CHAPTER
Protecting Your
Business
Section 16.1Legal Issues
Section 16.2 Insurance
SECTION
Legal Issues
OBJECTIVES
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Explain the value to entrepreneurs of intellectual
property law
Distinguish the types of work covered by each form of
intellectual property protection
Describe the conditions needed for valid business
contracts
Explain legal remedies for contract and intellectual
property law violations
Section 16.1: Legal Issues
2
Benefits of Intellectual
Property Law
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Entrepreneurs need protection for their creations.
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The founding fathers understood that creators are more
highly motivated if they are guaranteed control over
their work and can profit from it and thus they
embedded this principle in the U.S. Constitution.
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Under Constitutional Law, creators were given an
exclusive right to their work, but for limited times.
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The doctrine of fair use—allowing other people
restricted use of protected works—balanced the rights
of both the individual and the public.
Section 16.1: Legal Issues
3
Protecting Your Works
Intellectual property law covers almost any kind of creation.
Depending on the nature of the idea, you might take out a
copyright, patent, trademark, service mark, or even protect a
trade secret.
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A copyright is the exclusive right to perform, display, copy, or
distribute an artistic work.
Patents cover industrial devices and processes that are
implemented by applying ideas.
A trademark is a word, phrase, or symbol that a manufacturer
uses to identify the company’s products.
A service mark is a word, phrase, or symbol a service provider
uses to identify its services.
A trade secret is any information that a business keeps
confidential to gain advantage over competitors.
Section 16.1: Legal Issues
4
Business Contracts
Contracts play a significant role in business ownership.
Understanding how contracts work is essential to succeeding as
an entrepreneur.
For a contract to be valid, or legally enforceable, there must
be:
 Agreement between the Parties. The parties must
agree on the conditions, or the events or circumstances
that must occur for the contract to be binding.
 Competence. In the legal sense, competent means
being capable of understanding the terms of a contract
and the consequences of signing it.
 Mutual Exchange. This is termed the consideration, the
benefit that each party provides for the other.
Section 16.1: Legal Issues
5
Seeking Remedy
Entering into a business contract gives you the right to
take action against parties who violate the agreement.
 Violating a copyright or patent is called infringement.
 Failure to carry out the conditions of a contract is
referred to as breach of contract.
 The law allows different types of remedies:
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In cases of infringement, the common remedy is injunctive
relief, an order for the violator to stop the illegal activity.
In a breach of contract, the violator must agree to carry out the
agreed-upon terms.
In either situation, the guilty party may be forced to pay
damages, a payment to reimburse the injured party for
loss.
Section 16.1: Legal Issues
6
SECTION
Insurance
OBJECTIVES

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Relate insurance to risk management
Describe different business insurance needs and
options
Distinguish the qualities of a good insurance agent and
good policies
Create a plan for reducing business risk
Section 16.2: Insurance
7
Understanding Insurance
Don’t think you can’t afford insurance. You can’t afford not to
have insurance.
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Managing risk, or the possibility of loss, is an aspect of
starting a business.
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Speculative risk is risk that holds the possibility of either gain
or loss.
Pure risk is the chance of loss with no chance of gain.
Another option for managing pure risk, risk transfer, is
a means shifting risk to another party. For business
owners, that means purchasing business insurance.
A policy is a written contract between the insurer and
the policyholder.
Section 16.2: Insurance
8
Types of Business Insurance

Property insurance protects a business’s possessions in the
event of fire, theft, or damage from the weather.
Insuring property for its actual worth is called cash value.
 The cost of replacing property at current prices is called its
replacement cost.
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Liability insurance provides protection when a business’s action,
or lack of action, injures another party.
General Liability covers expenses related to injuries sustained on the
business premises.
 A product liability policy protects a business from losses caused by a
product it produced or developed.
 Professional Liability covers harm done by a business’s actions, or
failure to act.
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Workers’ compensation insurance covers losses to employees
due to job-related injury or illness.
Section 16.2: Insurance
9
Buying Insurance
Selecting an insurance package is an integral part of a business’s
start-up plan.
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Choosing an insurance agent is like hiring an important
employee. You want someone who is familiar with your type
of business.
Ask advice from other businesspeople in your field.
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Exclusive agents work for a single insurance company.
An independent agent represents several insurers and can
offer a wider range of policies.
The best insurance package is the one that most closely fits
your needs.
A rider is an amendment to a policy that changes the
benefits or conditions of coverage.
Section 16.2: Insurance
10
Reducing Business Risk
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Risk reduction involves limiting the chances that a
policy-covered event will occur.
Securing physical property involves keeping buildings,
supplies, and merchandise safe.
Businesses must safeguard sensitive information from
falling into the wrong hands.
Providing a safe workplace is an employer’s legal and
ethical responsibility.
Business owners can reduce risk by promoting employee
wellness.
An ergonomics assessment reveals whether the current
work environment helps maintain physical and emotional
health.
Section 16.2: Insurance
11