Surgent Tax Assessment 3

The partnership agreement for Owen Associates, a general partnership, provided that profits be paid to the partners in the ratio of their financial contribution to the partnership. Moore contributed $10,000, Noon contributed $30,000, and Kale contributed $50,000. For the year ended December 31, 20X1, Owen had losses of $180,000. What amount of the losses should be allocated to Kale? $40,000 $60,000 $90,000 $100,800

$100,800 In the absence of agreement, profits and losses are distributed evenly among the partners. However, if there is an agreement as to the distribution of profits, it is presumed that losses are to be distributed in the same proportion as profits. In this case, Kane was entitled to 5/9 ($50,000 ÷ ($10,000 + $30,000 + $50,000)) of the profits and should therefore be held responsible for 5/9 of the losses. Therefore, Kane's responsibility for the $180,000 losses is 5/9 × $180,000 = 0.56 (rounded) × $180,000 = $100,800.

Reference: 4241.04 There are three types of state laws that regulate securities:

1. Antifraud laws impose sanctions if fraud has been used in the sale of securities. These include civil and criminal penalties as well as the issuance of injunctions to prevent continuation of the fraudulent acts. 2. Registration of dealers and brokers makes it unlawful for dealers and brokers to engage in securities transactions unless they register with the state. 3. Disclosure of information by registration of securities using one of these three methods: (a) Notification: Quick method for companies with a proven record of earnings (b) Qualification: Detailed and time-consuming registration process where state officials judge the merits of the securities (c) Coordination: Accept a copy of the documents filed with the Securities and Exchange Commission (SEC) to meet federal requirements under the Securities Act of 1933.

Reference: 4233.41

A buyer in the ordinary course of business from a merchant seller takes free of any security interest in the property purchased even if it is perfected and the buyer is aware of it. The purpose of this rule is to allow a consumer to buy a merchant's inventory without fear that it could be repossessed by the secured party.

Under the Secured Transaction Article of the U.C.C. (Article 9), which of the following purchasers will own consumer goods free of a perfected security interest in the goods? A consumer who purchases the goods from a consumer purchaser who gave the security interest A merchant who purchases the goods for use in its business A merchant who purchases the goods for resale A consumer who purchases the goods in the ordinary course of business

A consumer who purchases the goods in the ordinary course of business In most cases, a perfected security interest will prevail over the competing interests of all other parties. However, not even a perfected security interest will prevail over someone who purchases goods in the ordinary course of business (regardless of whether it is a consumer or nonconsumer purchaser). The purpose of this rule is to allow the buyer to purchase a merchant's inventory without fear that it could be repossessed by the party holding the secured interest in the inventory.

Contract

A contract is an agreement between two or more persons that establishes an enforceable legal relationship between the parties. The essential elements of a contract are: an agreement (offer and acceptance), consideration, valid subject matter, and legal capacity. A void contract never had any legal status. A voidable contract is valid only until one party exercises a right to void the contract. An unenforceable contract is valid when made but is made unenforceable by some later event, such as the statute of limitations, discharge of the contract in bankruptcy, or involuntary destruction of the subject matter.

Which of the following rights is considered intangible personal property? An easement A contract right Both an easement and a contract right Neither an easement nor a contract right

A contract right A contract right is an intangible asset and is also personal property, so it qualifies as intangible personal property. An easement is an intangible asset since it is a right but has no physical existence. However, it is a right in real property, so it cannot be personal property.

Creditor

A creditor is an entity that is owed money, goods, or services by another entity (debtor) that is due in the future. The debt may be payable on demand or at some fixed or determinable future date. The debt is often evidenced by a legal document but may arise from a stated or implied contract. The debt may bear interest if it extends over time.

Debt

A debt is an obligation to pay money, goods, or services due in the future to another entity (creditor). The debt may be payable on demand or at some fixed or determinable future date. The debt is often evidenced by a legal document (debt security or instrument) but may arise from a stated or implied contract. The debt may bear interest if it extends over time. Debts are claims against the assets of an entity, mortgages to which an asset is subject, or financial obligations for which an owner is liable. The indebtedness can be secured or unsecured, recourse or nonrecourse. To the extent that a partner is liable for the indebtedness, that partner's basis is increased. If the indebtedness is later reduced, that partner's basis is reduced. In governmental accounting, debt is referred to as an obligation, encumbrance, or commitment.

Debtor

A debtor is an entity who owes either money, goods, or services to another entity (creditor) that is due in the future. The debt may be payable on demand or at some fixed or determinable future date. The debt is often evidenced by a legal document but may arise from a stated or implied contract. The debt may bear interest if it extends over time.

Which of the following is not an element of fraud in the inducement? A false representation of a material fact, intentionally made A false representation of a material fact, unintentionally made Any false representation that was justifiably relied upon Any false representation that was justifiably relied upon and resulted in injury

A false representation of a material fact, unintentionally made Fraud in the inducement is a false representation of a material fact intentionally made, justifiably relied upon, and resulting in injury. Fraud in the inducement means no contract. The operative word is "fraud," so a false misrepresentation unintentionally made cannot be an element. If the mistake is innocent, the injured party may rescind the contract but may not seek damages.

General Partnership

A general partnership is an association of two or more persons or entities to carry on as co-owners a business for profit. A general partnership is formed when two or more persons or entities enter into an agreement to carry on a trade or business with a sharing of the profits and losses between the partners. All partners in a general partnership are referred to as general partners. All of the general partners are jointly and severally personally liable for the debts and obligations of the partnership, unlike a limited partnership, where not all partners are personally liable.

Lien

A lien is a creditor's legal right to have a debtor's specified property as security for a debt and to take possession of the property, following prescribed legal procedures if the debt is not paid. Property taxes become a lien under statute against the property that is being taxed. An artisan's lien is a common-law security device whereby a creditor can recover for work done on personal property of the debtor. If the debtor fails to pay for the work performed, the creditor can retain possession of the property and sell it in satisfaction of the lien. (This is a "possessory" lien.) A mechanic's lien arises from the making of improvements to real property. This is a statutory lien controlled by state law whereby the lienholder (creditor) generally is required to file a written notice of the lien within a specific time period. A mortgage lien is a lien securing a note payable that has as collateral real assets.

Partnership

A partnership is an association of two or more persons to carry on as co-owners of a business for profit. Partnerships are governed in the various states of the United States by the Uniform Partnership Act (UPA). A partnership may be general, limited, or joint venture. Characteristics of a partnership include the following: Voluntary association of persons as individuals (the partnership has no separate legal identity under common law, but under the UPA it is now an entity for most purposes) Simple agreement without governmental sanction A fiduciary relationship (mutual agency—each partner is an agent for the others and for the partnership) Co-ownership Mutual agency of partners Joint and several liability A partnership does not pay income tax. It is a pass-through entity, so profits and losses of the partnership pass through to its partners. A partnership does file an informational tax return using IRS Form 1065, U.S. Return of Partnership Income.

Partnership Agreement

A partnership is usually created as a result of an agreement between the prospective partners. This agreement, including any amendments, can be oral or written. Amendments must be made prior to the due date (not including extensions) of the partnership's tax return. If the partnership agreement is silent on any matter, applicable provisions of local law are considered to be part of the agreement.

Security Interest

A security interest is an interest in tangible or intangible personal property or fixtures that secures payment or performance of an obligation. It may be possessory or nonpossessory (i.e., the creditor may or may not hold the property that serves as collateral). Three requisites are (1) agreement between the parties, (2) value has been given, and (3) the debtor has rights in the collateral. (U.C.C. 9-203)

Security

A security, generally, is the evidence of a debt or ownership or related right. Securities can include stock options and warrants in addition to debt (bonds, notes, loans, mortgages) and stock. A security is a share, participation, or other interest in property or in an enterprise of the issuer that: either is represented by an instrument issued in bearer or registered form or, if not represented by an instrument, is registered in books maintained to record transfers by, or on behalf of, the issuer; is of a type commonly dealt in on securities exchanges or markets or, when represented by an instrument, is commonly recognized in any area in which it is issued or dealt in as a medium for investment; and either is one of a class or series or by its terms is divisible into a class or series of shares, participations, interests, or obligations. FASB ASC Glossary

Which of the following statements is correct regarding the declaration of a stock dividend by a corporation having only one class of par value stock? A stock dividend has the same legal and practical significance as a stock split. A stock dividend is a corporation's ratable distribution of additional shares of stock to its stockholders. A stock dividend increases a stockholder's proportionate share of corporate ownership. A stock dividend causes a decrease in the assets of the corporation.

A stock dividend is a corporation's ratable distribution of additional shares of stock to its stockholders. Stock dividends are dividends that are paid out in the form of additional stock shares of the company, as opposed to cash. The shares are distributed to the current shareholders in proportion to the shares owned. For example, if a shareholder holds 100 shares when a 3% stock dividend is paid out, then that shareholder will receive 3 additional shares (100 shares × .03 = 3 shares).

Stock Split

A stock split is a proportional change in the number of shares authorized, issued, and outstanding. The proportionate ownership of the stockholders is maintained as well as the economic value. For example, if 10,000 shares are authorized and 8,000 issued and outstanding before a 2-to-1 split, 20,000 shares will be authorized and 16,000 issued and outstanding after the split.

Stockholder

A stockholder is the owner of a share of the corporation's common or preferred stock.

Question #102198 SEC Rule 10b-5 goes to the liability of a person who commits fraud with the purchase or sale of any security. Which of the following is not one of the terms of Rule 10b-5? A. Negligence is enough for purposes of Rule 10b-5. B. Only actual purchasers or sellers of the security can recover. C. Scienter (actual misconduct) is necessary. D. To recover, the purchaser or seller must have relied on the false statement and must not have known it was false.

A. Negligence is enough for purposes of Rule 10b-5. Rule 10b-5 of the Securities and Exchange Commission (SEC) imposes a liability on any person who commits fraud (an intentional misrepresentation or omission of a material fact) in connection with the purchase or sale of any security. Scienter is intentional misconduct; intent to deceive, manipulate, or defraud and is required for an SEC Rule 10b-5 violation (negligence is not enough).

Agency

Agency is a consensual fiduciary relationship in which one party (the agent) agrees to act for and under the control of another (the principal). This relationship may be one of employment (master-servant) or of authority (principal-nonservant/agent, e.g., bank manager); independent contractors (e.g., CPAs and lawyers) do not act in an agent capacity (due to lack of control by the principal over the contractor). "Control" relates to control of the physical conduct of the agent and includes the RIGHT or ability to control, as well as actual control or supervision. Types of agency: Express agency: created by written contract or oral appointment, e.g., power of attorney; Implied agency: created by acts or deduced from circumstances showing the intention to create the relationship; Agency by ratification: approval after the fact of an unauthorized act done by the agent; Agency by estoppel: created by operation of law; prevents denial of the existence of agency by the principal when a third party relies on circumstances which reasonably lead to the conclusion that an agency exists; Apparent agency: based on manifestations by the principal to third parties (reliance is not necessary).

Which of the following statements best describes the Foreign Corrupt Practices Act of 1977? All of the answer choices are correct. It is unlawful to bribe foreign officials to use their influence to aid a U.S. business. A fine up to $2,000,000 for the company and $100,000 and up to 5 years in prison for officers, directors, stockholders, employees, or agents of the U.S. organization may be imposed.

All of the answer choices are correct. The Foreign Corrupt Practices Act of 1977 (FCPA) is an amendment to the Securities Exchange Act of 1934 and requires issuers of registered securities and issuers who are required to file reports with the SEC (Securities and Exchange Commission) to keep records and have a system of internal controls. These requirements apply not only to foreign business transactions but also to domestic activities. Under the FCPA, it is unlawful for issuers or domestic businesses or their officers, directors, employees, agents, or shareholders to use interstate or foreign commerce (mail, phones, etc.) to offer or give anything of value (money) to a foreign official, foreign political party, or foreign political candidate for the purpose of influencing action or inducing those persons to use their influence in their official capacity to obtain or retain business for the organization.

Agent

An agent has general or specific authority, as determined by the principal, to bind the principal as regards third parties (i.e., an agent works for and under the control of another (the principal) and has the power to impose liability to third parties on the principal). However, a "general agent" is not an independent contractor, trustee, or employee (servant). Duties of an agent include acting with loyalty and good faith ("fiduciary" relationship); obedience; necessary skill, care, and diligence; not to make delegation or substitution; and duty to account. An agent is generally not personally liable to third parties unless the agent does any of the following: Acts for a nonexistent, incompetent, or undisclosed principal Signs a negotiable instrument in his own name Misrepresents his authority Personally guarantees certain acts Agents are liable for their own torts.

Reference: 4222.41 Assignment of contracts

An assignment involves a transfer by one party to a contract of some or all of the rights to another person who is not a party to the original contract. Agreement or consent of the nonassigning party is not needed unless the contract requires consent. In mega-leases, there is often a consent clause. Assignor: Transferor. The party that transfers the rights. Assignee: Transferee. The party that gets the rights from the transfer. No special language is necessary to make an assignment. May be a total transfer or partial transfer of the contract by the assignor. No consideration is necessary. The assignment may be part of another contract or it may be gratuitous. When a right is assigned, the assignor normally no longer has any interest in the right.

Assignment

An assignment is a transfer by one party (the transferor, obligee, or assignor) to a contract of some or all of the rights under a contract, or of property interest, to another person who is not a party to the contract (the assignee). The assignee can receive no greater rights than those possessed by the assignor. No consideration is required—the transfer may be part of another contract or gratuitous. (Also said of partnership rights; contrast to delegation.) Rights are assignable unless: personal service, credit, or trust is involved. the assignment would materially vary the duty or risk agreed to by the obligor (the person obligated to perform under the contract). the assignment is prohibited by the contract or by statute. The Uniform Commercial Code (U.C.C.) liberalizes the assignment of rights (especially the right to receive money) under contracts governed by the U.C.C.; however, under U.C.C. 2-210, 9-301, the assignee must file a financing statement ("perfect the assignment") to protect the interest in the assigned rights. Between assignees to the same right, the first to file will prevail. Assignment for the benefit of creditors is a way for the debtor to deal with financial failure other than declaring bankruptcy. The debtor voluntarily transfers specified property to a trustee who pays the creditors. Creditors do not have to consent and assignment does not legally discharge the debtor from his debt obligations. (Contrast to receivership and bankruptcy.)

Estate

An estate is a taxable, organizational entity used to wind up the affairs and distribute the property of a deceased person. It comes into existence only upon a person's death, holds title to the property of the deceased, and exists for a limited time. An estate succeeds to the title of property of the deceased and is liable for debts. It must pay federal estate tax, applicable state inheritance tax, federal income tax, and any other tax that becomes due on the real and personal property of the estate. (Contrast to Trust.) Administration of the estate is handled by an executor or executrix (if so named in the will and empowered by the court) or a court-appointed administrator (if executor or executrix is not named in the will). Estate property does not include the following: Life insurance on the deceased paid to the named beneficiary Property placed in an inter vivos trust Property that was given away when the deceased was living The assets of a bankrupt debtor are also called an estate. With respect to property held in joint tenancy: If an interest in property created after 1976 is held by a decedent and his spouse as tenants by the entireties or as joint tenants with right of survivorship (if the decedent and his spouse are the only joint tenants), one-half of the value of the jointly owned interest will be included in the estate of the decedent spouse regardless of which spouse furnished the original consideration (IRC Section 2040(b)). The unlimited marital deduction may apply if the surviving tenant is the surviving spouse. Joint ownership created by co-owners: Except for husband-wife tenancies, the entire value of the property is included in the co-owner's gross estate except the part, if any, attributable to the consideration in money or money's worth furnished by the other joint owner(s). Tenancy in common: Only the value of decedent's undivided share of the property is included in his or her gross estate.

Executor

An executor, or executrix if referring to a female, is a person named in the will and empowered by the court to administer the decedent's estate, to act for the estate, and to carry out the terms of the will. An executor is empowered to marshal the assets and pay the debts of the estate, and distribute the remaining assets as specified in the will. In addition, an executor is empowered to sell assets to pay debts. There is a fiduciary relationship between the executor and the estate. An executor has certain powers, duties, and liabilities, which are identical to those of administrators.

Offer

An offer is a proposal made by the offeror, stated in reasonably specific terms, which manifests intent to be bound. It is distinguished from invitations to bid or preliminary negotiations. An offer may be either oral or written. An offer must be reasonably definite and certain as to what is agreed upon. The essential terms are parties, price, subject matter (quantity and type), and time for performance. The standard used to judge an offer is an objective one—would a reasonable person believe that an offer was made? (U.C.C. "gap fillers" (U.C.C. 2-204) will provide terms for elements which are absent, except quantity. The contract will not fail for indefiniteness.) Ads, price lists, quotes, bids, and inquiries such as "What will you give me...?" or "Would you take $___?" are not an offer but an invitation to trade or a proposal to negotiate. An offer may terminate due to revocation by the offeror before acceptance, rejection by the offeree, lapse of time, or by operation of law.

Question #100508 Integral Corp. has assets in excess of $10 million, has 650 stockholders, and has issued common and preferred stock. Integral is subject to the reporting provisions of the Securities Exchange Act of 1934. For its 20X1 fiscal year, Integral filed the following with the SEC: quarterly reports, an annual report, and a periodic report listing newly appointed officers of the corporation. Integral did not notify the SEC of stockholder "short swing" profits, did not report that a competitor made a tender offer to Integral's stockholders, and did not report changes in the price of its stock as sold on the New York Stock Exchange. Under SEC reporting requirements, which of the following was Integral required to do? A. Report the changes in the market price of its stock. B. File the periodic report listing newly appointed officers. C. Report the tender offer to the SEC. D.Notify the SEC of stockholder "short swing" profits.

B. File the periodic report listing newly appointed officers. Under SEC reporting requirements, the company is required to file the periodic report listing newly appointed officers. Under the Williams Act, which amended the Securities Exchange Act of 1934, it is the company that is making the tender offer that is required to file with the SEC and not the target company. "Short swing" transactions are illegal. It is the insider who bears the liability for failure to comply with the "short swing" rules under the Securities Exchange Act of 1934. The prices of stock traded on the New York Stock Exchange are a matter of public record—you only have to pick up a copy of the Wall Street Journal or most local newspapers. There is no reporting requirement by companies to report changes in their stock prices.

Bankruptcy

Bankruptcy is the condition of being judged insolvent by the court and having property distributed to creditors when a debtor is unable to meet debts. The uniform bankruptcy provisions are governed by the Bankruptcy Reform Act of 2005. The purpose of the Act is to provide relief to an insolvent debtor from his or her debts (to provide a "fresh start") and to give all creditors an equal chance to share in the assets of the debtor in a specified priority and according to their claims. A person can become bankrupt involuntarily or voluntarily. He or she can also undertake a reorganization or liquidation to pay his or her debts. Chapter 7 of the Bankruptcy Act concerns liquidation of the business or the assets of the individual. An interim trustee is appointed by the court with broad powers to make management changes, obtain financing, and operate the business. Chapter 11 concerns corporate reorganization, but may be used by individuals. Unless the court rules differently, the officers of the corporation continue to operate the business and propose plans to pay off the debts. However, the court must approve such plans. Bankruptcy proceedings involve many parties: the debtor, the bankruptcy court judge, the trustee, secured creditors, general creditors, the creditors committee, and supporting professionals (e.g., accountants and attorneys).

Breach of Contract

Breach of contract is the failure of a party to a contract to perform as intended by the contract. Only a party to a contract (i.e., in privity) can bring suit for breach. Breach of Contract under Common Law: Repudiation of the contract, impossibility of performance created by one party (either before or in the course of performance), violation of the terms of the contract, failure to perform, and tortious interference with the contract (inducing a party to the contract who violates its terms making the third-party inducer liable to the damaged party) are examples of breach of contract under common law. Discharge of the right of action arising from breach may be achieved by agreement of the parties, accord and satisfaction, cure, and/or arbitration. Remedies for breach include suit for damages (compensatory) and specific performance. Examples of breach of contract under the U.C.C. (Uniform Commercial Code): Failure to deliver, delivery of nonconforming goods without cure, or breach of warranty by the seller Wrongful rejection or revocation of acceptance of conforming goods or failure to make a payment due by the buyer

Prospectus

Broadly speaking, a prospectus is any notice, circular, advertisement, or communication that offers any security for sale; a selling circular. Liability can result from a false or misleading prospectus. It is usually associated with a publicly traded security.

Park and Graham entered into a written partnership agreement to operate a retail store. Their agreement was silent as to the duration of the partnership. Park wishes to dissolve the partnership. Which of the following statements is correct? A. Park may dissolve the partnership only after notice of the proposed dissolution is given to all partnership creditors. B. Park may not dissolve the partnership unless Graham consents. C. Park may dissolve the partnership at any time. D. Unless Graham consents to a dissolution, Park must apply to a court and obtain a decree ordering the dissolution.

C . Park may dissolve the partnership at any time. A partnership which is for no specific term may be terminated by any partner at any time. This is done merely by the partner indicating his or her intent to withdraw. The other partners need not consent to this action.

On August 1, Neptune Fisheries contracted in writing with West Markets to deliver to West 3,000 pounds of lobsters at $4.00 a pound. Delivery of the lobsters was due October 1 with payments due November 1. On August 4, Neptune entered into a contract with Deep Sea Lobster Farms that provided as follows: "Neptune Fisheries assigns all the rights under the contract with West Markets dated August 1 to Deep Sea Lobster Farms." The best interpretation of the August 4 contract would be that it was: A. only a delegation of duties by Neptune. B. an assignment of rights and a delegation of duties by Neptune. C.an unenforceable third-party beneficiary contract. D.only an assignment of rights by Neptune.

C. an assignment of rights and a delegation of duties by Neptune. An assignment of a contract is generally interpreted as both an assignment of right and a delegation of duties. A (only an assignment of rights by Neptune) and B (only a delegation of duties by Neptune) are incorrect since each only includes half of the answer. U.C.C. Article 2 Sales (2002), Part 2, Form, Formation, and Readjustment of Contract: "(4) An assignment of 'the contract' or of 'all my rights under the contract' or an assignment in similar general terms is an assignment of rights and unless the language or the circumstances (as in an assignment for security) indicate the contrary, it is a delegation of performance of the duties of the assignor and its acceptance by the assignee constitutes a promise by him to perform those duties. This promise is enforceable by either the assignor or the other party to the original contract."

Collateral

Collateral Collateral is the property that a person can give and in which another can take a security interest or property subject to a security interest. Many of the rules regarding collateral depend on the type of property involved. There are three categories and 10 classes of collateral: Tangible Consumer goods are goods purchased primarily for personal, household, or family use or consumption (e.g., a home refrigerator). Equipment is considered goods used or purchased primarily for a business (including farming and professional), goods used by a debtor that is a nonprofit organization or a governmental unit, or goods not included in the definitions of inventory, farm products, or consumer goods (e.g., a refrigerator used by a restaurant). Farm products are considered goods, such as crops, livestock, or supplies, used or produced in a farming operation (e.g., a refrigerator used by a dairy farmer). Inventory is considered finished goods held for sale or lease in the ordinary course of business, raw materials, work in process, or materials used or consumed in a business (e.g., a refrigerator held for sale by an appliance store). U.C.C. 9-109 Intangible Accounts are any rights to payment for goods sold or leased or for services rendered that are not evidenced by an instrument or chattel paper (e.g., accounts receivable). (The U.C.C. also governs the sale of accounts in Article 2.) Contract rights are any rights to payment under a contract not yet earned by performance or evidenced by an instrument or chattel paper. An example of a contract right is an assignment of royalties under patents or copyrights. General intangibles are any personal property (including things in action) other than goods, accounts, instruments, documents, chattel paper, or money. Patents, copyrights, right to performance from someone else, and trademarks would be considered under a residual definition. (The U.C.C. does not cover the sale of general intangibles, only their use as collateral for a loan.) U.C.C. 9-106 Documentary (quasi-intangible personal property represented by paper) Instrument: A negotiable instrument is as defined in Article 3 (commercial paper), a security (e.g., stocks, bonds, certificates of deposit, and notes), or a signed, unconditional promise or order to pay a sum certain, at a definite time, to the order of or to the bearer (U.C.C. 3-104). Documents are documents of title (bill of lading, dock warrant, warehouse receipt, etc.) issued by or addressed to a bailee (keeper of goods) and giving instructions concerning the goods in the bailee's possession (U.C.C. 1-201). Chattel paper is writing that evidences both a promise to pay and a security interest in, or a lease of, specific goods. For example, a security agreement is considered chattel paper (U.C.C. 9-105). Classes of collateral are mutually exclusive. A given item cannot be in more than one class at the same time with respect to the same debtor, but the same item can be in different classes to different debtors or at different times to the same debtor. Classification is based on the principal use to which the item is put by the owner or debtor.

Reference: 4241.66

Companies having securities subject to the disclosure requirements of the Securities Exchange Act of 1934 are subject to the other regulations under the 1934 act. These other regulations include proxy solicitation, tender offers, and short-swing profits.

Reference: 4223.11 Performance of the contract

Complete performance (1) Discharges the contract (2) Must be exactly as agreed b. Substantial performance (1) Slightly less than complete performance where there is technically a breach, but it is not material (2) Allows the person to recover the contract price less the amount needed to complete the contract (3) Usually applies to construction contracts where it is an oversight rather than intentional c. Partial performance (1) Less than substantial performance (2) Allows the person to recover only by a quasi-contract (contract implied in law) for the value of the services rendered. A quasi-contract is imposed only when unjust enrichment would result.

Reference: 4241.02

Compliance with both sets of laws governing the securities transaction is necessary.

Question #100629 Unless otherwise provided in a general partnership agreement, which of the following statements is correct when a partner dies? A. The deceased partner's executor would automatically become a partner, the deceased partner's estate would be free from any partnership liabilities, and the partnership would be dissolved automatically. B. The deceased partner's executor would automatically become a partner. C. The deceased partner's estate would be free from any partnership liabilities. D. The partnership would be dissolved automatically.

D. The partnership would be dissolved automatically. The death of any partner automatically dissolves the partnership, unless there is an agreement to the contrary in the partnership contract. Upon such death, the estate would be entitled to the deceased partner's interest in (portion of) the partnership, subject to any outstanding partnership liabilities. The executor or any other representative of the deceased partner does not automatically become a partner.

Question #101972 Able authorized Brown to enter contracts with third parties on Able's behalf. In which of the following situations must Able provide notice to these third parties to effectively terminate Brown's authority? A. When it has become impossible for Brown to lawfully perform Brown's duties B. When Brown has been declared insane by a court of law C. When war has broken out between Able's country and Brown's country D. When Able has revoked Brown's authority

D. When Able has revoked Brown's authority An agency is a fiduciary relationship between two persons where one person (the agent) acts for the benefit and under the control of the other person (the principal) and has the power to affect the legal relationships of the principal. The agent works for the benefit and under the control of the principal and has the right to represent the principal and make contracts with third parties on behalf of the principal. The principal can revoke the authority of the agent but can still be liable on the agency relationship because the agent may still have apparent authority from the view of third parties with whom the agent has previously dealt. Generally, the principal should give personal notice of termination of the agency to any third party who has dealt with the agent. This would eliminate any problems with the principal being bound to contracts entered by the former agent under the doctrine of apparent authority.

Reference: 4232.08

Debtors under Chapter 7 are not eligible for bankruptcy relief. These organizations are covered by special statutes, and their liquidations are supervised by certain regulatory agencies.

Delegation

Delegation is the transfer of duties under a contract from the obligor to another party. Delegation does not free the delegating party from liability. Delegation is not anticipatory breach—performance by the delegatee has the same legal effect as performance by the original obligor. Duties are delegable if the performance is standardized and nonpersonal so that it is not important who performs. Performance dependent upon personal services, credit, trust, or confidence cannot be delegated. (Contrast to assignment.)

Reference: 4252.17 Dividends

Dividends are declared by the board of directors. b. They may be paid in cash, property, or shares of the corporation. c. They cannot be declared if the dividend would make the corporation insolvent. d. Cash and property dividends are paid out of unreserved and unrestricted earned surplus (retained earnings). Some states allow payment out of net earnings of the current year and the previous year taken together, even if there is a negative earned surplus.

Reference: 4412.10 Dividends of cash or property:

Dividends are distributions of cash or property from corporations to their shareholders. Generally, dividends are taxable when received. However, some distributions may be tax free, depending on a calculation of earnings and profits (E&P) by the distributing corporation. Federal law requires a corporation to inform the shareholder as to taxable and nontaxable amounts. b. For individuals in 2020 there is a 0% tax on dividends when taxable income is $40,000 or less, a 15% rate for individuals up to $441,550, and a rate of 20% for individuals above that amount. For joint filers, those amounts are $80,000 and $496,600; for heads of household, the amounts are $53,600 and $469,050. c. For individuals there is an additional 3.8% Medicare contribution tax on the lesser of net investment income or the modified adjusted gross income (MAGI) for the year over a threshold amount. The threshold amount for 2020 is $250,000 for joint returns, $125,000 for married filing separate returns, and $200,000 for other filing status. d. If the taxpayer has a choice of stock or cash: (1) Any cash received is income. (2) Any stock received is income to the extent of the fair market value of the stock on the date received. (a) The basis of the new stock is also the fair market value of the stock. (b) The holding period for the new stock begins on the date the dividend is received. e. Stock dividends that do not result in a disproportionate distribution are not considered income. Likewise, stock splits do not produce income for the shareholders. (1) The basis of original shares must be allocated between the new and the original shares. (2) The holding period of the acquired stock is the same as that of the old stock. f. Any distribution of stock or stock rights made to preferred shareholders is taxable as a dividend. (1) The fair market value of the property received constitutes income and establishes the basis of that property. (2) The holding period for this property begins at the date of receipt. g. Property received as a dividend is income. (1) The fair market value of the property on the date of distribution constitutes income. (2) The basis of the property is also equal to the fair market value. (3) The holding period of the property acquired begins on the date the property is received. h. Amounts received in a partial or complete liquidation are treated as follows: (1) A return of capital until the taxpayer's investment is recovered (2) A capital gain on amounts received after the taxpayer's investment is recovered

Duressn

Duress is a wrongful act that compels contractual agreement through fear. It is the actual or threatened causing of an action or inaction, e.g., threat of bodily harm, property damage, or criminal prosecution, which forces the other party to enter into the contract against his free will and judgment. A contract made under duress is voidable at the option of the victim due to invalid consent. It is based on fact and circumstance, and is subjective (what the injured party thinks). Factors to be considered include the age, sex, experience, intelligence, and relation of the parties.

Reference: 4221.50 Definitions

Fact: It is not an opinion or a prediction of what will happen in the future. An opinion by an expert may be considered a fact. A fact is something that can reasonably be subject to exact knowledge. b. Material: It must be related to something of substance and must be important. c. Intentionally: Known by the speaker to be false. d. Justifiably: No better information available. If the party knows the statement is false, or could easily and should reasonably have checked the statement, the reliance is not justifiable. e. Injury: Some damages result from the wrong.

Reference: 4221.49

Fraud in the inducement is a false representation of a material fact intentionally made, justifiably relied upon, and resulting in injury.

Fraud in the Inducement

Fraud in the inducement is false representation or failure to disclose of a material fact knowingly made or omitted, justifiably relied upon in the making of the contract, and resulting in injury. It is antecedent fraud that occurs during the negotiation, precedes the making of the contract, and induced the other party to enter into the contract, and may be in the form of an act, an omission, a concealment, or a nondisclosure. A contract signed under fraud in the inducement is voidable at the option of the defrauded party. It is less serious than fraud in the execution and applies to common law and commercial paper only. (It does not apply to securities fraud.)

Fraud

Fraud is the intentional misrepresentation or failure to disclose a material fact or facts that results in injury or loss to someone relying on it. Elements necessary to prove fraud include the following: A material (significant) misrepresentation or omission of fact Knowledge of the falsity (scienter) Intent that the misrepresentation be relied on Actual reliance by another party Resultant damage suffered as a result of reliance Research shows that there are usually three conditions present when fraud occurs: A situational pressure (a nonshareable financial need) A perceived opportunity to commit and conceal the dishonest act (viewed as a way to secretly resolve the nonshareable pressure) Some aspect of the individual's personal integrity that allows him to rationalize his dishonest behavior

Reference: 4221.51

Fraud may be an act, an omission, a concealment, or a nondisclosure.

Question #101628 Martin wrote Dall and offered to sell Dall a building for $200,000. The offer stated it would expire 30 days from April 1. Martin changed his mind and does not wish to be bound by his offer. If a legal dispute arises between the parties regarding whether there has been a valid acceptance of the offer, which one of the following is correct? A. The offer will not expire before the 30 days even if Martin sells the property to a third person and notifies Dall. B. If Dall phoned Martin on May 3, and unequivocally accepted the offer, a contract would be created, provided that Dall had no notice of withdrawal of the offer C. If Dall categorically rejects the offer on April 10, Dall cannot validly accept within the remaining stated period of time. D. The offer cannot be legally withdrawn for the stated period of time.

If Dall categorically rejects the offer on April 10, Dall cannot validly accept within the remaining stated period of time. To create a contract, the offer must be accepted before a termination of the contract. The lapse of the time stated in the offer would be a termination, so an acceptance on May 3 is not valid because it is after the time lapsed. A sale of the property to another entity would be a termination. Once an offer is rejected by the offeree, acceptance is no longer possible.

Reference: 4221.53

If the misrepresentation is innocent and not made with the intent to deceive, the injured party may rescind the contract, but cannot obtain damages for the tort of deceit. Deceit is the tort equivalent to fraud in the inducement for contracts.

Internal Control

Internal controls are the policies and procedures established by management to provide reasonable assurance that its objectives will be achieved. These policies and procedures are categorized several ways: Accounting controls Administrative controls (management controls) Formal policies and directives such as board of director's resolutions, office manuals, and written instructions Informal policies and procedures such as oral directions from a supervisor Implicit policies and procedures such as unwritten and unspoken operating habits and standards According to COSO (the Committee of Sponsoring Organizations of the Treadway Commission) in the research study Internal Control—Integrated Framework: "Internal control is a process, effected by an entity's board of directors, management and other personnel, which is designed to provide reasonable assurance regarding the achievement of objectives in one or more categories: "Effectiveness and efficiency of operations "Reliability of financial information "Compliance with applicable laws and regulations "Internal control consists of five interrelated components. These are derived from the way management runs a business, and are integrated into the management process. The components are: "Control Environment "Risk Assessment "Control Activities "Information and Communication "Monitoring Activities"

Preferred Stock

Is ownership interest (class of stock) that carries preferences or specified priorities when compared to common stock; it is usually nonvoting and senior to common stock in dividend and liquidation preference and participation rights (to specified limits). It has characteristics of both debt and equity and may have other features, such as convertibility to other securities, call features, and redemption. Preferred stock is a "security." While preferred stockholders generally must be paid before common stockholders, preferred stockholders are paid after creditors. Dividend preference is usually expressed as a percentage of the par value of the preferred stock but may also be expressed as a specific dollar amount per share. Preference may be cumulative or noncumulative, as well as participating, nonparticipating, or partially participating (where it is participating along with common stock in the receipt of dividends in excess of the stated preferred dividend).

Common Stock

Is ownership interest that is subordinate to all other classes of stock (and to all creditors) of the issuing corporation in participation rights and in dividend and liquidation preferences (i.e., holders of common stock are paid after debt and preferred stock obligations have been met). Common stock is also known as residual ownership interest and usually carries voting rights (at stockholders' meetings), although some classes of common stock may be nonvoting. Common stock is often called common shares.

Form 10-K

Is the annual report required to be filed with the Securities and Exchange Commission (SEC) by all publicly traded companies. It provides a comprehensive report of a company's business and financial condition, including audited financial statements.

Which of the following transactions correctly illustrates the doctrine of substantial performance? Blair ordered a dozen blue chairs from Kyle, but Kyle delivered a dozen red chairs. A contract required hair styling to be done to Toby's satisfaction, but Toby was, in good faith, dissatisfied with the completed result. A dentist competently completed the extraction of Lee's tooth but mistakenly pulled the wrong one. Leslie painted an entire room but failed to put the electrical outlet covers back on.

Leslie painted an entire room but failed to put the electrical outlet covers back on. Substantial performance occurs when a party completes slightly less than required by the contract, but the technical breach is immaterial. Substantial performance implies an oversight that can be easily corrected, rather than an intentional, harmful breach. Leslie was contracted to paint an entire room and did so; failing to put the electrical outlets back on can be easily fixed. Kyle was contracted to deliver blue chairs but instead delivered red chairs; the difference in colors is materially significant and not easily remedied. A hairdresser failed to style Toby's hair to Toby's satisfaction; the hairdresser's failure is a significant breach of the underlying purpose of the contract. A dentist pulled the wrong tooth; this disastrous result is significant and cannot be remedied.

Reference: 4241.68 Rule 10b-5

Liability is imposed on any person who commits fraud (an intentional misrepresentation or omission of a material fact) in connection with the purchase or sale of any security. a. Scienter is required for liability. Negligence is not enough. b. Only actual purchasers or sellers of the security can recover. Those who failed to purchase cannot recover lost profits. c. To recover, the purchaser or seller must have relied upon the false statement and must not have known that the statement was false. d. Rule 10b-5 applies to officers, directors, majority shareholders, tippees, or anyone else who receives important nonpublic information that affects securities trading. e. Examples of material facts could include the following: (1) Change in dividends (2) New product (3) New process (4) Change in company's financial condition (5) Discovery of mineral or petroleum reserves f. The rule applies to any trading of securities: (1) through a stock exchange, (2) over-the-counter, or (3) by private sale between the buyer and seller. g. The rule applies to all types of securities and could include the following: (1) Stocks (2) Bonds (3) Participation in a profit-sharing agreement h. The securities can be registered under either the Securities Act of 1933 or Securities Exchange Act of 1934, or unregistered. i. The sale of the securities must involve interstate commerce. (Use of mail or national exchanges is considered interstate commerce even if the state line is not crossed.) j. There are no securities and no transactions exempt from SEC Rule 10b-5. k. It is not necessary that the buyer and seller of the securities deal directly with each other. There will be liability even if trading is done through the computerized system of a stock exchange. l. The person who buys or sells securities in a transaction with the wrongdoer can recover damages. To recover damages, four factors must exist: (1) Existence of a material omission or misrepresentation made in connection with the sale of securities (2) Intent by the defendant, not mere negligence (3) Reliance and due diligence by the plaintiff (4) Damages m. SEC Rule 10b-5 can apply to misstatements, mismanagement, and insider trading. n. The rule imposes liability for misstatements. These misstatements could be from any company document, press release, report, or public statement by a company representative. Misstatements could include the following: (1) Misinformation about future prospects of the company (2) Overly optimistic statements by company representatives (3) Releasing unfounded pessimistic information o. The rule imposes liability for mismanagement that reduces the value of securities held by investors. Mismanagement could include the following: (1) Unjustified merger (2) Transaction by a company in its own securities (3) Abusing minority shareholder rights (4) Any corporate management action that would reduce the value of securities of the corporation

Par Value

Par value is the per-share value of capital stock fixed by the articles of incorporation or legal capital. Par value is the amount of capital that must be retained in the corporation. It is the value at which each share of stock is recorded in the capital stock section of stockholders' equity. Par value is changed by a stock split.

Perfect

Perfection is an additional act (after attachment) that may be required to make a security interest effective against third parties. It is a security interest that cannot be defeated in insolvency proceedings or in general by other creditors. The requirements of perfection depend on (1) the nature of the collateral, (2) the use of the collateral, and (3) the relationship between the debtor and the secured party. There are three methods of perfection, each used under different circumstances: Perfection by Attachment Alone—A purchase-money security interest (PMSI) in consumer goods is perfected by attachment alone, with no further steps necessary. The goods must be other than fixtures or a motor vehicle (car, boat, or airplane). It is good against the debtor, against creditors of the debtor, and against the trustee in bankruptcy. It is not good against a bona fide purchaser for value of the collateral from the debtor. (Filing would be required.) Perfection by Possession—(from common law, preserved by the Uniform Commercial Code (U.C.C.)) filing is not required if the creditor has possession of the collateral; always used when financial instruments (stocks, bonds, chattel paper, other documents) are used as collateral. (The creditor must take possession of negotiable instruments because if the instrument is negotiated the holder in due course would prevail over the secured creditor!) Possession of goods also perfects the security interest in the goods; however, possession impairs the use of the goods by the debtor and is usually not practical. Perfection by Filing a Financing Statement—giving public notice to third parties of the creditor's security interest in the collateral by written notice (financing statement) filed in public records. Filing must be in accordance with state law; filing is ineffective if improper or filed in the wrong place. Filing is effective for five years. U.C.C. 9-302

SEC Rule 10b-5

SEC Rule 10b-5 is a rule promulgated by the Securities and Exchange Commission (SEC) to augment Section 10(b) of the Securities Exchange Act of 1934 to strengthen the antifraud provisions of that act.

Reference: 4241.45

SEC examination: The SEC has 20 days to examine the registration statement. In actual practice, the time can be much longer since the SEC can require an amendment that will require a new 20-day waiting period. The SEC cannot rule on the merits of the issue, but it can compel complete disclosure of information.

Under Chapter 11 of the Federal Bankruptcy Code, which of the following would not be eligible for reorganization? CPA professional corporation Advertising partnership Savings and loan corporation Retail sole proprietorship

Savings and loan corporation A lending institution is not eligible to file for bankruptcy under Chapter 11. Chapter 11 bankruptcies apply to businesses. Consequently, a lending institution such as a savings and loan corporation would not be eligible to file under Chapter 11.

Reference: 4241.68 Rule 10b-5. Liability is imposed on any person who commits fraud (an intentional misrepresentation or omission of a material fact) in connection with the purchase or sale of any security

Scienter is required for liability. Negligence is not enough. b. Only actual purchasers or sellers of the security can recover. Those who failed to purchase cannot recover lost profits. c. To recover, the purchaser or seller must have relied upon the false statement and must not have known that the statement was false. d. Rule 10b-5 applies to officers, directors, majority shareholders, tippees, or anyone else who receives important nonpublic information that affects securities trading. e. Examples of material facts could include the following: (1) Change in dividends (2) New product (3) New process (4) Change in company's financial condition (5) Discovery of mineral or petroleum reserves f. The rule applies to any trading of securities: (1) through a stock exchange, (2) over-the-counter, or (3) by private sale between the buyer and seller. g. The rule applies to all types of securities and could include the following: (1) Stocks (2) Bonds (3) Participation in a profit-sharing agreement h. The securities can be registered under either the Securities Act of 1933 or Securities Exchange Act of 1934, or unregistered. i. The sale of the securities must involve interstate commerce. (Use of mail or national exchanges is considered interstate commerce even if the state line is not crossed.) j. There are no securities and no transactions exempt from SEC Rule 10b-5. k. It is not necessary that the buyer and seller of the securities deal directly with each other. There will be liability even if trading is done through the computerized system of a stock exchange. l. The person who buys or sells securities in a transaction with the wrongdoer can recover damages. To recover damages, four factors must exist: (1) Existence of a material omission or misrepresentation made in connection with the sale of securities (2) Intent by the defendant, not mere negligence (3) Reliance and due diligence by the plaintiff (4) Damages m. SEC Rule 10b-5 can apply to misstatements, mismanagement, and insider trading. n. The rule imposes liability for misstatements. These misstatements could be from any company document, press release, report, or public statement by a company representative. Misstatements could include the following: (1) Misinformation about future prospects of the company (2) Overly optimistic statements by company representatives (3) Releasing unfounded pessimistic information o. The rule imposes liability for mismanagement that reduces the value of securities held by investors. Mismanagement could include the following: (1) Unjustified merger (2) Transaction by a company in its own securities (3) Abusing minority shareholder rights (4) Any corporate management action that would reduce the value of securities of the corporation

Reference: 4241.01

Securities transactions can be subject to state law as well as federal law.

Reference: 4221.52

Silence alone is not fraud unless there is a duty to speak based on the relationship between the parties.

Stock Dividend

Stock dividends are distributions of the corporation's own stock (treasury or newly issued shares) to stockholders in proportion to the number of outstanding shares held. They do not change the par value per share or the shareholder's proportional interest in the corporation, but they do increase the number of shares issued and outstanding. A stock dividend does not change assets, liabilities, or total stockholders' equity. It merely transfers amounts between equity accounts. Accounting for dividends represents a disbursement (credit) to the capital stock account(s) and a reduction (debit) to Retained Earnings. Stock dividends are revocable up until the date of issuance (distribution) and may involve some special accounting issues. FASB ASC 505-20-20 Stock dividends are used in calculating the weighted-average number of shares outstanding for EPS (earnings per share) computations and are given retroactive treatment "as if" the shares had been outstanding for the entire period. Stock dividends represent return on investment to shareholders.

Suretyship

Suretyship is the legal relationship between three parties in which one (the surety) promises to pay the obligation of another (the principal debtor or obligor) if the debtor defaults. The surety (or guarantor) is bound to the creditor (obligee) to perform conditional upon the default of the principal debtor (condition precedent). It consists of three separate two-party contracts: (1) the original contract between the debtor and the creditor (the debt), (2) the contract on which the surety is liable to the creditor (the warranty), and (3) the contract on which the principal debtor is liable to the surety (the indemnity). The general contract law applies. Consideration for the surety contract is required. It must be in writing and signed by the party to be charged (under the Statute of Frauds). The most common instance of suretyship arises when the owner of a closely held corporation personally guarantees the loan to the corporation. Defenses, rights, and remedies of the surety are numerous and varied, depending on the circumstances. In general, a suretyship includes indorsers (on negotiable instrument) and accommodation maker (on commercial paper). The suretyship contract is not a third-party beneficiary contract, a warranty, an indemnity (although the contract between the debtor and the surety is an indemnity), or a novation.

Reference: 4241.75

The Foreign Corrupt Practices Act of 1977 is an amendment to the Securities Exchange Act of 1934.

Reference: 4241.76

The Foreign Corrupt Practices Act of 1977 requires issuers of registered securities and issuers who are required to file reports with the SEC to keep records and have a system of internal controls. These requirements apply not only to foreign business transactions but also to domestic activities.

Securities Exchange Act of 1934

The Securities Exchange Act of 1934 (SEA '34) is a federal statute that regulates the trading of securities that are already issued and outstanding. The Act created the Securities and Exchange Commission (SEC) and established requirements and provisions relating to the registration and operation of stock exchanges and brokers. The Act requires companies whose stock is publicly traded to register with, and report periodically to, the SEC. It supervises market activities, such as proxy solicitations, tender offers, insider trading, and short-swing profits, and strengthens and enforces antifraud provisions (SEA '34 Section 10(b) and SEC Rule 10b-5).

Securities and Exchange Commission (SEC)

The Securities and Exchange Commission (SEC) is a federal government agency charged with the responsibility of writing rules consistent with federal security laws, investigation of violations, maintenance of financial disclosure documentation, and initiation of action against violators of federal securities acts. The SEC's main office is in Washington, D.C., but it has "enforcement" and field offices all over the country. The SEC is charged with the oversight of the Federal Securities Act of 1933, the Federal Securities Exchange Act of 1934, and the Foreign Corrupt Practices Act. The agency serves to govern the registration, offering, sale, etc. of stocks, bonds, notes, convertible debentures, warrants, or other financial documents involving investments and purchases. In addition to writing regulations, the SEC reviews registration statements for compliance with disclosure requirements. The SEC does not determine whether the information provided to investors is accurate or truthful, nor does the SEC determine whether the terms of the offering are fair or reasonable to investors. The mission of the SEC is to protect the integrity of capital markets through enforcement of financial disclosure laws that apply when a business entity attempts to raise capital by selling ownership to investors. The SEC defines what information prospective investors must receive from offerors and what information the entities must continue to report to their shareholders if the entity has a certain number of owners.

Uniform Commercial Code (U.C.C.)

The Uniform Commercial Code (U.C.C.) is a set of uniform rules dealing with eight subjects of commercial law, modifying common law of contracts. The U.C.C. applies almost exclusively to the sale of goods and is designed to liberalize the way merchants do business while protecting the consumer. Areas covered include the following: Article 1—General Provisions Article 2—Sales Article 2A—Leases Article 3—Negotiable Instruments Article 4—Bank Deposits Article 4A—Funds Transfers Article 5—Letters of Credit Article 6—Bulk Transfers and Bulk Sales Article 7—Warehouse Receipts, Bills of Lading, and Other Documents of Title Article 8—Investment Securities Article 9—Secured Transactions

Which of the following events will release a noncompensated surety from liability to the creditor? The principal debtor exerted duress to obtain the surety agreement. The creditor failed to notify the surety of a partial surrender of the principal debtor's collateral. The principal debtor was involuntarily petitioned into bankruptcy. The creditor was adjudicated incompetent after the debt arose.

The creditor failed to notify the surety of a partial surrender of the principal debtor's collateral. This question is effectively asking you what defenses a surety has in certain situations. The non-notification of the surety by the creditor of the release of collateral will release the surety to the extent that it was damaged by the non-notification, which will probably be the entire amount. Recall that in this scenario the surety assumed that the creditor had possession of collateral that could be used to pay off the debt and the non-notification of the change adversely affected the risk to the surety. The surety assumed that it was protected to the extent the collateral was held by the creditor. In other words, the surety may have estimated a much smaller potential financial risk, this risk potential was changed without the knowledge of the surety, and this is not fair to the surety.

Reference: 4231.22

The most common garnishments are served on the debtor's employer to garnish the debtor's wages or upon a bank to garnish the funds in the debtor's accounts.

Registration Statement

The registration statement is the end result of the registration process that contains the material financial and other information concerning securities offered for public sale. The registration statement contains specific forms that are filed with the Securities and Exchange Commission (SEC) and released to the investing public prior to sale of securities by the issuing company.

Reference: 4241.03

The state regulatory laws, like the federal laws, are designed to protect the investing public from the fraudulent schemes of unscrupulous promoters.

Reference: 4222.48

Though the terms are often used interchangeably, assignment and delegation are the flip sides of the coin. Rights are assigned. Duties are delegated.

Reference: 4241.77

Under the Foreign Corrupt Practices Act of 1977, it is unlawful for issuers or domestic businesses or their officers, directors, employees, agents, or shareholders to use interstate or foreign commerce (mail, phones, etc.) to offer or give anything of value (money) to a foreign official, foreign political party, or foreign political candidate for the purpose of influencing action or inducing those persons to use their influence in their official capacity to obtain or retain business for the organization.

Universal Corp. intends to sell its common stock to the public in an interstate offering that will be registered under the Securities Act of 1933. Under the Act: a prospectus must be delivered to each purchaser of Universal's common stock unless the purchaser qualifies as an accredited investor. Universal can make offers to sell its stock before filing a registration statement, provided that it does not actually issue stock certificates until after the registration is effective. Universal's registration statement becomes effective at the time it is filed, assuming that the SEC does not object within 20 days thereafter. Universal's filing of a registration statement with the SEC does not automatically result in compliance with the "blue sky" laws of the states in which the offering will be made.

Universal's filing of a registration statement with the SEC does not automatically result in compliance with the "blue sky" laws of the states in which the offering will be made. Once a registration has been filed, the SEC has 20 days to examine the registration statement. There are several restrictions during that 20-day waiting period. One of the restrictions is that securities cannot be sold. Each investor must always be given a prospectus. Securities transactions can be subject to state laws as well as federal laws. Compliance with SEC regulations does not automatically result in compliance with state laws.

Reference: 4241.67 Antifraud provisions. When selling or buying securities, it is illegal to use any manipulative or deceptive device or contrivance to violate SEC rules.

Use of the mails or interstate commerce must be involved. b. From Section 10(b) of the Securities Exchange Act of 1934. This section has been augmented by SEC Rule 10b-5.

Which of the following methods will allow a creditor to collect money from a debtor's wages? Mechanic's lien Writ of garnishment Order of receivership Arrest

Writ of garnishment A writ of garnishment permits a creditor to collect a certain portion of a debtor's wages every pay period.

Reference: 4241.65 Reports to file with the SEC:

a. 8-K. Current report for material events must be filed within 15 days of the material event. In the case of either the resignation of a director or the change of an auditor, notification must be made to the SEC within 5 days. b. 10-Q. Quarterly report to the SEC must be filed for the first three fiscal quarters of the year. c. 10-K. Annual report to the SEC must be filed at the end of the fiscal year. The annual report must have financial statements audited by a CPA.

Reference: 4232.07 The debtor in a proceeding under Chapter 7 cannot be any of the following:

a. A railroad b. An insurance company c. A domestic bank d. Any other lending institution (like a credit union or a savings and loan association) e. A governmental unit

Reference: 4231.56 Remedies of the guarantor or surety:

a. Defense: Use a defense to avoid payment to the creditor. b. Reimbursement or indemnity: Get the principal debtor to pay the guarantor or surety for the amount the guarantor or surety had to pay the creditor. c. Subrogation: When the guarantor or surety discharges the principal debtor's obligation to the creditor, the guarantor or surety gets all the creditor's rights regarding the obligation. d. Contribution: From co-guarantor or co-sureties for paying more than legally obligated.

Reference: 4252.08 Duties of Partners

a. Fiduciary. This means trust and confidence, loyalty and good faith to the firm, obedience to the partnership agreement, exercise of reasonable care in doing partnership business, providing needed information to the partnership, and providing an accounting of partnership matters. b. Duty to share in losses. Division of losses is in the same percentage as sharing of the profits unless agreed otherwise in the partnership agreement.

Reference: 4241.69 Short-swing profits. Inside information cannot be used to make short-term profits in the stock market.

a. Insiders are directors, officers, and large shareholders. b. Directors, officers, and beneficial owners of 10% or more of the stock are required to file reports with the SEC disclosing stock ownership and changes in ownership. c. A beneficial owner of stock includes stock owned in the person's own name or in the name of a spouse, minor children, and relatives who live in the owner's home. d. Profits from the sale and purchase of stock within a period of less than six months by an insider can be recovered by the company. If the company does not act within 60 days of notification, the owner of any stock of the company can sue for the company. e. The statute of limitations is two years from the date of the sale. f. Intent need not be proven. g. Insiders cannot engage a short sale (sale of securities they do not own) or make a sale against the box (own the securities but not deliver them). h. Purchase and sale of securities for a loss in less than six months is permitted. i. From Section 16

Reference: 4241.70 Tender offers. Any person seeking to acquire over 5% of a company's stock by purchase or tender offer and persons soliciting shareholders to accept or reject a tender offer must disclose important information to the SEC and shareholders.

a. The requirement was established by the 1968 Williams Act, passed by Congress to regulate tender offers so shareholders may make an informed decision whether to tender their shares for purchase. b. If a person acquires 5% of a class of securities, they must report to the following: (1) Issuer (2) Stock exchange where the securities are traded (3) SEC c. The report must include the following: (1) The number of shares already owned (2) The purpose of acquiring control of 5% or more of stock (3) The changes planned in operation or structure of corporation (4) The identity of persons who are buying the stock (5) Tender offers planned for additional shares

Reference: 4241.79 The penalties for violation of the Foreign Corrupt Practices Act of 1977 are as follows:

a. Up to $2 million for the company b. Up to $100,000 and/or up to five years' imprisonment for officers, directors, stockholders, employees, or agents (The organization may not pay the fine of an individual.)

Reference: 4251.08 Causes of dissolution

a. Without violation of the partnership agreement (1) The agreed time limit of the partnership ends. (2) The agreed partnership purpose has been completed. (3) A partner quits a partnership that has no stated duration. This type of partnership is called a partnership at will. The withdrawing partner has no liability to the other partners since they may withdraw at any time. (4) A mutual agreement of all partners may terminate the partnership. b. In violation of agreement. Any partner may dissolve a partnership at any time, but that partner may be liable for damages. The partner has the power, but may not have the right, to dissolve the partnership. Example: Caitlin and Erin form a partnership and agree that the partnership will have a duration of five years. After one year a dispute arises and Caitlin withdraws, causing a dissolution of the partnership. Caitlin had the power to dissolve the partnership, but not the legal right; therefore, she could be held liable for damages by Erin. c. By operation of law (done without agreement of the partners) (1) The business becomes illegal. This automatically terminates the partnership. (2) Bankruptcy of the partnership or an individual partner. This must be by adjudication and not merely insolvency. (3) Death of one or more of the partners (This provision can be overridden by agreement of the partners.) (4) Court decree. A court decree can be obtained based on the following: (a) If just and equitable to terminate the partnership (b) Serious misconduct of a partner—such as habitual drunkenness (c) Incapacity of a partner; cannot perform duties—such as insanity (d) Business is impractical (e) Other partner habitually or purposely commits breach of the partnership contract

Reference: 4241.47 Changes: During the 20-day period that the SEC has to examine the registration statement:

a. registration statement is effective. b. the securities can be sold. Investors must be given the prospectus before purchase of the securities.

Reference: 4252.02 Authority of a partner

a.Authority of a partner is merely an extension of agency law. b. Agency law applies to partnerships in the following manner: (1) Each partner is an agent for the partnership. The partnership is the principal. (2) A partnership is liable for the actions of a partner if the partner either: (a) has actual authority or (b) is acting within the apparent scope of the partnership activity and the third party does not know the actual authority of the party. (3) If the partnership is not liable on a contract, then the individual partner making the contract is liable. (4) A partner is personally liable for the torts the partner commits. (5) A partnership is liable for the torts of a partner if the partner was acting within the scope of the partnership business when the tort occurred. (6) A partner is personally responsible for his/her crimes. (7) A partnership is not liable for a partner's crimes unless the other partners actually participated in the crimes. (8) If a partner enters a contract without authority, the partnership may recover damages from the wrongdoing partner if the partnership is held liable to a third party.

For a purchaser of land to avoid a contract with the seller based on duress, it must be shown that the seller's improper threats: constituted a crime or tort. would have induced a reasonably prudent person to assent to the contract. actually induced the purchaser to assent to the contract. were made with the intent to influence the purchaser.

actually induced the purchaser to assent to the contract. For a purchaser of land to avoid a contract with the seller based on duress, it must be shown that the seller's improper threats actually induced the purchaser to assent to the contract. The key concept is the term "duress." To get a court to rescind a contract on the basis of duress, it is necessary to prove that the threats actually caused the party to sign a contract, as opposed to proving that the threats would have induced a reasonably prudent person to sign a contract.

Bradford sold a parcel of land to Jones, who promptly recorded the deed. Bradford then resold the land to Wallace. In a suit against Bradford by Wallace, recovery will be based on the theory of: bilateral mistake. ignorance of the facts. unilateral mistake. fraud. NEXT QUESTION

fraud It is unlikely that a resale would be due to mistake or ignorance. Fraud would be the only possible offense.

Partner's Interest

partner's interest in a partnership is generally a profits interest or a capital interest. A profits interest only entitles the partner to share in the income or loss from the partnership each year. A capital interest allows the partner to exercise a claim against the assets of the partnership in the event of a liquidation. A partner can acquire an interest in partnership capital or profits as compensation for services performed or to be performed. The fair market value of a capital interest must generally be included in the partner's gross income in the first tax year in which the partner's interest can be transferred or is not subject to a substantial risk of forfeiture. A partner's interest (capital) in the partnership is often confused with a partner's basis in the partnership. These two concepts are not the same. The adjusted basis of a partner's interest is determined without considering any amount shown in the partnership books as a capital, equity, or similar account. Example: Enzo contributes property that has an adjusted basis of $400 and a value of $1,000 to the partnership. His partner contributes $1,000 cash. While under the partnership agreement each has a capital account in the partnership of $1,000, which will be reflected in the partnership books, the adjusted basis of Enzo's interest is only $400 and the adjusted basis of his partner's interest (capital in this case) is $1,000.

When a partner in a general partnership lacks actual or apparent authority to contract on behalf of the partnership, and the party contracted with is aware of this fact, the partnership will be bound by the contract if the other partners: ratify the contract. None of the answer choices are correct. ratify the contract or amend the partnership agreement. amend the partnership agreement.

ratify the contract. This question requires particularly careful reading. While normally the outside world need not be concerned with whether a general partner has the actual authority to bind the partnership (due to apparent authority), the facts of the question indicate that the other party is aware of this limitation. Usually in this situation only the person who contracted would be bound, not the partnership. Notice that normally a partner has the apparent authority to deal with outside parties, but this fact scenario calls for a different result as the facts note that the other party is aware of the partner's limitation. If the partnership determines it is in the best interest of the partnership to enter into the contract, the partners are free to ratify the contract, which at that time makes the contract a partnership obligation. Note carefully that the partnership agreement may be amended (assuming that the partners so agree) to allow the partner in question to have the actual authority to contract in the future, but it would not have any effect on the existing contract. The partners would still have to ratify this particular contract to make it binding on the partnership.

Reference: 4241.46 Restrictions: During the 20-day period that the SEC has to examine the registration statement:

securities cannot be sold. b. the seller of the securities (issuer, underwriter, or controlling person) can distribute a "red herring" prospectus. This preliminary prospectus contains a statement in red ink that a registration statement has been filed but is not yet effective. c. the seller of the securities can publish tombstone advertisements that announce the participating underwriters and the number of securities and their price. A tombstone ad must state that the ad is not an offer to sell, nor a solicitation of a buy offer, because any offer must be made by means of a prospectus. d. oral, but not written, offers to buy can be received.

The filing of an involuntary bankruptcy petition under the Federal Bankruptcy Code: stops the debtor from incurring new debts. terminates liens on exempt property. terminates all security interests in property in the bankruptcy estate. stops the enforcement of judgment liens against property, except IRS, in the bankruptcy estate.

stops the enforcement of judgment liens against property, except IRS, in the bankruptcy estate. An involuntary bankruptcy petition, one filed by creditors of the bankrupt under the Federal Bankruptcy Code, places a freeze or "automatic stay" on further actions by creditors (i.e., stops the enforcement of judgment liens against property in the bankruptcy estate) until the bankruptcy proceeding is organized and the bankrupt's assets are fairly and equitably distributed. Said filing does not of itself terminate liens, security interests, or new debts; termination or discharge is for the court to determine after the proceedings have occurred.