Week 4 Assignment 1

Discussion Question 1

When starting a business, one of the most neglected and sometimes ignored facets is liability. The question arising at the start-up stage is, “What do I need in the way of liability insurance or do I even need it?” Ideally, all companies need liability insurance, which covers everything from the director’s insurance to product, personal injury, lost income, and disaster.

For example, suppose you own a franchise of a well-known restaurant chain that is filed as a corporation. The board of directors decides that the restaurant should offer sushi as a part of the main menu. Sushi has a very short shelf life and can become spoiled easily. Thus, if it is served after the freshness date, your patrons may become ill and file a suit. Since the board has decided on a majority basis to include this item in the menu, they could be named in the suit and held personally liable. As the franchise holder, it is your job to ensure the board is not put in such a critical position. One of the common ways to avoid the occurrence of such events is to purchase a director’s insurance policy.

• Under what conditions can a suit filed against a company also include its board of directors as they are not employees of the company? Support your answer with relevant examples.

• Can a director’s policy be purchased from any insurance company? If yes, describe the purchase process. If no, where can it be purchased? What should the policy cover?
• When is a policy of this type not necessary for a business?

The Securities and Exchange Commission (SEC) governs the sale of stock. They have set a number of rules for investors to maintain a fair, an orderly, and an efficient market. Investors rely on these rules to protect their investments. However, according to the recent news articles, there have been instances where several people and companies have violated these rules. Company leaders lined their personal pockets while causing their investors to lose their entire life savings.

• What is the method used by an investor to buy stock?
• How would you go about pricing a stock?
• Who holds the actual stock certificate: the buyer, the seller, or some other individual?
• In your opinion, which among the three options (self, broker, and online) would you prefer to use when selling your company’s stock? Why? (Hint: For more information, you can refer to the SEC Web site by searching the Internet using the keywords “Securities Exchange Commission: The investor’s advocate.”)