steps indifferentiating legal issues by business types. The first stepinvolves developing legal strategies to identify the type ofbusiness. The second step involves incorporating legal planning intothe business planning process and finally analyzing the legal issues(Legal BusinessStructures, n.d). The three steps are discussed in the followingtext:

4.1.Developing legal strategies is a fundamental part of businessformation

The ability to combine the businessplanning process with legal planning enables entrepreneurs toorganize their operations in a manner that minimizes risk related tolegal and regulatory bodies. Legal strategies provide the ability toprotect the assets of the business.The identified legal strategies enhance decisions on whether to opena sole proprietorship,general partnership, limited Partnership, Family limited partnership,professional partnerships or a corporationbased on the associated legal benefits (LegalBusiness Structures, n.d).

4.2.Incorporate legal planning into the business planning process

Integrating legal planning requires a decision on a particular formof business establishment. The nature of business dictates the amountof necessary regulatory paperwork. It dictates the entrepreneur’spersonal liability on the company, the due taxes and the ability toraise capital. The available forms of business structures entail soleproprietorship, general partnership, limited partnership, limitedliability partnership, corporations, limited liability companies,professional associations, business trusts and professionalorganizations (Legal Business Structures, n.d).

4.3.An analysis of the legal issues:

Sole proprietorships are thesimplest and most commonlegal forms ofbusiness structures. One individual who is responsible for the day today operational duties owns the business. Sole proprietors operateeither as full or part-time businesses. They have the capacity to runindividually or through employees. The business owner is responsiblefor all the assets, profits, losses, liabilities and debts of theorganization. They are the easiest, fastest and cheapest way ofconducting business (Legal Business Structures, n.d).

Business partnership agreements areformed when two or more people join to carry out trade or business.The relationship of the individuals is considered as a partnershipsince each member contributes equally to theaspects of the firm.In return, the partners share the profits and responsibilities of thebusiness in equal proportions (Legal Business Structures, n.d).

Corporations serve as independent legal entities owned by theirshareholders. The organization is liable for the actions andliabilities incurred in the course of transacting business. Theorganization also acts as an independent entity from its owners(Legal Business Structures, n.d).

4.3.1.Issues relevant to all new ventures

The various forms of businessstructures face common legal issues such as liability, taxation, riskand control, continuity of existence, transferability, expense aswell as the formality. The most significant issues include tax andrisk control. The risk of liability applies to anyone who decides tostart a business venture. The individual faces both the risk of tortand contract. The risk of tort entails the intentional orunintentional harm to another person or his or her property. Forexample, liabilities arises when anemployee is injured in the course of doing business.It may also occur in form of automobileliability, product liability and general liability. Contract risksemanate from the various agreements between the business organizationand the stakeholders. Organizations stakeholders include theemployees, the customers, financiers, the public and the suppliers(Business Legal Structures, n.d).

4.4.Political and legal challenges faced by internationally internetfirms?

The key source of politicalchallenges for international online businesses emanates from rulesand regulations enacted to control and manage trade. Tariffs aretaxes imposed on imports. International organizations face specifictariffs and advalorem taxes that impact on the prices of their goodsand hampers the ability to compete with local goods in the hostcountries. Import quotas placed on certain goods as a strategy tolimit the amount of imports into a countryhampers the operations of the international firm.Third is Voluntary Export Restraints (VER) imposed at the discretionof the source of goods in conjunction with the destination country.Such restraints may affect the ability of the organization totransact on specific goods(Smita&amp Viviers,2016).

Some of the political challengesinclude anti-dumping ruleswhich limit theability of the organization to exercise its efficiency by offeringlow prices to beat competition in the foreign country. Second isadministrative policies imposed by the government. Bureaucraticpolicies affect the operations of international organizationsby lengthening the entry or operations of the business. Local contentrequirements may hinder the operations of the business by requiringthe organization to collaborate with local business in the productionof a product or delivery of a given service(Smita&amp Viviers,2016).

4.4.1. Theconceptual framework

The conceptual framework forinternational businesses is that organizations are required to abideby the legal and political system of the countries where theyoperate. Political systems dictate the business environment bygoverning the regulations, rules, institutions and attitudes within agiven political area. Each political systems philosophy affects thepolicies that govern the local economy and the business environment(Smita&amp Viviers,2016).

4.4.2. Intellectualproperty rights

Intellectual properties refers tothe creations of the mind, inventions, literary and artistic works ,names, symbols and images used in the conduct of business.Intellectual property rights enable the business to benefit from itsinvestment in research and creation of new inventions. The governmentserves asthe key actor inproviding legal protection for the organizations inventions.Different countries vary in the manner by which they protectintellectual property and enforce the intellectual propertyregulations. The presence of strong enforceable and consistentproperty rights attracts international business. However, the currentsignificant differences in property rights act as a source of risk tothe operation of multinational ecommerce businesses (Carpenter, &ampDunung, 2012).

4.4.3. Sourcesof policy risk in international e‐commerce

The key source of risk ininternational e commerce is the nature of governments in the area ofoperations. While any country can possess many types of risks, thereare countries that provide more stable business environments thanothers. Political stability marks the efforts of countries to attractforeign businesses(Smita&amp Viviers,2016).

The country’s view on capitalismalso poses a risk on international businesses. Capitalism is aneconomic system where the means of production are owned andcontrolled privately. The call for capitalism fosters the growth ofinternational businesses in contrast to socialist governments(Watkins &ampLathman, 2015) .

The nature of democracy also posesa risk to international businesses. Well-established democracies suchas the United States provide a sustained level of politicalstability. In contrast, countries in Asia and Latin America exist asfunctional democracies.The stage of development affects the operations of internationalbusinesses since trade policies change with the change in government(Carpenter, &amp Dunung, 2012).

5.Legal implications for U.S. businesses that engage in jointacquisitions

Egan (2015) provides that one of the legal consequences of engagingin joint ventures in the United States is determining the type ofentity an investor wants to establish. The selected businessarrangement will, in turn, govern the income tax that a business willpay to the Internal Revenue Service (IRS) (Egan, 2015).

Second, firms engaging in joint ventures need to have the ‘specialpurpose entities’, which are mainly the parent organizations. Themother company needs to back up the joint venture and accept to bearthe liabilities incurred during the implementation of the jointventure (Egan, 2015).

Lastly, the firms must identify the state laws that will govern theirentity. Some states are preferred because they have elaboratepolicies that define the relationship between the joint ventureentrepreneurs and the owners of the acquired business. On the otherhand, some states have poorly developed policies that, in turn,compels the entrepreneur to favor registering the organization in astate where the laws are clearly defined (Egan, 2015).

5.1. Benefits for strategic buyers

Strategic buyers have several benefits. First, they can regulate thecost of buying therefore, they can control the business operations(Strategic Procurement, 2016).

Second, the buyers can aggregate the demand of both services andproducts using volume, terms and group promises (StrategicProcurement, 2016).

Third, buyers can standardize their operations concerning theservices and products offered. They create a network to takeadvantage of the support processes within the program and provideregular services to the target customers (Strategic Procurement,2016).

Fourth, the buyers and the members of the shared business network cancommunicate and share information conveniently. Examples of theshared data include price lists, established terms and conditions,and procurement regulations (Strategic Procurement, 2016).

5.1.1.Pooling of capital, knowledge, and skills unique to each acquiringparty

a. Unit Trusts and Open-Ended Investment Companies (OEICs) – thefunds are managed by experienced managers who collect money fromdifferent people, and then purchase cash assets, bonds, shares andproperty among other ventures. The investment is the best forentrepreneurs who have capital but lacks knowledge or opportunity toinvestigate the finest investment opportunities. Potential clientspurchase shares in a trust. The management of the trust then investsthe funds collected in ventures that will generate profit for thefirm (OEICs, n.d).

b. Tracker funds and exchange traded funds (ETFs) – Theinvestment is based on the performance trend of a given stock over aspecified period. Since experienced individuals manage the funds,ETFs are suitable for people with little knowledge regarding thestock market. In most cases, the investors lack awareness of themarket hence, they rely entirely on the fund managers to researchand generate profit for them (Tracker funds and exchange tradedfunds, n.d).

5.1.2.Opportunity to generate synergies or establish a long-termoperational arrangement

Karel, Adam, and Radomír (2013) provide that the best chance tocreate synergy for developing an extended growth is adoptingstrategic management. The executives influence the employees inmaking decisions that achieve long-term growth in an organizationwithout losing focus on the current financial stability (Karel, Adam,&amp Radomír, 2013).

The supervisors achieve the dream of long-term growth throughestablishing a clear vision of where they would like the business tobe, and then influencing positive values to the employees toaccomplish the ambitions. The staff is allowed to make independentdecisions with little formal direction. Furthermore, the organizationencourages the workers to become active by providing training andabsorbing the risks that their decisions may cause (Karel et al.,2013).

5.1.3.Opportunity to divide the target`s business

According to Martin (2015), the opportunity for sharing the targetcompany among the parties that acquired it in respect to theirinvestment objectives arises when a rival firm is looking to obtaincertain given patented technology only available to the purchasedbusiness. Second, the organizations can obtain given parts of theinvestment with the objective of expanding their capacity to handle abigger number of clients. Lastly, each party that had acquired thebusiness takes a small portion of the enterprise with the intentionto expand to other sectors. Diversification is crucial as it helps tospread the risks of an enterprise (Martin, 2015).

5.1.4.Reduction in the potential risk of competing bids by the acquiringparties

Fingleton (2014) provides that firms acquiring an organization canreduce the potential risk of rival bids by allowing the interestedparties to place only one-time offer that cannot be changed. Second,the value of the product should be determined in advance. That willallow the competitors to understand the exact value of the businessthey are purchasing. Third, the participation into the auctionshould have entry or participation fees and rigorous vettingstrategies to prevent unfit investors from participating in the event(Fingleton, 2014).

5.1.5.Ability to retain management and employees of the target throughincentive plans

According to Scott, McMullen, and Royal (2012), it is crucial for anorganization to keep the best performing and experienced staff of anacquired firm. The authors recommend that businesses can retain theirmajor talent through ensuring that their primary employees areadequately remunerated, and they are not overloaded with work.Second, they should discuss with the workers about futureopportunities in the organization, such as promotion openings. Third,the individuals should be offered an attractive benefits package thatwill make it impossible for them to leave. Finally, the managementshould develop substitute workers’ program, just in case, the keyemployees leave the organization abruptly. The replacement workerwill be ready for the job as he or she will have worked under thesupervision of the experienced professional.

5.2.Legalities to consider under the joint acquisition construct

The acquisition of US businesses iseasy due to the general absence of restrictive exchange controls,government regulation, licensing of foreign investments or foreignacquisitions in the United States. Foreign businesses have the rightto access investment incentives provided by the state and federalgovernments. Most governments provide significant tax and otherincentives as a strategy to induce non-US manufacturers ofautomobiles and other items to establish their facilities in thestates (Watkins &amp Lathman, 2015).

5.2.1.Securities and other regulatory considerations

The sale or purchase of shares of acorporation and ownership interests are strictly regulated by thestate. The regulation of securities provides that non-US corporationscan issue securities in the United States to fund an acquisition.However, the procedures require the shares to be issued pursuant to aregistration statement previously filed with the SEC unless theacquisition gains an exemption for registration. The most commonexemptions applied in acquisitions include private offeringexemptions that are offered to a limited number of investors. Thebuyer is required to provide full disclosure on the business affairsand financial conditions to the seller in the case of a securitiestransfer. The constitution applies strict antifraud provisions to theissuance or sale of securities (Watkins &amp Lathman, 2015).

5.2.2.Governance and veto rights

The provisions in the Exon-FlorioAct impose strict limits inform of time and review of acquisitionprocedures. The Act gives the president of the United States the veto power to reviewcertain acquisition activities involving US companies and non-UScitizens. The president can suspend a planned acquisition or orderfor thedivestments of the acquired company in the case where the transactionhas been completed upon finding evidence that the non US person posesa threat to the US national security(Watkins &ampLathman, 2015).

5.2.3.Management

The management of acquisitionsrequires the buyers to organize a US limited liability company orcorporation that serves as the acquisition vehicle. Some investorsprefer partnerships as a strategy to enjoy the tax and otheradvantages present in their countries. The acquisition vehicle isorganized before closure and signing of acquisition documents.Alternatively, the buyer may be requested to sign the acquisitionagreement that is later transferred to the acquisition vehicle beforeclosure (Watkins &amp Lathman, 2015).

5.2.6.Initial public offering and registration rights

The company has the right toregister and obtain a certificate of incorporation filed with thesecretary of state. The incorporator may be a natural person, anassociation, partnership, or corporation (Watkins &amp Lathman,2015).

During the initial public offering,the shareholders of a buying company need not subscribe for allshares authorized tobe issued by the certificate.In the case where more shares are issued, amendments are made on thecertificate of registration to increase the amount of authorizedshares. The companies have the rights to issue various types ofshares such as common and preferred, par and no par, as well asvoting and non-voting stocks. The corporation has the right tore-purchaseits shares subject to limitations. Treasury shares do not have votingrights and are not subject to dividends. The corporation has theright to dispose the treasury shares similar to any other propertyand subject to federal and state security laws (Watkins &ampLathman, 2015).

6.Conclusion

All aspects of daily businessoperations aresubject to a court’s scrutiny.The management isexpected to act responsibly in directing the day to day decisionspertaining to production, distribution, marketing, advertising andenvironmental compliance. The stockholders of organizations have therights to review the organizations books and records for purposesreasonably related to the person’s interest. Therefore, businessmanagers are required to uphold the law in all their transactions.

Contracts are anessential part of conducting business since they ensure a freesociety from frenetic anarchy. Contract laws perform threesignificant economic functions. They help to maintain incentives forindividuals to exchange products efficiently. They reduce the cost ofthe financial transactions by stipulating the related terms andconditions to guide in the execution of a given task. Finally, theyalert the involved parties on the dangers experienced in the past andconsequently, they ease the ability to plan transactions moreintelligently to avoid obvious pitfalls

Recommendations

Theabove literature review has stipulated the impact of the law onbusinesses. Laws and regulations serve as the guides for businessoperations. Various studies have suggested that the operation ofbusinesses is therefore prone to litigations emanating from theviolation of rules and regulations. Based on the above discussion,the current study identifies the need for further research. It callsfor extended investigations that relate the various legal dimensionsof litigation such as cost, corporate image, and financialperformance to the wellbeing of the organization.

Accordingto the stakeholder theory, the firm has the responsibility of takingcare of stakeholders’ interests in the formulation of its policies.The legitimacy theory endows the firms with the role of avoiding theviolation of laws as a strategy to preserve the corporate image. Aruined corporate image has the potential to exert high costs fromstakeholders such as the customers, suppliers, and regulatory groupsthat, in turn, reduce the financial viability of the organization.The relationship between corporate litigation and corporate imagesets gaps for research to identify the nature and types of resultantcosts exerted by corporate stakeholders. Besides, there is need torelate stakeholders litigation costs with the financial performanceof organizations. Such studies, in addition to contributing to theacademic literature, will serve as the basis for establishingcorporate responsibilities within corporations.

Shareholderrelated litigation is considered to monitor the alignment ofincentives and compensation plans to oversee adequate corporategovernance in the regulation of behaviors of management in publicfirms. The capital markets interpret securities violations as achronological of events that have a significant consequence on themarket value of the organization. The first occasion occurs on thedate of the alleged commencement of fraud. The second incident takesplace upon the disclosure of corrective information regarding thefraud. The third episode takes place upon the announcement naming thefirm as a defendant in the lawsuit, and the fourth part comes on thedecision date of the district court or the initial motion to dismissthe lawsuit. Finally, the final incident happens after the resolutionof the lawsuit by either judgment or settlement. The occurrence ofthe events sets gaps for research to identify the exact effect ofeach event and the associated damage on corporations andstakeholders. Information on the effect of litigation news on capitalmarkets should enhance shareholder decision making in their stockinvestments. The ability to foresee the effect of news on sharescontributes to risk management of investments and minimizing lossesfor shareholders.

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