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BAFN- final
| Question | Answer |
|---|---|
| Joint Venture | a partnership for a limited purpose- the companies do not combine permanently, they simply work together on a specific project |
| True or False: In regards to Professional Corporation creations, Most states do not let professional incorporate. | False, they do |
| In many states,_______ ________ provide more liability protection than a partnership | Professional Corporations |
| CPSC stands for? | Consumer Product Safety Commission |
| FTC stands for? | Federal Trade Commission |
| Section 5 of the Federal Trade Commission Act prohibits .... | "unfair and deceptive acts or practices." |
| True or False: Under the FTC ACt, an advertisment is deceptive if it contains an important misrepresentation or omission that is likely to mislead a resonable consumer. | True |
| ___ rules prohibit bait and switch advertisements | FTC |
| True or False: A merchant may advertise a product and then disparage it to consumers in an effort to sell a different item. | False |
| Ordered items must be shipped when promised, or within ___ days. | 30 |
| Door to Door Salespersons are required to... | notify the buyer of the right to cancel the transaction prior to midnight of the third business day after the sale. |
| The truth and Lending act applies to (4) | 1) it is a consumer loan 2) The loan has a finance charge or will be repaid in more than four installments 3) The loan is for less than $25,000 or secured by a mortgage on real estate 4) The loan is made by someone in the business of offering credit. |
| Open ended credit pertains to ... | credit cards |
| Close ended credit pertains to... | everything besides credit cards |
| True or False: The corporation may be liable for an individual member’s mistakes, but the innocent professionals are not at risk | True |
| True or False: Under TILA, cosumers have the right to rescind a mortgage for up to three business days after the signing. | True |
| Corporations offer _______ _________ | limited liability |
| What is the Fair Credit Repporting Act | Applies to consumer reporting agencies that regularly compile credit related information on individuals for the purpose of furnishing consumer credit reports to users |
| Agency must adopt procedures to: (3) | 1) Ensure users of information employ information only for certain limited business purposes 2) avoid including obsolete information in a report 3) Ensure maximum possible accuracy |
| FDCPA stands for | Fair Debt Collection Practices Act |
| Corporations offer limited liability – usually the | managers’ and investors’ personal property is not at risk. |
| Under the FDCPA, collectors may not (second 5) | 1) Imply that they are attorneys when they are not 2) Threaten to arrest consumers who do not pay their |
| CARD ACT stand for | Card Accountability, Responsibilty and Disclosure Act |
| Magnuson-Moss Warranty Act | 1) what is and what is not covered in a warranty |
| A warranty must be... | in simple understandable language before the sale |
| Choice of Entity Factors. (6) | 1.) Ease and cost formation 1.) Taxation 3.) External Liability 4.) Management and control 5.) Transferability/Continuity 6.) Financing |
| Differnet Types of Partnerships 4 | 1) General 2) Limited 3) Limited Liability 4) Limited liability limited partnership |
| Type of Coroporations 4 | Regular "C", subchapter "s", nonprofit, and professional |
| Define Sole Proprietorship | has only one owner and is an extension it's owner |
| True or False: A sole proprietorship is not a legal entity and cannot sue or be sued, so creditors/clamiants sure the owner | True |
| What are the advantages of a sole proprietorship? | No formalities, taxes flow to owner, owner takes all profit and control |
| Disadvantages of a sole proprietorship? | owner bears all risk of loss |
| Entrepreneurs wishing to start a new business must be aware of: | advantages and disadvantages of various business entities for thier endeavor. |
| Entrepreneurs must consider: (4) | 1) Ease of creation. 2) Owners’ liability. 3) Tax considerations. 4) Need for Capital. |
| True or False: Anyone who doesn't do business without creating a separate business organization has a sole proprietorship. | False, Anyone who does! |
| True or False: The Owner of a sole proprietorship is personally liable for all torts/contracts. | True |
| A sole proprietorship has ________ and _____ __________ _____ _____. | Flexibility; Lacks continuity afer death |
| True or False: Owner a sole proprietorship makes it easy to raise financing. | False; it's hard |
| Define Franchise: | An agreement so that the Franchisor licenses the Franchisee to use the sale of goods or services. |
| The three types of Franchises are | Distributorship, Chain style business operation, and manufactoring or processing arrangement |
| Franchises are governed by __________ _____ and ________ ___. | Commercial sales; contract law |
| True or False: State and Federal Laws regulate franchising to protect franchisees. | True |
| The contract states _______ ______ and ______, and can include a(n) _________ _______ to market goods/services. | Parties' rights, duties; territory. |
| The Franchise Contract can include: (3) | 1) Franchisee's type of business entity inclucding capital structure, sales quotas and record keeping. 2) Location of the Franchise. 3) Premises is leased or purchased. |
| Quality Control is a legitimate issue for Franchisor because of ____ _____, __________, and ________ _____. | good will, reputation and trademark value |
| True or False: Courts will question Franchisor’s strict supervision but Franchisor may not be liable for torts of agents. | False: Court's will question, franchisor may be laibale. |
| Who is the duration of a franchise determined? | Through the contract agreed upon by both parties. |
| A partnership is an ______________ ____________ of two or more co-owners who carry on a business for ______. | unincorporated association; profit. |
| In a general partnership, each co-owner is a ______ ___________. | General partner |
| True or False: Partnerships are easy to form | True; (sometimes it happens unintentionally! |
| Partners can be held personally liable for the partnership _______ and _____. | actions and debts |
| Every state has what? | enacted partnership laws |
| The Revised Uniform Partnership Act of 1994 is what? | a model partnership statue |
| RUPA defines partnership as an ... | “association of two or more persons to carry on as co-owners a business for profit.” |
| The Toxic Substances Control Act (TSCA) does what? | requires anyone planning to sell or market chemicals to first determine effect on human health and the environment |
| What does TSCA stand for? | Toxic Substances Control Act |
| The toxic substances control act gives EPA authority to? (3) | track, investigate, or ban industrial chemicals currently produced or imported into U.S. |
| True or False: The TSCA is considered to be an effective law | False: It's not effective. |
| Section 5 of the Federal Trade Commission Act (FTC Act) prohibits what? | “unfair and deceptive acts or practices.” |
| Under the FTC Act, an advertisement is deceptive if it contains what? | an important misrepresentation or omission that is likely to mislead a reasonable consumer. |
| What does FTC stand for? | Federal Trade Commission Act |
| Which of the following is not a consumer protection law? (a) Fair Credit Reporting Act (b) Federal Registration Act (c) Truth in Lending Act (d) Fair Debt Collection Practices Act (e) Equal Credit Opportunity Act | e) Equal Credit opportunity act |
| True or False: Partners with actual or apparent authority may bind the partnership | True |
| Define actual express authority | Actual Express Authority –set forth in partnership agreement, or in decisions made by a majority of partners. |
| Define Actual Implied Authority | Actual Implied Authority –reasonably deduced from the nature of the partnership, partnership agreement, or relations of the partners. |
| Define Apparent Authority | Apparent Authority –acts of a partner apparently carrying on the ordinary partnership business bind the partnership, so long as that third person has no knowledge or notice of the lack of actual authority. |
| Define Partnership at Will: | Partnership at Will -- the partners have not agreed in advance how long their partnership will last; any of them may leave at any time. |
| Define Team Partnership | Term Partnership -- the partners have decided on a length of time or a particular task to be completed; the partnership automatically ends at the end of the time or task. |
| Ending a partnership business involves three steps: | Dissolution, Winding up, and Termination |
| Define dissolution | -decision to end business; can be voluntary or automatic. |
| Define Winding up | During the winding up process, all debts of the partnership are paid, and the remaining proceeds are distributed to the partners. |
| Winding up involves 3 things. | 1) Debts to Outside creditors then to Partners (loans) 2) Return of Partners capital 3) Profits (good luck with that) |
| The Partner who conducts this “winding up” is entitled to __________. | compensation |
| What happens when winding up is complete? | Termination |
| LLP stands for what? | Limited Liability Partnerships |
| True or False: Partners in an LLP are personally liable for debts of the partnership | False: They are not PERSONALLY liable |
| True or False: An LLP is not a taxable entity and it has the right to choose its duration. | True |
| For profit corporations are financed by (4) | Sale of securities, including shares, debentures, bonds, and long-term notes payable |
| Under the Commerce Clause of the U.S. Constitution, the federal government has the power to... | to regulate interstate commerce |
| Article 1, Section 8, Clause 3 of the commerce clause says... | The Congress shall have Power …To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes” |
| What is: De jure corporation | exists when promoters and incorporators substantially comply with each mandatory (shall, must) requirement to incorporate the business |
| The validity of a de jure (by law) corporation cannot be attacked except by | the state of incorporation due to noncompliance with state corporation laws |
| Classes of US corporations: by purpose includes... | for profit corporations and non-for-profit corporations |
| Classes of US corporations: By ownership includes...(3) | 1) Publicly held (shareholders) 2) Close (a few shareholders) -Subchapter S 3) Government-owned corporations |
| Classes of US corporations: by origin includes.. (3) | domestic, foreign, and alien |
| A domestic corporation means... | in the state in which the company incorporates |
| Foreign Corporation means | in all other states in which a company operates |
| Alien Corporation means | Alien in all countries other than the country in which it incorporated |
| True or False: A promoter is an agent of the proposed corporation or investors since they did appoint the promoter. | False: A promoter is NOT an agent of the proposed corporation or investors since they did NOT appoint the promoter |
| True or False: A promoter owes a fiduciary duty to the corporation and to its prospective investors | True (No self-dealing, duty of loyalty, etc.) |
| A corporation may compensate a promoter with ______ | shares |
| De facto corporation: | exists when promoters fail to comply with all of the mandatory requirements, yet comply with most of the mandatory provisions |
| The validity of a de facto corporation could be ______ ___ _ ___ ____, or itself, or the ____ ___ ___________, but may be treated by as a corporation under the ________ _______ of _________ __ __________. | attacked by a third party; state of incorporation; judicial doctrine of corporation by estoppel |
| Indemnification of Directors (2) | 1) Under most state statutes, a corporation may include in its charter a provision to pay any liability they incur from doing their job. 2) Directors are usually liable for their own misconduct. |
| Cumulative Voting | Under a cumulative voting system, a shareholder is allowed to pool his shares and vote them all for the same person. |
| Equity securities, better known as stock or shares, do what? | create an ownership relationship, thus stockholders or shareholders own a corporation |
| True or False: State laws do not permit corporations to issue classes of shares with specific rights | False: They do |
| State laws permit corporations to issue classes of shares with specific rights. What two rights are they? | Common and Preferred |
| The board must issue shares for an adequate dollar amount of ________. | consideration |
| What is Par Value? | an arbitrary dollar amount that may be assigned to shares by the articles of incorporation |
| True or False: Par Value does not reflect the fair market value, but is the minimum amount of consideration for which the shares may be issued | True |
| In the U.S., states regulate how a corporation is created and operated. What two acts do we use to do this? | Model Business Corporation Act (MBCA) or Model Nonprofit Corporation Act (MNCA) |
| MBCA stands for | Model Business Corporation Act |
| MNCA stands for | Model Nonprofit Corporation Act |
| A state may require a foreign corporation to qualify to do business within the state. What way do we use to do this? | By obtaining a certificate of authority |
| Corporation law provides an imaginary wall. What is it known as? | Corporate Veil |
| Corporation law provides the corporate veil between a corporation and its shareholders to protect ___________ from ______ ________ for a _____________ ________. | shareholders; personal liability for a corporations actions |
| In order to reach individual shareholders, sometimes a court might what? | pierce the corporate veil |
| Terminating a corporation is a three-step process: | 1) Vote by a majority of the shareholders. 2) Filing Articles of Dissolution with the Secretary of State. 3) Winding up – paying debts and distributing assets. |
| Dissenting shareholder does what? | gives written notice of dissent prior to vote on proposed transaction. |
| What does a notice written by a dissenting shareholder show? | what dissenters stock will cost corporation if action takes place |
| If a notice is approved, shareholder must make a demand for payment of shares at fair market value. How does one calculate fair market price? | calculated on day prior to the date on which the vote was taken -- or court will determine |
| Sale is fraudulently executed to escape liability. | liability |
| When purchasing assets, who needs to give the approval? | The selling corporation needs both board and shareholder approval. |
| Directors may seek an injunction against acquiring corporation on grounds that ..? | the attempted takeover violates antitrust laws |
| directors must not breach their _______ ___ to corporation in resistance to a takeover | fiduciary duty |
| Shareholders can initiate dissolution proceedings if.... | the corporation is deadlocked |
| What does SEC stand for? | Securities and Exchange Commission. |
| what is the Securities and Exchange Commission? | The Securities and Exchange Commission is an independent federal regulatory agency that enforces federal securities laws |
| What does the SEC do? (3) | 1) Regulates disclosure of facts in offerings made through national securities exchanges (e.g., NASDAQ, NYSE). 2) Investigates and prosecutes securities fraud. 3) Registration and regulation of securities brokers, dealers and investment advisors. |
| What does the FTC do? | FTC promotes voluntary compliance with best practices and regulations by issuing advisory opinions and industry guides |
| Define Advisory opinion | commission’s response to a private party’s inquiry about the legality of a proposed business action |
| Define Industry Guides | FTC interpretations of the laws it administers |
| What does CPSC stand for? | Consumer product saftey commission |
| The Consumer Product Safety Commission (CPSC) does what? | evaluates consumer products and develops safety standards |
| FTC rules prohibit what? | bait and switch advertisments |
| True or False: A merchant may not advertise a product and then disparage it to consumers in an effort to sell a different item. | True |
| Truth in Lending Act applies to who? | creditors who extend credit to consumers |
| What does Consumer credit do? | enables the purchase of goods, services, or real estate used primarily for personal, family, or household purposes |
| Under the FCBA credit card companies must what? (2) | 1) companies must acknowledge receipt of a complaint from a cardholder. 2) must investigate complaints and report the results. |
| What does FCBA stand for? | Fair Credit Billing Act |
| under the FCBA, If the consumer requests it, the company... | must supply documentation of the transaction in question. |
| True or False: Under the FCBA, The company may try to collect the amount of the dispute while it is in investigation. | False: it may NOT |
| State securities laws are called “_____ ____” laws. | Blue sky |
| Issuers must do what? | comply with federal and state securities laws and states do not allow the same exemptions as federal government |
| True or False: States could require registration or qualification under state securities law. | True |
| ______ ___________ ___ has been adopted in part by many states. | Uniform Securities Act |
| Define Tender Offers: | A publicly advertised offer addressed to all shareholders of the target. |
| True or False: Tender offer is usually lower than market value per share but conditioned on the acquisition of a certain % of shares | False: it's lower |
| The ____ ______ ____ strictly regulates tender offers | Securities and Exchange Commission. |
| A Court can dissolve if: (3) | 1) Board is deadlocked and irreparable damage to corporation will ensue. 2) Mismanagement. 3) Minority shareholder is “frozen out” or oppressed. |
| In regards to Apprasial Rights, a Corporation must: | Make written offer to purchase a dissenting shareholder’s stock, accompanied by current balance sheet and income statement for the corporation. |
| True or False: States differ as to whether dissenting shareholder loses his status as a shareholder during appraisal process. | True |
| Define Crown Jewel | Management makes company less attractive by selling company’s most valuable asset (crown jewel.) |
| Define Golden Parachute | If takeover successful, top management “bails out” of the target corporation with forced “retirement” benefits. |
| Define Greenmail | To regain control, target company may pay higher-than-market price to repurchase the stock. |
| Define Scorched Earth /Poison Pill | Target company sells off assets or divisions or takes out loans to make it unattractive to hostile takeover. |
| Define White Knight | Target corporation solicits merger with 3rd party, which is a better match. 3rd party “rescues” the target. |
| Termination of a corporation, like a partnership, consists of two phases. What are they? | Dissolution (voluntary or involuntary); and Liquidation. |
| True or False: Unless agreed otherwise, partners get no pay for work done beyond their share of profits. | True |
| True or False: A partner can not transfer the right to profits, but can transfer membership in the partnership. | False: Can, can not |
| Creditors can obtain ________ ________. | Charging Orders |
| Three things that define a partnership. | 1) Partners share profits 2) Partners share management of business 3) Partners usually share losses |
| True or False: Referring to yourselves as partners does not create a partnership, but may be evidence that one was intended | True |
| True or False: Charitable businesses are partnerships. | False: They are not |
| Define Ratification: | If the partnership accepts the benefit of an unauthorized transaction or fails to repudiate it, it has ratified the transaction. |
| Under the_______ ____ _____ , whatever one partner knows, the partnership is deemed to know. | Uniform Partnership Act |
| A partnership is liable for the _________ _____ of a partner in the __________ ______ ____ ________ or when the partner is acting with _______ _________ . | negligent torts; ordinary course of business; actual authority |
| When a partnership or limited liability partnership is formed, partners ..... | contribute cash or other property – partnership capital – to the partnership |
| When a _________ or_______ ______ _________ is formed, partners contribute cash or other property – partnership capital – to the partnership | partnership; limited liability partnership |
| Partnership Capital | Belongs to partnership as an entity |
| Tangible and intangible property acquired by a partnership presumptively belongs to .... | the partnership as an entity rather than individual partners |
| In McCormack v. Brevig, the court held that property listed on a partnership’s tax returns was | nonetheless property of a partner, not the partnership. |
| As owner of a partnership or LLP, a partner has an ________ _________ in the partnership | ownership interest |
| The partnership interest includes partner’s: (3) | Transferable interest, management, and other rights |
| Define Transferable interest: | Partner’s share of profits and losses and right to receive partnership distributions |
| Define Management and other rights: | Not transferable unless unanimous agreement by remaining partners |
| Continuation of Partnership Business; Define Financial Settlement | If the partnership decides to continue (by unanimous vote), it must pay the ex-partner the value of her share of the business. |
| Continuation of Partnership Business: Liability of the dissociated partner to outsiders for debts incurred before dissociation intails what? | a dissociated partnership is liable to outsiders for debts incurred during her term as a partner, but the partnership must indemnify her for these debts. |
| 1997 IRS rules provide that any unincorporated business (including LLC’s) will | automatically be taxed as a partnership unless otherwise indicated on the tax return |
| True or False: LLC’s are attractive in today’s global business environment because they allow foreign investors to own interests | True |
| LLC stands for what? | Limited Liability Companies |
| An LLC offers .... | the limited liability of a corporation and the tax status of a partnership, without the disadvantages of an S corporation. |
| The LLC is popular because it has: (5) | Limited Liability, Favorable Tax Status, Duration, Management, Flexibility |
| The biggest disadvantage with LLC is ... | the legal uncertainty involved since it is a fairly new type of business. State laws vary, and case precedents are few |
| Joint Venture Characteristics | Resembles a partnership and is taxed like a partnership; JV is limited in time and scope, whereas a partnership is an ongoing business. |
| True or False: JV members have more implied and apparent authority than partners. | False: They have less |
| True or False: Death of JV member does not terminate JV. | True |
| JV members owe a | fiduciary duty to each other (loyalty, no conflicts of interest) |
| True or False: JV members have equal right to manage the business. | True |
| When forming a corporation, the ________ is personally liable on any contract signed before formation | promoter |
| True or False: The corporation is liable even if it adopts the contract after incorporation. | False: it is not liable UNLESS it adopts the contract after incorporation |
| Even if the corporation adopts the contract, the promoter is still liable until the | third party agrees to a novation (new contract), unless the contract clearly indicates that the other party is relying ONLY on the corporation, which he knows does not yet exist. |
| Basic Forms of businesses: (4) | Sole proprietorship, partnership, corporation, and limited liabilty company |
| Kinds of Partnerships: (4) | General, limited, limited liability, or limited liability limited partnership |
| Types of corporations | Regular “C”, Subchapter “S”, nonprofit, professional |
| True or False: Nonprofit enterprises do not qualify as a joint venture. | True |
| Though a legal entity, a partnership is not a federal tax-paying entity, thus | all income or loss must be reported on the individual partner’s federal income tax return whether or not distributed or allocated to partners |
| A partnership is a | voluntary and consensual relationship and may exist by law even if the parties entered it inadvertently, without considering whether they had created a partnership |
| Partnership advantages: 3 | 1) They don’t pay taxes 2) They are easy to form. 3) Partners help with the work and financing. |
| Partnership Disadvantages: | 1) Each partner is liable personally. 2) Funding may be difficult (can’t sell shares). 3) Management may be difficult. 4) Transferability is limited |
| Dissociation occurs if | a partner quits. |
| When one or more partners dissociate, | the partnership can either buy out the departing partner(s) and continue in business or wind up the business and terminate the partnership. |
| True or False: A partner always has the right to leave a partnership but may not have the power. | False: always has the power, may not have a right. |
| Limited Partnerships Have | general (active management) and limited (money-only) partners. |
| In a limited partnership, only the ________ _________ are _____ ________ | general partners; personally liable |
| True or False: In a limited liability limited partnership, the general partner is not personally liable for the debts of the partnership. | True |
| Formation of limited partnerships require what? | a filed certificate of limited partnership. |
| Unlike an ordinary partnership, creating a limited liability partnership (LLP) must | comply with a state’s limited liability partnership statute |
| Formation of an LLP requires | filing a form with the secretary of state, paying an annual fee, and using proper terminology |
| Corporate stock can be | bought and sold, making investments easy to get |
| Corporations involve a lot of | expense and effort to create and operate |
| advantages of a corporation | shareholders enjoy limited liability for corporate obligations, perpetual existence, ability to raise large amounts of capital |
| disadvantages of a corporation | greater formality required for formation and operation, double-taxation, complexity of structure |
| Shareholders of S corporations have | the limited liability of a corporation and the tax status of a partnership. |
| The disadvantages of an S corp are (4) | 1) There can only be one class of stocks. 2) There can be no more than 100 shareholders. 3) Shareholders cannot be partnerships or other corporations. 4) Shareholders must be U.S. citizens or residents. |
| “Close corporation” and “closely held corporation” refer to | a corporation whose stock is not publicly traded on a stock exchange. |
| Common provisions of close corporations: 4) | 1) Protection of Minority Shareholders 2) Transfer Restrictions 3) Flexibility 4) Dispute Resolution |
| A limited liability company (LLC) combines | the nontax advantages of corporations with favorable tax treatment of partnerships |
| An LLC is owned | by members, who may manage themselves or retain a manager to run the business |
| True or False : Members have limited liability for the obligations of the LLC | True |
| An LLC offers the | limited liability of a corporation and the tax status of a partnership, without the disadvantages of an S corporation. |
| The LLC is popular because it has: (5) | Limited Liability, Favorable Tax Status, Duration, Management, Flexibility |
| partnership law applies to joint ventures, but | a court may distinguish the two if the business purpose is limited to a single project rather than series of related transactions |
| The reason a court may distinguish the two if the business purpose is limited to a single project rather than series of related transactions | joint venturers usually held to have less implied and apparent authority than partners due to limited scope of the enterprise |
| A business trust is | an unincorporated association run by trustees for the benefit of investors (who are called “beneficiaries”) |
| Cooperatives are | groups of individuals or businesses that join together to gain the advantages of volume purchases or sales. |
| Franchises are | not actually a separate form of business – they can take almost any one of the ones discussed already. |
| Franchising is a popular method of starting a business that is | a compromise between employment and starting your own business |
| Franchisees have | freedom to make many choices, but are limited in other ways. |
| Partnership by estoppel applies if: (3) | 1) Participants tell other people that they are partners (even though they are not), or they allow other people to say, without contradiction, that they are partners. 2) A third party relies on this assertion; and 3) The third party suffers harm. |
| Define Personal Liability | each partner is personally liable for the debts of the partnership. |
| Define Joint and Several Liability | a creditor may sue the partners jointly as a group or separately as individuals. |
| Define Incoming Partners | are liable only for debts incurred after becoming a partner; liability for earlier debts is limited to the capital investment in the partnership. |
| Partners with authority have the right to do what? | bind the partnership to a contract; even partners without authority have the power (but not right) to bind |
| All partners have a right to inspect and copy the partnership’s _____ ____ _________. | books and records |
| Partners are also required to do what> | to share any important information with all other partners. |
| Management duties include: (3) | Duty of Care, duty of loyalty, and duty of good faith and fair dealing |
| Define Duty of care: | duty owed by partners to manage the partnership affairs without gross negligence, reckless conduct, intentional misconduct, or knowing violation of law. |
| Define Duty of loyalty | – duty of utmost loyalty. Duty to not compete with partnership, turn over any profit to partnership, and avoid conflicts of interest. |
| Define Duty of Good Faith & Fair Dealing: | – duty to deal with each other and the partnership in a fair way. |
| Rightful Dissociation (4) | 1) Partner in a partnership at will gives notice that he intends to withdraw. 2) Partners agree in advance on events that will cause dissociation. 3) Partner dies or becomes incompetent. 4) Partner is expelled by the other partners. |
| Wrongful Dissociation (4) | 1) Partner violates the partnership agreement. 2) Partner withdraws before the end of the term. 3) Court expels a partner in a term partnership due to harmful behavior. 4) Partner in a term partnership is bankrupt. |
| Liability of Dissociated Partner for Debts Incurred ... | After Dissociation |
| A dissociated partner is liable to | outsiders for partnership debts incurred within two years after she leaves, but only if the creditor reasonably believes she is still a partner. A partnership must indemnify her for these debts. |
| Ex-Partner should | file a statement of dissociation with the Secretary of State (Effective 90 days after filed). |
| Liability to the Partnership | If the ex-partner harms the partnership after she leaves, she is liable for the damage. |
| True or false: Limited liability companies are relatively older creatures of state statute. | False: new |
| An LLC is a | hybrid entity that combines the limited liability of a corporation and the tax advantages of a partnership |
| LLC’s are increasingly become | the entity of choice for businesses. |
| Like corporations, LLC’s are | creatures of state law |
| The owners are called | “members” (not shareholders) and their ownership is called an “interest” (not shares). |
| Members of an LLC enjoy | limited liability |
| In regards to LLC formation, articles of organization require (5) | 1) Name of Business. 2) Principal Address. 3) Name and Address of Registered Agent. 4) Names of the Owners; and 5) How the LLC will be managed. |
| Business name must include | LLC or Limited Liability Company |
| Advantages of the LLC: (3) | 1) Profits can be distributed to members w/o the double taxation of a corporation. Members pay personal income tax on received dividends. 2) Can be treated as a “pass through” entity for tax purposes 3) Member liability is limited to amount of investmen |
| Disadvantages of LLC: (2) | 1) State statutes are not uniform. 2) Not all states recognize LLC’s |
| An LLC is a | legal entity separate from its owners. |
| True or False: For federal jurisdiction based on diversity, an LLC may be treated differently than a corporation. | True |
| For diversity purposes the citizenship of an LLC is the | citizenship of its members, which may live in multiple jurisdictions. |
| LLC Operating Agreement is: | analogous to corporation’s bylaws |
| Operating agreements may be | oral and contain provisions relating to management, dividends, meetings, transfer of membership interests, and other significant issues. |
| With regards to LLC Operating Agreements, generally, if the operating agreement is silent, courts will what? | apply partnership principles. |
| There are two options for management, generally set forth in the articles of organization. What are they? | Member managed and Manager managed |
| Define Member managed | all of the members participate in management, like a partnership. |
| Define Manager managed | members are elected to manage the LLC. |
| If the articles are silent, statutes provide either that... | each member has one vote or votes are made based on percentage of ownership. |
| Joint ventures are common in: | international transactions when U.S. companies wish to expand overseas. |
| Define Syndicate (Investment Group): | group of individuals getting together to finance a particular project. |
| Joint Stock Company a hybrid of partnership and corporation:(3) | (1) ownership represented by shares of stock; (2)managed by directors and officers of the company; and (3) can have a perpetual existence. |
| England granted | corporations monopolies in trade and broad powers of governance |
| In 1776, American colonists quickly limited corporations by | special charters issued by a state’s legislature, Limited time, limited purpose, revocable |
| Famous examples of English corporations: | The East India Trading Company (leading the colonization of India) and The Hudson’s Bay Company (leading the colonization of Canada). |
| Many of the original colonies had been | chartered as companies, e.g., the Virginia Company, the Maryland Company. |
| The U.S. Supreme Court, in the 1819 Dartmouth decision, tried to do what? | overturn the right of states to revoke a corporate charter, but states reacted by amending their laws. |
| By the end of the Civil War, corporate charter laws were being... | amended to give more, rather than limit, corporate powers |
| Who wrote “…corporations have been enthroned…"? | Abraham Lincoln |
| In 1886, the US Supreme Court declared that... | a private corporation was a "natural person" under the Constitution and should receive the protections under the Bill of Rights |
| By 1919, corporations employed more than __% of the workforce | 80 |
| Corporations share unique characteristics in the way they are created. What are they? | a legal status as a fictitious “person,” specific authority for operation and management, limited liability for owners, easy transferability of an owner’s interest, and the obligation to pay taxes that results in double taxation of profit. |
| Where to Incorporate? | In a state –either the home state of the business or a state which has favorable laws for corporations (often in the state of ? |
| A promoter will be liable for contracts made during | the pre-incorporation period unless the corporation adopts the contracts made by the promoter (adoption) and the third party agrees to substitute the corporation for the promoter (novation, can be automatic) |
| Pre-incorporation Contracts Like agency ratification, may be ________ or ______ | express; implied |
| Promoters should incorporate ____ | first |
| The adoption and novation of preincorporation contracts for employment and commercial lease or purchase contracts is | standard operating practice. |
| The VERY wise promoter will | incorporate the business prior to making any contracts for the corporation. |
| Pre-incorporation share subscriptions are | contracts in which a prospective shareholder offers to buy a specific number of shares in a new corporation at a stated price |
| Under the Model Business Corporation Act (MBCA), a prospective shareholder may not | revoke a pre-incorporation subscription for a six-month period |
| Define Corporation by Estoppel: | If a party enters a contract believing in good faith the corporation exists, he cannot later take advantage of the fact that it does not (Ex: Bank loans). |
| One consequence is that the corporate shield does not | exist to protect shareholders, officers, and directors from personal liability |
| Another possibility is that a party to a contract involving the defective corporation may claim | nonexistence of the corporation to avoid a contract made in the name of the corporation |
| Charter’s (Articles of Incorporation) Required Provisions (5) | 1) Name of corporation 2) Address and Registered Agent 3) Incorporator 4) Purpose 5) Stock |
| In regards to Charter’s (Articles of Incorporation) Required Provisions, define Incorporator | person who signs the charter and delivers it to the Secretary of State for filing (perhaps the lawyer or the promoter) |
| In regards to Charter’s (Articles of Incorporation) Required Provisions, define Purpose | this can be a broad statement, such as “to conduct lawful business” |
| In regards to Charter’s (Articles of Incorporation) Required Provisions, define Stock | number, par value and types offered |
| Steps in Incorporation (1-3) | 1) Prepare articles of incorporation 2) Sign & authenticate articles by 1 or more incorporators 3) File articles w/ secretary of state & pay fees |
| Steps in Incorporation (4-5) | 4) Receive copy of articles of incorporation stamped “Filed” by secretary of state along w/ fee receipt 5) Hold organizational meeting 4 purpose of adopting bylaws/electing officers/transacting other business |
| Other provisions (not inconsistent with law) may be _________ __ _________ __ __________________ or may be ____________ _________ ____________ ______. | added to articles of incorporation; included within corporate bylaws |
| To retain corporate status, a corporation must what? | file an annual report with the secretary of state of the state of incorporation and pay an annual franchise fee or tax. |
| What is the business law equation? | S= number of voting shares T= number of directors you want D= number of directors to be elected X= number of shares required (S x T)/(D + 1) + 1 = X |
| EX: 9000 shares; A=1000, B= 4000, C=4000 9 seats are up for grabs; If you want one seat on the board then: | (9000 x 1)/(9 + 1) + 1= 901 but if only 3 seats are available (9000 x 1)/(3 + 1) + 1+ = 2251 |
| Filing of articles of incorporation with the state is _________ proof of the existences of the corporation. | conclusive |
| Stock can be: (3) | 1) Authorized and unissued 2) Authorized and issued or outstanding 3) Treasury stock (been issued, then bought back by company) |
| Owners of preferred stock have preference | on dividends and liquidation. |
| Common stock is ______ ___ _______ for any corporate payouts, including dividends and liquidation. | last in line |
| define authorized shares | Authorized shares are shares a corporation is permitted to issue by its articles of incorporation |
| define issued shares | Issued shares have been sold to shareholders |
| Outstanding shares are currently held by | shareholders |
| Claims for dividend payments or asset distribution on liquidation are | subordinate to creditor or preferred shareholder claims |
| common shareholders have the exclusive right to | elect corporate directors and exclusive claim to corporate earnings and assets that exceed the claims of creditors and other shareholders |
| Preferred shareholders generally receive | liquidation and dividend preferences over common shareholders |
| A corporation may have several classes of | preferred shares with specific rights related to dividend payments, asset distribution upon liquidation, voting, stock redemption, and stock conversion |
| Define Debentures | long-term, unsecured debt securities with a 10 to 30 years term |
| Define bonds | long-term, secured debt securities |
| bonds are Identical to debentures except that | bonds are secured by collateral |
| Notes generally have | less than a five year term and may secured or unsecured |
| A state law that regulates business activities is constitutional (i.e., does not unduly burden interstate commerce) if: (3) | 1) It serves a legitimate state interest 2) It is the least burdensome means of promoting that interest, 3) That legitimate state interest outweighs the burden on interstate commerce |
| Directors and officers are elected, unless | all shareholders agree to not have a board of directors. |
| what are Shareholder Agreements? | set procedures for voting stock. |
| Issuing Debt | – corporations often need to borrow funds for start-up. |
| Define notes: | short term, either secured or unsecured. |
| A foreign corporation is one that | does business in any other state besides the state of incorporation. |
| Qualifying to Do Business (1-2) | 1) A corporation must register in any states where it is “doing business.” 2) Opening an office or establishing any other ongoing presence is doing business |
| Qualifying to Do Business #3 | 3) An unqualified company that is doing business cannot file a lawsuit until it has registered. It can defend itself against a suit/file a lawsuit if it is NOT doing business in that state |
| Two requirements must exist for the piercing of the corporate veil. What are they? | Domination of a corporation by its shareholders & Domination used for an improper purpose. |
| Domination of a corporation by its shareholders includes: (2) | Corporation is an alter ego of shareholders Corporation is instrumentality of shareholders |
| Domination used for an improper purpose includes: (2) | Defrauding creditors, circumventing a statute, or evading an existing obligation |
| Signs that corporation is an instrumentality or alter ego of shareholders: | 1)Inadequate capitalization 2)Transfers of corporate assets 4 less than fair market value 3)Commingling assets between corporate entities/between shareholders & corporation 4)Establishing subsidiary to circumvent/evade statutory or contractual obligat |
| Example of Inadequate Capililization | defrauds creditors |
| Examples of Transfers of corporate assets for less than fair market value | (looting; defrauds creditors) |
| Examples of Commingling assets between corporate entities or between shareholders and corporation | (defrauds creditors) |
| Piercing the Corporate Veil -- a court may hold shareholders liable for debt in four circumstances: | 1) Failure to observe formalities 2) Commingling of assets 3) Inadequate capitalization 4) Fraud |
| Example of failure to observe formalities | holding meetings, keeping records |
| Example of Commingling of assests | using corporate funds to pay personal debts, etc. |
| Example of Inadequate capitalization | the corporation should obtain insurance against liability for torts |
| Example of Fraud in regards to death of a corporation | njured party may recover from the guilty party, even if the action was the corporation’s |
| In regards to the inherent conflict- Managers | want, first to keep their jobs and second, to build a strong company |
| In regards to the inherent conflict- Shareholders | want the price of stock to increase |
| In regards to the inherent conflict- stakeholders | want the business to grow and continue to use the stakeholders’ services. |
| The board of directors does what? | supervises the actions of its committees, the chairman, and officers to ensure the board’s policies are being carried out and the corporation is managed wisely |
| Some corporate actions require | board initiative and shareholder approval |
| True or False: Shareholders, not directors, have the right to manage the corporate business. | False: Directors, not share holders. |
| Define Inside directors: | officers in the corporation, typically control their company’s board. |
| Define Outside directors: | (also called independent directors) -- do not work for the company and typically have less control. |
| Directors and officers are liable for | losses to the corporation caused by their lack of care or diligence |
| Directors are elected by | shareholders at the annual shareholder meeting |
| Under straight voting, a shareholder may cast as many votes for | each nominee as she has shares and the top vote getters are elected as directors |
| Class voting | may give certain shareholder classes the right to elect a specified number of directors |
| Cumulative voting | permits shareholders to multiply their shares by the number of directors to be elected and cast the resulting total for one or more directors |
| Directors generally are elected by a single class of shareholders in | straight voting: |
| Directors generally are elected by a single class of shareholders in straight voting: each share has | one vote for each director-nominee |
| Example Of straight voting: | 15 people nominated for 5 director positions: a shareholder with 100 shares can vote for up to 5 nominees and cast up to 100 votes for each of those 5 nominees |
| True or False: Under straight voting, nominees with most votes win, thus a majority shareholder could elect the entire board of directors | True |
| Minority shareholders cannot | elect nominees without the cooperation of the majority shareholder |
| With cumulative voting, shareholders may | accumulate votes by multiplying the number of directors to elect by the number of shares held |
| Shareholder may | allocate votes among nominees as s/he chooses and may choose to cast all votes for only one nominee |
| With class voting, corporations have classes of shareholders. What are they? | preferred and common (and sub-classes) and give separate voting rights to separate classes |
| Each class may be entitled to | elect one or more directors to balance power in a corporation |
| Define Quorum: | must have a majority of all directors' to do business. |
| Example of Quorum: | : If there are 9 directors, at least 5 directors must attend the meeting to constitute a quorum. If 5 directors are present, at lest 3 must vote for a resolution to pass. |
| True or False: If no quorum, any action taken is void | True |
| True or False: You can not lose a quorum even if directors leave | False: You can lose one |
| Define the Business Judgement rule | The manager has a duty of loyalty and a duty of care. The manager must act without a conflict of interest, with the care of an ordinary prudent person and in the best interests of the company. |
| What rule allows directors to do their job without fear of excessive court intervention. | Business Judgement Rule |
| The MBCA duty of care test requires | a director or officer to make a reasonable investigation and honestly believe that the decision is in the corporation’s best interests |
| Business Judgement Rule: | absent bad faith, fraud, or breach of fiduciary duty, the judgment of directors and officers is conclusive |
| What prohibits managers from making a decision that benefits them at the expense of the corporation. | The duty of loyalty |
| True or False: Self-Dealing is a violation of the duty of loyalty | True |
| What are Managers in violation of if they compete against the corporation without its consent? | the corporate opportunity doctrine |
| Define Business Self-Dealing: | decisions that benefit another company associated with the manager. |
| Define Personal Self-Dealing: | decisions that benefit the manager directly. |
| Self-dealing transactions may be acceptable if:(3) | 1) The disinterested members of the board of directors approve the transaction. 2) The disinterested shareholders approve it. 3) The transaction was fair to the corporation. |
| Duty of Care requires | officers and directors to act in the best interests of the corporation and to use the same care that an ordinarily prudent person would in the management of her own needs. |
| define Officers | are agents of the corporation, thus have express authority conferred on them by the bylaws or the board of directors and implied authority to do things reasonably necessary to accomplish duties |
| A corporate officer ordinarily has | no liability on contracts made for the corporation if the officer signs on behalf of the corporation rather than in a personal capacity |
| True or False: A person is always liable for his own torts, even if committed on behalf of a principal | True |
| Treu or false: A director is not liable for authorizing a tort or participating in its commission | False: He is |
| Under what doctrine is a corporation liable for employee’s tort that is reasonably connected to the authorized conduct of the employee? | the vicarious liability doctrine of respondeat superior |
| Corporations may be liable for crimes when the criminal act is requested, authorized, or performed by: | (a) board of directors (b) an officer (c) another person with responsibility for formulating company policy (d) a high-level administrator with supervisory responsibility over the subject matter of the offense and acting within the scope of his employm |
| A director or officer may bear criminal liability if s/he: | requests, conspires, authorizes, or aids and abets the commission of a crime by an employee |
| Because officers and directors have a risk of liability, corporations typically agree to | indemnify those who serve as a director or an officer |
| Define Indemify | : to protect or insure; refers to practice by which corporations pay expenses of officers or directors named as defendants in litigation |
| Under the MBCA, a director is entitled to | mandatory indemnification of her reasonable litigation expenses when she is sued and wins completely (is wholly successful). |
| Under the MBCA, a director who loses a lawsuit may | be indemnified by the corporation. |
| Define permissible indemnification: | the corporation is permitted to indemnify the director but is not required to do so. |
| There are three ways to acquire control of a company. What are they? | 1) Buy the company’s assets. 2) Merge with the company. 3) Buy stock from the shareholders. |
| Takeovers and tender offers are regulated: | 1) Federal Regulation of Tender Offers: The Williams Act 2) State Regulation of Takeovers 3) Common Law of Takeovers |
| Companies may try to prevent takeovers in many ways:(2) | 1) Transferring assets, re-distributing stock, re-structuring the board of directors, etc. 2) When establishing takeover defenses, shareholder welfare must be the board’s primary concern. |
| True or False: The board of directors own a corporation. | False. Shareholders own a corporation and elect a board of directors and officers to run or manage the corporation. Directors and officers may also be shareholders. |
| True or False: A corporation has legal power to do anything that an individual may do. | True |
| True or False: Sarbanes–Oxley Act requires all publicly held firms to have audit committees comprised of independent directors (see Ch 38). | True |
| True or False: Class voting permits shareholders to multiply their shares by the number of directors to be elected and cast the resulting total for one or more directors | False-Cumulative voting permits shareholders to multiply their shares by the # of directors to be elected & cast the resulting total for one or more directors. Class voting may give certain shareholder classes the right to elect a specified # of directors |
| Absent bad faith, fraud, or breach of fiduciary duty, the rule that the judgment of directors & officers is conclusive is known as a) The fiduciary duty rule b) The D&O rule c)The business judgment rule d) The business purpose test (e) none of the | C |
| Shareholders have | neither the right nor the obligation to manage the day-to-day business of the enterprise. |
| Shareholders with a proper purpose have the right to inspect and copy the corporation’s minute book, accounting records, and shareholder lists. Which act does this fall under? | Model Act |
| A corporation must have at least ___ class of stock with voting rights. | one |
| Any shareholder who for the past year has owned at least 1 percent of the company or $2,000 of stock can require that | one proposal be placed in the company’s proxy statement to be voted on at the shareholder meeting. |
| Only a small percentage of these proposals are passed, but their presence may cause the directors to what? | adopt the proposals’ statements anyway . |
| A publicly-traded company must | hold an annual meeting of shareholders (required by the NY Stock Exchange, though not required by all states). |
| The board of directors and shareholders owning at least___ percent of the stock have the right to call special meetings as needed. | 10 |
| Special meetings of shareholders may be held whenever | a corporate matter arises that requires immediate shareholders’ action (can be called by those controlling 10% of the voting stock) |
| Example of Special meetings regarding shareholder meetings: | Example: merger, dissolution |
| Notice of a special meeting must list the | purpose of the meeting |
| Notice must be given to _______ __ ________ (entitled to vote) as of a date fixed by the board of directors | shareholders of record |
| A quorum of outstanding shares must be | represented at the meeting by shareholders |
| Shareholders have right of full participation, which includes what? | the right to offer resolutions, speak for or against proposed resolutions, and ask questions of corporate officers |
| Other devices used to control or allocate voting include: | Voting Trusts, Shareholder voting agreements, and proxies |
| Define Voting Trusts | shareholders transfer their shares to one or more voting trustees and receive voting trust certificates in exchange to achieve control of the corporation by concentrating shareholder voting power in the voting trustees; limited in duration |
| Define Shareholder Voting Agreements | shareholders may agree how they will vote their shares |
| Define Proxies | shareholder may appoint a proxy to vote his or her shares allowing minority shareholders to collectively own a majority of shares |
| Shareholders have a qualified right to | inspect records older than three years and must make the demand in good faith and with a proper purpose |
| MBCA grants shareholders | an absolute right of inspection of the shareholder list and the articles, bylaws, and minutes of shareholder meetings within the past three years |
| In theory, shareholders have the right to | elect directors and also to remove them from office. |
| In reality, a nominating committee from the board of directors chooses candidates – one candidate for each opening. Shareholders can either what? | approve or refuse to vote. |
| The only way shareholders can nominate their own candidates is through | a complex and expensive process of submitting their own slate of candidates to all the shareholders. |
| Who sets the CEO's salary? | Board of Directors |
| CEO's compensation (3) | 1) CEOs often get signing bonuses for extended contracts. 2) Stock options are often part of the payment. 3) Even when a CEO has done a poor job, he may receive an exorbitant severance pay. |
| In 2005, the top 100 CEO’s earned over____ times as much as the average American worker. | 1000 |
| A corporation must seek shareholder approval before undergoing any of the following fundamental changes: (5) | Mergers Sales of Assets Dissolution Amendments to the Charter Amendments to the Bylaws |
| True or False: Sale of all or substantially all of the assets of the business other than in regular course of business Drastically changes shareholders’ investment. | True |
| To effect fundamental changes, the board of directors must (3) | 1) approve 2) notice must be given to all shareholders whether or not they are entitled to vote 3) there must be majority approval of the votes held by shareholders entitled to vote under the statute, articles, or bylaws |
| True or False: In regards to Procedures to effect changes, state law may not alter the requirements to make changes | False: The state may |
| If a _____ corporation decides to undertake a fundamental change, the _____ ____ and many state laws require the company to ____ _____ _______ ________ ______ _____ ____________ who object to this decision. | private; Model act; buy back the stock of any shareholders |
| In general, those who oppose an approved action have little what? | recourse |
| Dissenters’ rights or a _____ __ ________ have been created to __________ _____________ by requiring the corporation to pay dissenting shareholders the fair value of their shares | right of apprasial; protect dissenters |
| MBCA and many state statutes exclude shares traded on a | recognized securities exchange (e.g., the New York Stock Exchange) |
| Controlling shareholders have a _______ ___ to the minority shareholders. | fidiciary duty |
| Minority shareholders have the right to | overturn a transaction between the corporation and a controlling shareholder, unless the transaction is fair to the minority shareholders. |
| Controlling shareholders must include | minority shareholders in any favorable arrangements that they make for their own stock |
| Many states prohibit a company from | expelling shareholders unless the firm pays a fair price for the minority stock and the expulsion has a legitimate business purpose. |
| In response to corporate scandals, Congress passed the Sarbanes-Oxley Act in 2002. Restrictions (1-3) | 1) Requires all publicly-traded companies to adopt effective financial controls. 2) CEOs and CFOs must personally certify their company’s financial statements. 3) A board’s audit committee must be independent. |
| In response to corporate scandals, Congress passed the Sarbanes-Oxley Act in 2002. Restrictions (4-5) | 4) No personal loans to directors or officers. 5) If a company has to restate its earnings, its CEO and CFO must reimburse the company for any bonus or profits they have received from selling company stock in the past year. |
| In response to corporate scandals, Congress passed the Sarbanes-Oxley Act in 2002. Restrictions (6-7) | 6) Each company must disclose if it has an ethics code and, if it does not, why not. 7) It is a felony to interfere with a federal fraud investigation. |
| In response to corporate scandals, Congress passed the Sarbanes-Oxley Act in 2002. Restrictions (8-9) | 8) Whistle blowing employees are protected. 9) A new Public Accounting Oversight Board has been established to oversee the auditing of public companies. |
| In response to corporate scandals, the NYSE and Nasdaq established | a new role for independent directors at listed companies |
| NYSE and Nasdaq established a new role for independent directors at listed companies: | 1-Independent directors must comprise a majority of the board & meet regularly on their own w/o inside directors 2-Only ones who can serve on compensation/nominating committees 3-Audit committees must have at least 3 who are financially literate |
| If a corporation was harmed by another’s actions, the right to sue belongs to | the corporation |
| True or False: A shareholder has no right to sue even if shareholder’s investment impaired | True |
| one or more shareholders may | bring a derivative action for the benefit of the corporation if the directors failed to pursue a corporate cause of action |
| True or False: Person bringing suit does not have to be a current shareholder or have held shares at time the alleged wrong occurred | False: They do have to be. |
| Shareholder must first demand that board of directors bring the suit. If board refuses, shareholder | cannot bring derivative action since business judgment rule insulates the board’s decision. Shareholder may still sue directors! |
| The one exeception to rule that shareholders must be current is: | the double derivative suit, a suit brought by a shareholder of a parent corporation on behalf of a subsidiary corporation owned by the parent. Courts regularly permit double derivative suits. |
| What does SLC stand for? | Shareholder Litigation Committee |
| What is the purpose of SLC. | to decide whether to sue if a shareholder makes a demand to file suit |
| True or False: SLC usually has independent legal counsel | True |
| Most courts have upheld SLC decisions if they comply with the | business judgment rule |
| A shareholder has the right to sue in his own name to | prevent or redress a breach of the shareholder’s contract |
| If several shareholders have been similarly affected by a wrongful act, a shareholder may | bring a class action on behalf of all affected shareholders |
| Define Derivative Lawsuits: | Brought by shareholders to remedy a wrong to the corporation. All proceeds of the litigation go to the corporation. |
| Define Direct Lawsuits: | Shareholders are permitted to sue the corporation directly only if their own rights have been harmed. |
| Define Class Action Lawsuits: | If a group of shareholders all have the same claim, they can join together and file suit as a class action. |
| Shares in a publicly held corporation are | freely transferable, but often close corporations (generally less than 50 shareholders) restrict transfer to ensure control |
| Four categories of transfer restrictions: (4) | (1) rights of first refusal and option agreements, (2) buy-and-sell agreements, (3) consent restraints, and (4) provisions disqualifying purchasers |
| Define A right of first refusal | grants to the corporation or the other shareholders the right to match the offer that a selling shareholder receives for her shares. |
| Define An option agreement | grants the corporation or the other shareholders an option to buy the selling shareholder’s shares at a price determined by the agreement. |
| Define buy-and-sell agreement | compels a shareholder to sell his shares to the corporation or to the other shareholders at the price stated in the agreement and obligates the corporation or the other shareholders to buy the selling shareholder’s shares at that price. |
| Define consent restraint | requires a selling shareholder to obtain the consent of the corporation or the other shareholders before she may sell her shares. |
| True or False: Shareholders are the owners and managers of a corporation. | False. Shareholders are the owners, but not the managers of a corporation |
| True or False: In a shareholder’s meeting, issues are decided by majority vote and a quorum is required. | True |
| True or False: In class voting, each shareholder class may be entitled to elect one or more directors to balance power | True |
| True or False: The board of directors has the sole power to dissolve a corporation. | False. Dissolution requires board initiation and shareholder approval. |
| Which of the following actions does not require shareholder approval? a) Consolidating 2 companies b) Amending the articles of incorporation c) Dissolving the corporation d) Merger of the corporation into another e) Acquiring another corporation’s as | The correct answer is (e). |
| Candy Corp lost $1 mill in sales when Sweets LLC made serious defamatory statements about Candy Corp. Bob (shareholder) brought a lawsuit on behalf of Candy Corp against Sweets LLC Which is true? Bob brought a class action Bob brought a derivative actio | bob brought a derivate action |
| Corporations can grow and expand by:(4) | Mergers. Consolidation. Purchase of another corporation’s assets. Purchases of a controlling interest in another corporation. |
| Board of Directors of each corporation involved must approve the merger plan. Next.. | Next shareholders of each corporation must approve. Then, articles filed with Secretary of State who issues a certificate of merger to the surviving corporation or a certificate of consolidation to the newly consolidated corporation. |
| True or False: No approval of shareholders needed for short form mergers. | True |
| Parent must own at least __ of each class of stock of the subsidiary corporation. | ninety |
| When allowed by state statute, a shareholder has the right to | dissent and be “bought out” of his/her shares (shareholder’s appraisal right). |
| In cases of: merger, consolidation, sale of most of corporation’s assets not in the ordinary course of business, adverse amendments to the articles of incorporation.... | certain procedures must be followed |
| In regarding to purchase of asests,The acquiring corporation extends its | ownership and control over the physical assets of another company. |
| Acquiring corporation shareholders do not need to approve: (2) | 1-Unless acquiring corporation is paying for assets with its own stock & there isn't enough stock authorized 2-An acquiring corporation sells on a national exchange, is paying with its own stock, & newly issued stock = 20% or more than outstanding shares |
| Acquiring corporation is not liable for liabilities of selling corporation unless: (3) | 1) Acquiring corporation impliedly or expressly assumes the liabilities. 2) Sale amounts to what is really a merger or consolidation. 3) Purchaser continues the seller’s business and retains the same personnel. |
| Common alternative to merger or consolidation is the | purchase of a controlling interest (up to 51%) of a “target” corporation’s stock (called a “takeover”) giving the purchaser corporation controlling interest in the target. |
| The ______ deals entirely with the target’s shareholders | aggressor |
| Shareholders can initiate dissolution by a | unanimous vote to dissolve. |
| Shareholders can initiate dissolution by a unanimous vote to dissolve Or what? | , the Board can initiate by submitting a proposal to the shareholders for a vote at the annual shareholder meeting or specially-called meeting. |
| Define articles of dissolution | date is the date of dissolution. |
| after articles of dissolution are issued, a Corporation must | notify its creditors and establish a date within 120 days of dissolution by which all claims are to be paid. |
| State can dissolve corporation if: | Fails to pay taxes Fails to file annual report Fails to designate registered agent for service Secured its charter through fraud Abused its corporate power Violated criminal laws Failed to commence business operations Abandoned operations before st |
| Regarding Voluntary Dissolution, | Board liquidates and acts as trustees of assets. |
| Court will appoint a receiver if: | Board refuses; or Creditors want a receiver. |
| Regarding Involuntary Dissolution, | Court appoints receiver. |
| Most U.S. consumers’ legal issues fall under the domain of the | Federal Trade Commission (FTC) which enforces federal antitrust and consumer protection laws. |
| : Food & Drug Administration (FDA) monitors | foods, drugs, medical devices, cosmetics, veterinary products, and potentially hazardous consumer products. |
| What does FDCA stand for? | Food, Drug, and Cosmetic Act (FDCA) |
| Consumer Product Safety Commission monitors | injuries resulting from consumer products. (toy regulations) |
| CPSC is in charge of what? | Laws passed to protect consumers from abuses and inequities associated with loans, credit, housing, etc |
| Federal Trade Commission Act of 1914 enabled | the creation of the Federal Trade Commission (FTC) as independent agency |
| FTC’s principal missions are to | keep the U.S. economy both free and fair |
| FTC enforcement devices: | issuing trade regulation rules, facilitating voluntary compliance, and adjudicative proceedings |
| The FTC may enforce the law by: (2) | 1) Voluntary compliance with regulations. 2) Administrative hearings and appeals, which may lead to a voluntary consent order or a forced cease and desist order. |
| Violations of voluntary consent or cease and desist orders will lead to | penalties. |
| FTC trade regulation rules have the force of law and FTC can proceed directly against those who engage in prohibited practices. What can they do? (3) | 1) Adjudicative proceeding 2) Civil penalty up to $10,000 for each knowing violation of a rule 3) Court proceedings to obtain consumer remedies, such as damages, refund of money, return of property, or the reformation or rescission of contracts |
| If FTC proceeds against alleged offender (respondent), it files a formal complaint and the case is heard in a public administrative hearing called an | adjudicative proceeding |
| In regards to an adjudicative proceeding, Judge’s decision may be appealed: | first to FTC’s five commissioners, then to federal courts of appeals and U.S. Supreme Court |
| Most common penalty resulting from a final decision against the respondent is an FTC .... | cease-and-desist order |
| Civil penalty for noncompliance with cease-and-desist order is | < $10,000 per violation (per day) |
| A consent order is | an order approving a negotiated settlement in which respondent promises to cease certain activities and/or pay certain fees |
| The most important federal product safety law is ... | the Consumer Product Safety Act (CPSA) |
| The CPSA , which established the | Consumer Product Safety Commission (CPSC). |
| CPSC (2) | 1) issues consumer product safety standards & bans of certain hazardous products 2)may bring civil suits in federal district court to eliminate dangers presented by imminently hazardous consumer products |
| after receiving notice of hazards the CPSC may | issue orders to private parties to address “substantial product hazards” |
| The Commission considers a practice to be unfair if it meets all of the following three tests: | 1) It causes substantial consumer injury. 2) The harm of the injury outweighs any countervailing benefit. 3) The consumer could not reasonably avoid the injury. |
| The FTC may decide that a | practice is unfair simply because it violates public policy. |
| Ordered items must be shipped _____ ______, or within 30 days. If this is not possible, the customer must have the opportunity to ________ __ ____. | when promised; change his mind |
| The FTC prohibits telemarketers from | calling any telephone number listed on its do-not-call registry. FTC rules also prohibit telemarketers from blocking their names and telephone numbers on Caller ID systems. |
| Under §5 of the FTC Act, anyone who receives unordered merchandise in the mail can do what? | treat it as a gift |
| Door-to-door salespersons are required to notify the buyer of ___ ____ ____ _____ _ ________ prior to midnight of the ____ business day after the sale. | the right to cancel the transaction; third |
| The Truth in Lending Act applies to a transaction only if all of the following tests are met: (4) | 1) It is a consumer loan. 2) The loan has a finance charge or will be repaid in more than four installments. 3) The loan is for less than $25,000 or secured by a mortgage on real estate. 4) The loan is made by someone in the business of offering credit |
| In all loans regulated by TILA: (3) | 1) The disclosure must be clear and in meaningful sequence 2) The lender must disclose the finance charge. 3) The creditor must also disclose the annual percentage rate (APR). |
| TILA stands for | The truth in lending act |
| In any ad or solicitation, the lender must | disclose credit terms, including if the rate is introductory and when the rate expires. |
| In statements, the lender must disclose: | 1-amount owed at beginning of billing cycle 2-amounts/dates of purchases 3-credits/payments 4-finance charges/late fees/ date by which a bill must be paid to avoid charges 5 either consequences of making monthly minimum payment/a toll free # to get in |
| Before finalizing the loan, the lender must disclose: | 1) cash price 2) the total down payment 3) the amount financed 4) an itemized list of all charges 5) amounts & dates of all payments 6) total amount of payments 7) late payment & pre-payment penalties 8) the lenders security interest in the item pu |
| rescind a mortgage for up to three business days after the signing; if the lender does not comply with TILA, the consumer has three years to rescind. | Under TILA, consumers have the right to |
| Under TILA, you are liable only for the first ___ in charges a thief makes. | $50 |
| If a thief steals just your number, and not your card, | you are not liable for any unauthorized charges. |
| With debit cards, you are only liable for the first $50 if you report the theft within 2 days of discovery; after 2 days, you are | liable for the first $500, after 60 days, all liability is yours. |
| In a dispute between a customer and a merchant, the company (credit issuer) cannot bill the customer if: | 1) she tries to resolve the dispute, 2) the dispute is for more than $50, and 3) the merchant is in the same state or is within 100 miles of her house. |
| Under the FCRA: (1-3) | 1) A consumer report can only be used for legitimate business needs. 2) Information must not be obsolete. 3) Employers may not seek a report on a current or potential employee without permission. |
| Under the FCRA: (4-5) | 4) Anyone making an adverse decision against a consumer because of a report must reveal the name and address of the reporting agency. 5) A reporting agency must make a consumer’s report available upon request. |
| Under the FCRA: | 6) A reporting agency must investigate and correct any content reported to be inaccurate. |
| The FCRA's | Applies to consumer reporting agencies that regularly compile credit-related information on individuals for the purpose of furnishing consumer credit reports to users |
| Agency must adopt procedures to: (3) | 1) Ensure users of information employ information only for certain limited business purposes 2) Avoid including obsolete information in a report 3) Ensure maximum possible accuracy |
| Investigative consumer report includes information about a | person’s character, reputation, personal traits, or mode of living, and is based on interviews with neighbors, friends, and associates. |
| Criminal penalties possible for persons who knowingly and willfully | obtain consumer information from credit bureau under false pretenses |
| FACTA provides that | consumers are entitled by law to one free credit report every year from each of the three major reporting agencies: Equifax, Experian, and Trans Union. |
| FACTA stands for | Fair and Accurate Credit Transactions Act |
| Under the FDCPA, collectors may not: (1-4) | 1) Call/write the debtor who has notified the collector in writing that he wishes no further contact 2) Call/write a debtor who is represented by an attorney 3) Call a debtor before 8 am or after 9 pm 4) Threaten a debtor/use obscene/abusive language |
| Under the FDCPA, collectors may not: (5-7) | 5) Call or visit the debtor at work if the consumer’s employer prohibits such contact. 6) Imply that they are attorneys when they are not. 7) Threaten to arrest consumers who do not pay their debts. |
| Under the FDCPA, collectors may not: (8-10) | 8) Make other false or deceptive threats, that is, threats that would be illegal if carried out 9) Contact acquaintances of the debtor for any reason other than to locate the debtor (and then only once) 10) Tell acquaintances that the consumer is in deb |
| Fair Debt Collection Practices Act Applies to debts | that involve money, property, insurance, or services obtained by a consumer for consumer purposes |
| Fair Debt Collection Practices Act Prohibits debt collectors from | contacting third parties such as debtor’s employer, relatives, or friends and limits a collector’s contacts with debtor |
| The Equal Credit Opportunity act (ECOA) does what? | prohibits any creditor from discriminating against a borrower because of race, color, religion, national origin, sex, marital status, age (as long as the borrower is old enough to enter into a legal contract), or because the borrower is receiving welfare |
| what does ECOA stand for? | Equal Credit Opportunity Act |
| The right to opt out: | Consumers have the right to opt out of (or reject) certain significant changes in terms on their accounts. Opting out means cardholders agree to close their accounts & pay off the balance under the old terms. They have at least 5 years to pay the balance |
| Under the Cosumer Leasing Act Before a lease is signed, the lessor must disclose the following in writing: (1-3) | 1) All required payments, including deposit, down payment, taxes, license fees and balloon payment (due at end of lease). 3) The number and amount of each payment. 3) Required insurance payments and available warranties. |
| Under the Cosumer Leasing Act Before a lease is signed, the lessor must disclose the following in writing (4-6) | 4) Maintenance requirements. 5) Penalties for late payments. 6) The consumer’s right to purchase the leased property or terminate a lease early. |
| What does CLA stand for? | Consumer Leasing Act |
| Magnuson-Moss Warranty Act (2) | Act requires disclosure of limitations Warranty must be available to consumer to review prior to sale |
| Magnuson-Moss Warranty Act (the other 2) | 3) Manufacturers/sellers are not required to offer a warranty. 4) Any supplier that does offer a written warranty (on a consumer product that costs more than $15) must disclose the terms of the warranty in simple understandable language before the sale |
| Deceptive practices under Sec 5 must a) involve a material misrepresentation b) the representation must be likely to mislead consumer c) the consumer must act reasonable under the circumstances d) all of the above e) all of the above plus result in a | (c). To be deceptive under FTC Policy Statement on Deception, an activity must: (1) involve a material misrepresentation, omission, or practice; (2) that is likely to mislead a consumer; (3) who acts reasonably under the circumstances |
| J is late on paying a store charge card. J received a call claiming the store would have J arrested 4 fraud unless payment was made in 5 days. a) J must pay the bill/be arrested b) store violated the FDCPA c) J must file lawsuit against store | b |
| Superfund was | created as part of a set of amendments (Superfund Amendments and Reauthorization Act of 1986) to be an “insurance” to cover remediation of sites where the PRPs were not identifiable or defunct. |
| A PRP is defined as: | Current owners or operators of facility or vessel; Former owners or operators of facility or vessel, if they owned the property at time of disposal; |
| prp cont'd | Those who arrange for treatment or disposal of hazardous substances at a facility (usually the generators); and Transporters of hazardous substances who selected the disposal site |
| EIS stands for | Environmental Impact Statement |
| The antitrust statutes demonstrate | a public policy for promoting free competition as the most efficient means of allocating resources |
| Sherman Act prohibits | all agreements “in restraint of trade” and bans “monopolization.” |
| Adherents of the “Chicago School” argue that | the goal of antitrust enforcement should be efficiency; they ask, “Has competition been harmed?” instead of, “Has a competitor been harmed?” |
| The Clayton Act prohibits | anticompetitive mergers, tying arrangements, and exclusive dealing agreements. |
| The Robinson-Patman Act | bans price discrimination that reduces competition. |
| Sherman Act violations may lead | to criminal prosecutions or civil litigation by federal government through Department of Justice |
| Most antitrust cases are | settled without trial through nolo contendere pleas in criminal cases and consent decrees in civil cases |
| Individuals convicted of violating the Sherman Act may receive | a fine of $1 million per violation and a term of imprisonment of up to 10 years. Convicted corporations may be fined up to $100 million per violation |
| To get a conviction, government must prove | an anticompetitive effect resulted from the alleged misconduct and that defendant had a criminal intent |
| Civil cases require proof through evidence of either | an anticompetitive effect or an unlawful purpose |
| Federal courts have broad injunctive powers to remedy antitrust violations, including: | An order that convicted defendants divest themselves of stock or assets of acquired companies, divorce themselves from a functional level of their companies, refrain from particular conduct in the future, or cancel existing contracts |
| Extreme cases: | courts may enter a dissolution decree ordering defendant to liquidate |
| Clayton Act Section 4 permits | private plaintiffs injured by Sherman Act or Clayton Act violations may recover treble damages plus court costs and attorney’s fees |
| Traditional antitrust theory: | reducing concentration in industrial sectors enhances individual freedom by reducing barriers to entry and encouraging free competition |
| Chicago School theory: | economic efficiency is the primary goal and may be achieved by anti-conspiracy enforcement efforts rather than anti-concentration efforts |
| Federal antitrust laws apply only to | business behavior having some significant impact on interstate or foreign commerce |
| Federal antitrust laws have been applied extensively to | activities affecting the international commerce of the United States |
| Section 1 of the Sherman Act states that | “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations is declared to be illegal.” |
| Courts have consistently held that | concerted action of defendants must derive from an agreement, express or implied, rather than independent business decisions . |
| A contract is | any agreement, express or implied, between two or more persons or business entities to restrain competition. |
| A combination is a | continuing partnership in restraint of trade. |
| A conspiracy occurs if | two or more persons or business entities join to restrain trade |
| Violations of antitrust laws are divided into two categories: | Rule of Reason and Per se: |
| Define Per se: | violations are automatically illegal, no matter what effect they have on competition. |
| Define Rule of Reason | violations are illegal only to the extent that they have an anticompetitive effect. |
| Sherman Act applies only to | behavior that unreasonably restrains competition |
| Per se violations are | conclusively presumed to violate § 1 of the Sherman Act because the actions always have a negative effect on competition and cannot be excused or justified |
| For a competitive strategy, managers may consider two approaches: What are they? | 1) Cooperative strategies, where companies work together to their mutual advantage. 2) Aggressive strategies, designed to create an advantage over competitors. |
| Some cooperative strategies which may be illegal, include: (3) | 1) Horizontal agreements 2) Vertical agreements 3) Mergers and joint ventures |
| Define Market Division | Any effort by a group of competitors to divide its market is a per se violation of §1 of the Sherman Act. |
| Define Price Fixing and Bid Rigging | When competitors agree on the prices at which they will buy or sell, their price-fixing is a per se violation of §1 of the Sherman Act. Bid-rigging is also a per se violation. |
| Define Refusals to Deal | A refusal to deal violates the Sherman Act if it harms competition (AmEx). |
| Resale price maintenance (RPM) means that | the manufacturer sets minimum prices that retailers may charge, eliminating discounting of certain products. |
| RPM is a | rule of reason violation of the law. A manufacturer may not enter into an agreement with distributors to fix prices. |
| Vertical Maximum Price-Fixing | Vertical maximum price fixing (manufacturer setting maximum retail price) is only illegal if it has an adverse effect on competition. |
| Manufacturers may state a | suggested retail product price, but a manufacturer-dealer agreement requiring dealer to resell at a price dictated by manufacturer is concerted action |
| Under §2 of the Act, | it is illegal to monopolize or attempt to monopolize. |
| To tell if a monopoly is illegal, ask: What is the market? as well as | Does the company control the market? No matter what market shares you dont have monopoly unless you can exclude competitors/control prices How did acquire/maintain control? Possessing a monopoly may not b illegal. using “bad acts” to acquire/maintain 1 i |
| Sherman Act § 2 prohibits monopolization: | Willful acquisition or maintenance of monopoly power in the relevant market rather than monopoly as a consequence of superior product, business acumen, or historical accident |
| Having a monopoly is not illegal, but the act of monopolization is illegal thus | intent to monopolize is a key element |
| Firms that have not yet achieved monopoly power may be | liable under § 2 if they are very close to acquiring monopoly power and employing methods likely to result in monopoly power if left unchecked |
| Predatory pricing occurs when | a company lowers its prices below cost to drive competitors out of business. (Liggett cigarettes/WalMart book sales) |
| To prove predatory pricing, show: (3) | 1) The defendant is selling its products below cost. 2) The defendant intends that the plaintiff goes out of business, 3) If the plaintiff does go out of business, the defendant will be able to earn sufficient profits to recoup its prior losses. |
| The Clayton Act prohibits mergers that are | anticompetitive. |
| Define Horizontal Mergers | involves companies that compete in the same market. |
| Define Vertical Mergers | A vertical merger involves companies at different stages of the production process. |
| Allocating Customers and Territory | A vertical allocation of customers or territory is illegal only if it adversely affects competition in the market as a whole. |
| Exclusive Dealing Agreements | An exclusive dealing contract is one in which a distributor or retailer agrees with a supplier not to carry the products of any other supplier. These may be illegal if they severely limit the competition. |
| Reciprocal Dealing Agreements | When a buyer refuses to purchase goods from a supplier unless the supplier also purchases items from the buyer. |
| Price Discrimination (Violates Robinson-Patman Act) [enforcement has declined-does not apply to services or real estate] It is illegal to charge different prices to different purchasers if: | the items are the same, and the price discrimination lessens competition. |
| However, it is legal to charge a lower price to a particular buyer, if: | the costs of serving this buyer are lower, or the seller is simply meeting competition. |
| Manufacturers may _______ assign exclusive territories to dealers or limit the dealerships in a particular geographic area | unilaterally |
| Tying Arrangements | Selling a product on the condition that the buyer also purchases a different (or tied) product (Violates RPA). |
| To determine if it is illegal, ask: | Are the 2 products clearly separate? Is the seller requiring the buyer to purchase the 2 products together? Does the seller have significant power in the market for the tying product? Is the seller shutting out a part of the market for the tied product |
| True or False: The three antitrust laws are the Sherman Act, Clayton Act, and Pricing Act. | False. Sherman Act in 1890, the Clayton Act in 1914, Robinson-Patman Act |
| True or False: Section 1 of the Sherman Act prohibits concerted action in restraint of trade. | True |
| True or False: Per se violations are conclusively presumed to violate § 1 of the Sherman Act. | True |
| True or False: Using a rule of reason approach, conduct violates § 1 if a minimum anticompetitive effect occurs. | False. The activity violates § 1 if significant anticompetitive effect is not offset by positive effect on market. |
| True or False: If competitors alter market forces by horizontal price control, it is per se illegal. | True |
| True or False: Agreements among competitors to divide up an available market by allocating territories is legal unless it destroys competition. | False. Agreements among competitors to divide up an available market by allocating territories is per se illegal. |
| True or False: A firm may refuse to deal with certain firms as a unilateral action. | True |
| True or False:Having a monopoly is not illegal. | True |
| Z wont sell 2 buyers unless they agree 2 by product exclusively from Z. Z violated ATL? No-freedom of contract is allowed Zs exclusive dealing agreement is illegal only if Zs market power is anticompetitive Zs exclusive dealing agreement is per se ille | B |
| The elements of monopolization include: (a) Exclusive dealing agreements (b) Monopoly power (c) Willful anticompetitive conduct (d) all of the above (e) B and C only | E |
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ryan3743