Law 2, BUL4422, Exam 1

If a corporate transaction is expected to personally benefit an individual officer or director, that person has a duty to

- disclose any conflict of interest - abstain from voting on the issue

The three property rights of partners include

- the right to participate in the management of the business - the right to specific partnership property - the right to their partnership interest

In what year did the ABA replace the MBCA with the Revised Model Business Corporation Act?

1984

Revised Model Business Corporation Act (RMBCA)

A 1984 revision of the MBCA that arranges the provisions of the act more logically, revises the language to be more consistent, and makes substantial changes in the provisions

Personal Self Dealing

A director or officer makes business decision that benefit him personally.

Business Self-Dealing

A director or officer makes decision that benefit other companies with which she has a relationship.

Shareholder's Derivative Suit

A lawsuit filed by a shareholder on behalf of the corporation. Important way for shareholders to hold directors accountable for their behavior.

Directors Roles

A minimum number must attend board of directors meetings. They are legally responsible for day-to-day managerial activities. Elected by shareholders majority vote.

Which of the following is an accurate statement regarding the creation of a partnership

A written agreement is not required to create a partnership

Which of the following refers to a review and listing of all partnership assets and/or profits?

An accounting

Suppose that Steve, one of the partners in a home improvement company, intends to dissolve the partnership. Before he can give notice of his intent, one of the other partners, Hala, makes a contract with some clients for a home office renovation.

As a consequence, Steve will still be liable for Hala's contract.

What is the term for the powers given to a corporation by the state to fulfill its express powers?

Implied Powers

Duties of Shareholders

In certain situations, majority shareholders may be regarded as having a fiduciary duty to minority shareholders and will be liable if that duty is breached

Which of the following is an accurate statement regarding the legal identity of a partnership?

In most cases, a partnership is not considered a legal entity separate from its owners.

Identify a true statement about sole proprietorships

Keep all the profits from the business

Liability of Shareholders

Liable for the debts of the corp. to the extent of their investment. Liable for a breach of contract is a stock subscription agreement was signed and yet no stock was purchased. Liable for watered stock. Can be held personally liable for receiving illegal dividends.

What are the major forms of business organizations in the United States include

Sole Proprietorship, the partnership, the corporation, and the limited liability corporation

Which of the following indicates a partnership?

Two co-owners receive equal shares of profits earned in their unincorporated business

According to the Uniform Partnership Act, a partnership is an association of two or more persons to carry on as co-owners in

a business for profit

Sole Proprietorship

a business organization in which you, as the owner, are in sole control of management and profits.

Shareholder's Direct Suit

a lawsuit filed by a shareholder against the corporation

The partners may agree to terminate an agreement

at any time

According to the Uniform Protection Act, if a partnership is liable

each partner has unlimited personal liability

Statutory Law

ensures that the directors, officers, and shareholders work together to the benefit of all.

When a third party is aware of and consents to a misrepresentation of the partnership, a partnership by

estoppel exists

An additional advantage of the LLC is the

flexibility it offers members in terms of alternative ways to structure its management

Dissolution of a partnership is complete when any partner stops

fulfilling the role of a partner to the business (either by choice or default)

What is usually required for a franchisor to terminate a franchise?

good cause, documented warnings to franchisee, notice to the franchisee

Joint Stock Company

specialized form of business organization is defined as a partnership agreement in which company members hold transferable shares, while all the goods of the company are held in the names of the partners.

During the process of winding-up, the partners must

still fulfill their fiduciary duties to one another and disclose all information about the partnership assets.

Nonprofit corporations do not issue

stocks

Through a tender offer

the aggressor offers target shareholders a price above the current market value of the target corporation's stock

In a cash tender offer,

the aggressor offers to pay cash for the target corporation's stock

In an exchange tender offer,

the aggressor offers to trade the target shareholder's current stock for stock in the aggressor's corporation

When a hostile takeover succeeds,

the target corporations management frequently compares the transition to a full-scale invasion characterized by layoffs and dramatic changes in company policy

In an LLC, each partner has limited liability which is dependent upon the investments he or she makes, while still receiving

the tax breaks often afforded to those in a partnership

In a limited partnership, an additional right of a limited partner is that they often recover

their investment before general partners do

If a corporation is deemed defective,

then shareholders may be personally liable for the corporations actions

A shareholder can transfer their shares in a corporation by

-selling their shares to a new shareholder - giving them to charity, who becomes the new shareholder

Liability for Torts and Crimes (Directors & Officers)

1. Can be held personally responsible for their own torts and crimes and even for those of other employees whom they have failed to adequately supervise. 2. Can be held liable for wrongful transactions involving company stock. 3. Cannot be held liable for decisions that harm the company if they were acting in good faith at the time of the decision

Shareholders Rights

1. to vote 2. to have a stock certificate 3. to dividends, when declared by board 4. to inspect corp records 5. to transfer shares (w/ some exceptions) 6. to an accurate share of corp assets on dissolution 7. to file suit on behalf of corp

Duty of Care (Directors & Officers)

Acts in good faith and in the best interest of the company.

No-Par Shares

Shareholder must pay the fair market value

Which specialized form of business organization is an investment group that comes together for the explicit purpose of financing a specific large project?

Syndicate

In what decade was the Revised Uniform Partnership Act approved?

The 1990's

Which body of law states that partners have the authority to bind a partnership in an agreement?

The Uniform Partnership Act

Directors

The people who have overall responsibility for managing the company's business activities. Decision makers. Ensure the business survives and that they keep their job.

Which of the following is not an implied property right of a partner?

The right to privileges and benefits based on seniority

Which of the following is an accurate statement regarding a partner's right to compensation?

Unless otherwise agreed, no partner will receive a salary for participation in partnership related business activities.

Chain Style Business

a franchise operates under a franchisor's trade name, generally required to follow standardized or prescribed methods of operation

If the partnership agreement does not indicate to the contrary,

all partners share in both profits and losses

Limited Liability Partnership

all the partners assume liability for one partner's professional malpractice, but only to the extent of the partnership's assets.

Limited Partnership

an agreement between at least one general partner and at least one limited partner.

In liquidation

corporate directors convert the corporation's assets into cash and distribute it among the corporation's creditors and shareholders.

A partner has the right to an accounting when any partner fails to disclose a profit or benefit from the partnership, thus breaching his or her

fiduciary duty

unless otherwise agreed, no partner will receive a ____________ for participation in partnership business regardless of the time and effort expended

salary

A written agreement that creates a partnership is called

the articles of partnership

When a merger occurs,

the corporation that is absorbed is known as an absorbed, or disappearing corporation

Unless otherwise agreed, partnership records must be kept at

the firm's principal business office

In an LLC, each member is allowed to participate in

the management of the company

General Partnership

the partners divide the profits and the management responsibilities.

Through a stock purchase

the purchasing corporation gains control of the selling corporation in a corporate takeover

Because shareholders have limited decision-making power,

they have rights that allow them to participate within the corporation

Unless otherwise stated in the partnership agreement, all partners have the right

to participate equally in the profits of the partnership

An example of the implied power that a state gives a corporation is the power

to take whatever actions are necessary to execute express powers

According to the right of survivorship, the rights in specific partnership property pass

to the surviving partner.

Generally shareholders can

transfer their corporate shares as they choose

What are the two types of dissolution?

voluntary and involuntary

Partnership

voluntary association between two or more persons who co-own a business for profit.

Watered Stock

when a corporation issues shares for less than their fair market value

When a partnership adds another partner, the new partner assumes

limited liability for any obligations that occurred before he or she was added

Which of the following terms refers to an aggressor's gradual accumulation of the target company's shares?

Beachhead acquisition

Which of the following is not a major group of individuals within a corporation

Corporate arbitrators

What document dictates the number of members of a board of direction in a corporation?

Corporate bylaws

Who has a duty to disclose any potential conflict of interest

Directors and officers of a corporation

Shareholders are directly responsible for the daily management of the corporation

FALSE

Duty to Disclose Conflict of Interest

Fiduciary duty to fully disclose conflicts of interest that arise in corporate transactions that can benefit a director or officer directly.

In the United States, corporations are protected from

Fourth Amendment unreasonable searches

Which specialized form of business organization exists because of an arrangement between the owner of a trade name or trademark and the person who sells goods or services under the trade name or trademark?

Franchise

Par Value Shares

Shareholder must pay the corp. at least the par value of the stock.

Approximately how many states have adopted the Revised Uniform Partnership Act?

One-half

Shareholders Roles

Owners of the firm by purchase of stocks. Majority shareholder - more than 50% Minority shareholder - less than 50% Equitable interest. Elect the directors and remove them. Meet at least once a year. Proxy can vote for a shareholder.

In which of the following forms of business organizations are owners personally liable for business debts?

Partnership

Duty of Loyalty (Directors & Officers)

Put the corporations interest above their own when making business decisions.

Corp Directors Unique Rights

Right to: 1. Compensation - through management positions in the company or nominal sums as honorariums. 2. Participation - Involved in and understand every aspect of the business 3. Inspection - notified of all meetings and has access to all books and records. 4. Indemnification - can be reimbursed for any legal fees incurred in lawsuits against them.

Officer's Rights

Rights determined in employment contract

Officers Roles

Run the day-to-day business of the organization. Act as agent of the corporation.

Almost all individuals within a corporation have fiduciary responsibilities to the corporation and

can be liable for failing those responsibilities

Although a partner's creditor cannot seize specific items of partnership property, the creditor can obtain ____________ , which entitles the creditor to the partner's profits, while the partner continues to act as a partner and engage in the partnership business.

charging order

Any property brought into or acquired by the partnership is

considered property of the partnership

In a ______________, because the new corporation has independent legal status, the articles of _____________ of the original companies are void

consolidation; incorporation

Like mergers, ________________ legally combine two or more corporations

consolidations

An agreement that states that partners can preserve a partnership business is known as a

continuation agreement

A director of a corporation who also serves as an officer or employee of the corporation is called an

inside director

Cooperative

is a business organization formed by individuals who usually pool their resources to gain an advantage in the market.

Business Trust

is a business organization governed by a group of trustees who operate the organization for the beneficiaries.

Joint Venture

is a relationship between two or more persons or corporations created for a specific business undertaking

Limited Liability Corporation

is an unincorporated form of business organization that combines the most advantageous features of a partnerships and corporations.

When a partner commits a tort or a breach of trust, all partners are

jointly and severally liable

A partnership is often considered a _________________ when it is sued or being sued.

legal entity

Corporation

legal entity formed by selling stock to investors, who then become owners of the company.

If a corporation purchases the assets of another corporation, rather than merging or consolidating with that corporation, it generally does not acquire that corporation's

liabilities

According to the fiduciary duty partners owe each other,

partners must work for the benefit of the partnership and not engage in any action or business that could undermine or compete with the partnership.

An S corporation is a corporation under federal tax law, but is taxed like a

partnership

Implied authority

permits a partner to purchase good necessary to perpetuate the partnership business..

Subscribers are individuals who agree to

purchase stock in a new corporation