Business Law Test 2
Distribution of Assets
the priorities for distribution are as follows: (1) creditors, including partners who are creditors; (2) partners and ex-partners in satisfaction of liabilities for unpaid distributions; (3) partners for the return of contributions, except as otherwise agreed; and (4) partners for their partnership interests in the proportions in which they share in distributions, except as otherwise agreed.
Continuation after dissociation
the remaining partners have the right to continue the partnership with a mandatory buyout of the dissociating partner; the creditors of the partnership have claims against the continue partnership
Election of Directors
the shareholders elect the board at the annual meeting of the corporation.
Removal of Directors
the shareholders may by majority vote remove directors with or without cause, subject to cumulative voting rights.
Mergers Effect
the surviving entity receives title to all of the assets of the merged entities and assumes all of their liabilities; the merged entities cease to exist
undisclosed principal
the third party has no notice that the agent is acting for a principal
Unidentified Principal
the third party has notice that the agent is acting for a principal but does not have notice of the principal's identity
o A statute providing for the formation of limited partnerships must be in effect o The limited partnership must substantially comply with the requirements of that statute o The liability of a limited partner for partnership debts or obligations is limited to the extent of the capital he has contributed or has agreed to contribute
three ways a limited partnership differs from a general partnership
partnership capital
total money and property contributed by partners for permanent use by the partnership
Voting Trust
transfer of corporate shares' voting rights to a trustee.
distribution
transfer of partnership property from the partnership to a partner
true
true or false if the relationship of the principal and agent is consensual and not necessarily contractual, it may exist without consideration
Filing of Certificate
two or more persons must file a signed certificate of limited partnership
Statutory Powers
typically include perpetual existence, right to hold property in the corporate name, and all powers necessary or convenient to effect the corporation's purposes.
Effect of Ultra Vires Acts
under RMBCA, ultra vires acts and conveyances are not invalid.
right to choose associates
under the doctrine of delectus personae, no person can become a member of a partnership without the consent of all the partnership
Torts
under the doctrine of respondeat superior, a corporation is liable for torts committed by its employees within the course of their employment.
joint venture
unincorporated business association composed of persons who combine their property, money, efforts, skill, and knowledge for the purpose of carrying out a particular business enterprise for profit.
limited liability company
unincorporated business association that provides limited liability to all of its owners (members) and permits all of its members to participate in management of the business
legal entity
unit capable of possessing legal rights and of being subject to legal duties
right to compensation
unless otherwise agreed, not partner is entitled to payment for acting in the partnership business
Assignment of LLC interest
unless otherwise provided in the LLC's operating agreement, a member may assign his financial interest in the LLC; an assignee of a financial interest in an LLC may acquire the other rights by being admitted as a member of the company if all the remaining members consent or the oeprating agreement so provides
Assignment of partnership interest
unless otherwise provided in the partnership agreement, a partner may assign his partnership interest; an assignee may become a limited partner if all other partners consent
Winding up
unless otherwise provided in the partnership agreement, the general partners who have not wrongfully dissolved the partnership may wind up its affairs
Model Business Corporation Act (statutory approach)
unlimited personal liability is imposed on all persons who act on behalf of a defectively formed corporation.
Effects of Dissolution
upon dissolution a partnership is not terminated but continues until the winding up is completed
Shareholder Voting Agreement
used to provide shareholders with greater control over the election and removal of directors and other matters.
Fair value
value immediately preceding the corporate action to which the dissenter objects, excluding any appreciation or depreciation that occurs in anticipation of such corporate action, unless such exclusion would be inequitable
1. duty to compensate 2. duty to reimburse
what are the 2 duties of principal to agent
1. duty not to engage in a conflict of interest (cannot act in the interest of another) 2. duty not to engage in self-dealing 3. duty not to compete (cannot assist principal's competitors) 4. duty not to disclose confidential information (unless its illegal) 5. duty to account for financial benefits
what are the five fiduciary duties of agent to principal?
1. duty of obedience 2. duty of diligence 3. duty to inform 4. duty to account
what are the four duties of agent to principal?
an employer is liable for unauthorized torts committed by an employee in the scope of his employment
what is respondeat superior
Scope of Agency Purposes
whatever business activity a person can he can may do through an agent
Agency by Estoppel Apparent Agency or Ostensible Agency arises
when 1) a principal intentionally or carelessly causes a third party to believe that another person (the agent) has authority to act on the principals behalf.2) the principal has notice of the third partys belief and does not take reasonable steps to notify the third party.3) the third party reasonably and in good faith relies on the appearances created by the principal and the third party justifiably and detrimentally changes her position in reliance on the agents apparent authority.
Liquidation
when a corporation is dissolved, its assets are liquidated and used first to pay its liquidation expenses and creditors according to respective contract or lien rights
Duty of Good Conduct
within the scope of the agency relationship, an agent must act reasonably and refrain from conduct that is likely to damage the principals interests
Power of Attorney
written, formal appointment of an agent. States agents authority.
vicarious liability
you are responsible for your subordinates
Dissociated Partner's Power to Bind the Partnership
a dissociated partner's actual authority to act for the partnership terminates; apparent authority continues for two years unless notice of the dissolution is given to a third party
Wrongful Dissociation
a dissociation that breaches an express provision of the partnership agreement or in a term partnership if before the expiration of the term or the completion of the undertaking (1) the partner voluntarily withdraws by express will, (2) the partner is judicially expelled for misconduct, (3) the partner becomes a debtor in bankruptcy, or (4) the partner is an entity (other than a trust or estate) and is expelled or otherwise dissociated because its dissolution or termination was willfull
Rights
a general partner in a limited partnership has all the rights and powers of a partner in a general partnership
Withdrawal
a general partner may withdraw from a limited partnership at any time giving written notice to the other partners; a limited partner may withdraw as provided in the limited partnership certificate
LLP
a general partnership that, by making the statutorily required filing, limits the liability of its partners for some or all of the partnership's obligations
legal aggregate
a group of individuals not having a legal existence separate from that of its members; the revised act considers a partnership a legal aggregate for a few purposes.
corporation
a legal entity separate and distinct from its owners. It is formed by filing its articles of incorporation with the State
Derivative actions
a limited partner may sue on behalf of a limited partnership if the general partners refuse to bring the action
Formation
a limited partnership can be formed only by substantial compliance with a state limited partnership statute
LLLP
a limited partnership in which the liability of the general partners has been limited to the same extent as in an LLP
limited liability limited partnership
a limited partnership in which the liability of the general partners has been limited to the same extent as in an LLP
limited partnership
a limited partnership is an unincorporated business association consisting of at least one general partner and at least one limited partner.
Foreign limited partnerships
a limited partnership is considered "foreign" in any state other than that in which it was formed
Derivative Actions
a member has the right to bring an action on behalf of the LLC to recover a judgment in its favor if the mangers or members with authority to bring the action have refused to do so
Withdrawal
a member may withdraw and demand payment of her interest upon giving notice specified in the statue or the LLC's operating agreement
proxy
a member's authorization to an agent to vote for the member
RIghts of members
a members interest in the llc includes the financial interest (the right to distributions) and the management interest (which consists of all other rights granted to member by the LLC operating agreement and the LLC statute)
LLC
a noncorporate business organization that provides limited liability to all of its owners (members) and permits all of its members to participate in management of the business
return of capital
a partner does not have a right to receive a distribution of the capital constitution in his account before his withdrawal or the liquidation of the partnership
legal actions
a partner may maintain a direct suit against the partnership or another partner for legal or equitable relief to enforce the partner's rights; the partnership itself may maintain an action against a parent for any breach of the partnership agreement or for the violations of any duty owed to the partnership
assignability
a partner may sell or assign his transferable interest in the partnership; the new owner becomes entitled to the assigning partners right to receive distribution by does not become a partner
Authority to Bind Partnership
a partner who has actual authority (express or implied) or apparent authority may bind the partnership
Effects of Dissolution - Authority
a partner's actual authority to act for the partnership terminates, except so far as may be appropriate to wind up partnership affairs; apparent authority continues unless notice of the dissolution is given to a third party
Dissociations not causing dissolution - partnership at will
a partner's death, bankruptcy, or incapacity; the expulsion of a partner; or the termination of an entity-partner results in a dissociation of the partner but does not result in a dissolution
creditor's rights
a partner's interest is subject to the claims or creditors, who may obtain a charging order against the partner's transferable interest
limited partnership
a partnership formed by two or more persons under the laws of a state and having one or more general partners and one or more limited partners
Limited Partnership
a partnership formed by two or more persons under the laws of a state and having one or more general partners and one or more limited partners.
Notice
a person has notice of a fact if the person (1) knows of it, (2) has received notification of it, or (3) has a reason to know it exists from all the facts known to the person at the time in question
Independent Contractor
a person who contracts with another to do a particular job and who is not subject to the others control
Irrevocable Powers
a power given as security- including an agency coupled with an interest- is irrevocable
Compensation
a principal must compensate the agent as specified in the contract, or for the reasonable value of the service provided, if no amount is specified
Shareholder's Right to Dissent
a shareholder has the right to dissent from certain corporate actions that require shareholder approval.
Limited Liability
a shareholder's liability is limited to the amount invested in the business enterprise.
Postincorporation Subscribers
a subscription agreement entered into after incorporation; an offer to enter into such a subscription is revocable anytime before the corporation accepts it.
Business trust
a trust (managed by a trustee for the benefit of a beneficiary) established to conduct a business for profit
Durable power or attorney
a written instrument that expresses the principal's intention that the agent's authority will not be affected by the principal's subsequence incapacity of that the agent's authority will become effective upon the principal's subsequent incapacity
actual express authority
actual authority derived from written or spoken words of the principal communicated to the agent
actual implied authority
actual authority inferred from words or conduct manifested to the agent by the principal
ratification
affirmation by one person of a prior unauthorized act that another has done as her agent or as her purported agent
Formalities
agency may exist without consideration
mutual agreement
agency relationship may be terminated any time by mutual agreement between principal and agent
Undisclosed Principal
agent doesn't mention Principal and who they work for
fiduciaries
agents are --- for the principals
agents even if they are not authorized to contract on behalf of the employer or otherwise to conduct business with a third party
all employee are
Rightful Dissociation
all other dissociations are rightful, including the death of a partner in any partnership and the withdrawal of a partner in a partnership at will
agents
although all employee are agents, not all --- are employees
independent contracts
although the principal has the right of control over the agent, the principal does not control the manner of means of the agent's performance
Dissolution
an LLC will automatically dissolve upon (1) in some states the dissociation of a member, (2) the expiration of the LLC's agreed duration or the happening of any of the events specified in the articles, (3) the written consent of all members, or (4) a decree of judicial dissolution
Gratuitous Agency
an agency created with out an agents right to compensation.
duty of good conduct
an agent has a duty to act reasonably and to avoid conduct that is likely to damage the principal's interest
duty of diligence
an agent has a duty to the principal to act with care, competence, and diligence normally exercised by agents in similar circumstances- agent can't act negligently
duty to inform
an agent has a duty to use reasonable effort to provide the principal with facts that the agent knows, has reason to know, or should know if 1) the agent knows or has reason to know that the principal would wish to have the facts or 2) the facts are material to the agent's duties to the principal
duty to account
an agent has the duty to keep and render accounts to the principal of money or other property received or paid out on the principal's account. The agent may not mingle the principal's property with any other person's property and may not deal with the principal's property so it appears to be the agent's proeprty
Duty of Obedience
an agent must obey all lawful instructions and directions of the principal
merger
combination of assets
Delegation of Board Powers
committees may be appointed to perform some but not all of the board's functions.
Winding up
completing unfinished business, collecting debts, and distributing assets to creditors and members; also called liquidation
Winding up
completing unfinished business, collecting debts, and distributing assets to creditors and partners; also called liquidation
agency
consensual relationship authorizing one party (the agent) to act on behalf of the other party (the principal) subject to the principal's control
management interest
consists of all other rights granted to a member by the LLC operating agreement and the LLC statute. this typically includes the right to manage, vote, obtain information, and bring enforcement actions
Professional Corporations
corporate form under which duly licensed individuals may practice their professions.
Appraisal remedy
corporation's payment of the fair value of the shares, plus accrued interest
Straight Voting
directors are elected by a plurality of votes.
Dividends
directors declare the amount and type of ______.
Directors' Inspection Rights
directors have the right to ________ corporate books and records.
Fiduciary duty
duty of utmost loyalty, fairness, and good faith owed by partners to each other and to the partnership; includes duty not a appropriate partnership opportunities, not to compete, not to have conflicts of interest, and not to reveal confidential information
duty of care
duty owed by partners to manage the partnership affairs without gross negligence, reckless conduct, intentional misconduct, or knowing violation of law
duty of obedience
duty to act in accordance with the partnership agreement and any business decision properly made by the partners
management
each partner has equal rights in management unless otherwise agreed
information
each partner has the right (1) without demand, to an information concerning the partnership and reasonably required for the proper exercise of the partner's rights and duties and (2) on demand, to any other information concerning the partnership
information
each partner has the right to inspect and copy the partnership records
Share in profits
each partner is entitled to an equal share of the profits unless otherwise agreed
Subchapter S Corporation
eligible corporation electing to be taxed as a partnership under the Internal Revenue Code.
Cumulative Voting
entitles shareholders to multiply the number of votes they are entitled to cast by the number of directors for whom they're entitled to vote and to cast the product for a single candidate or to distribute the product among two or more candidates.
fully disclosed principal
everything is said and informed to the principal
Duties
general partners owe a duty of care and loyalty (fiduciary duty) to the general partners, the limited partners, and the limited partnership; limited partners do not
LLP
general partnership that, by making the statutorily required filing, limits the liability of its partners for some or all of the partnership's obligations
limited liability partnership
general partnership that, by making the statutorily required filing, limits the liability of its partners for some or all of the partnership's obligations
a person may do through an agent whatever business activity he may accomplish personally
general rule for scope of agency purposes
"qui faccio per alium, facit per se"
he who acts through another, acts himself
indemnification
if a partner makes an advance (loan) to the firm, he is entitled to repayment of the advance plus interest; a partner is entitled to reimbursement for payments made and indemnification for liabilities incurred by the partner in the ordinary course of the business
renunciation by agent
if agent revokes principal for reasons not specified in contract, then principal has a claim of breach of contract
duty to account for financial benefits
if i authorized connor to sell property of mine for 1k, but he sells it for 1,500, he may not secretly pocket the addition 500
Defective formation
if no certificate is filed or if the one filed does not substantially meet the statutory requirements, the formation is defective and the limited liability of the limited partners is jeopardized
revocation of authority
if principal revokes agent for reasons not specified in contract, then agent has a claim of breach of contract
Right to Inspect Books and Records
if the demand is made in good faith and for a proper purpose.
Principal
if the principal is a minor or an incompetent not under a guardianship, his appointment of another to act as an agent is voidable, as are any resulting contracts with third parties
objective test
if the principal requests another to act for him with respect to a matter and indicates that the other is to act without further communication, and the other consents to act, the relation of the principal and agent exist
Dissociations not causing dissolution - term partnership
if within ninety days after any of following causes of dissolution occur, fewer than half of the remaining partners express their will to wind up the partnership business, then the partnership will not dissolve: a partner's dissociation by death, bankruptcy, or incapacity; the distribution by a trust-partner of its entire partnership interest; the termination of an entity-partner; or a partner's wrongful dissociation
fulfillment of purpose
if you hire a lawyer and the litigation is over, his job is done
Management
in the absence of a contrary agreement, each member has equal rights in the managment of the LLC; but LLCs may be managed by one or more managers who may be members
interest in the partnership
includes the partner's transferable interest and all management and other rights
Name
inclusion of a limited partner's surname in the partnership name in most instances will result in the loss of the limited partner's limited liability
Authority to Amend
incorporation statutes permit corporate charters to be amended
Limited Liability Limited Partnership
is a limited partnership in which the liability of the general partners has been limited to the same extent as in an LLP
agency by estoppel
is an agency relationship that is created because the principal's action caused a third party to believe that an agency relationship exists.
Operating agreement
is the basic contract governing the affairs of a llc and stating the various rights and duties of the members
partnership agreement
it is preferable, although not usually required, that the partners enter into a written partnership agreement
charging order
judicial lien against a partner's transferable interest in the partnership
Revised Model Business Corporation Act (statutory approach)
liability is imposed only on persons who act on behalf of a defectively formed corporation knowing that there was no incorporation.
governance
management and control- right to vote and make management decisions- power to control the entity
financial
management and control- rights to distributions, profits, losses
Liability Limitation Statutes
many States now authorize corporations -- with shareholder approval -- to limit or eliminate the liability of directors for some breaches of duty.
Voluntary Dissolution
may be brought about by a resolution of the board of directors that is approved by the shareholders
Contributions
may be cash, property, or services, or may be a promise to contribute cash, property, or service
Selection and Removal of Officers
may be done by the Board of Directors at any time.
Vacancies in the Board
may be filled by the vote of a majority of the remaining directors.
surviing entity
receives title to all the assets
Dissolution
refers to those situations when the Revised Act requires a partnership to wind up and terminate.
duty of obedience
require the agent to act in the principal's affairs only as actually authorized by the principal and to obey all lawful instructions and directions of the principal. if the agent exceeds her actual authority, she is subject to liability to the principal for loss caused to the principal.
Duty of Loyalty
requires undeviating loyalty to the corporation. (A fiduciary duty).
financial interest
right to share profits and losses and to receive distributions
Bylaws
rules governing a corporation's internal management.
Nonpartnership Creditors
share on equal footing with unsatisfied partnership creditors in the individually owned assets of their respective debtor-partners
Approval of Fundamental Changes
shareholder approval is required for charter amendments, most acquisitions, and dissolution.
Shareholder Meetings
shareholders may exercise their voting rights at both annual and special ___________ ___________.
Centralized Management
shareholders of a corporation elect the board of directors to manage its business affairs; the board appoints officers to run the day-to-day operations of the business.
Liability Limitation
some statues limit liability only for negligent acts; others limit liability to any partnership tort or contract obligation that arose from negligence, malpractice, wrongful acts, or misconduct committed by any partner, employee, or agent of the partnership; most provide limited liability for all debts and obligations of the partnership
Judicial dissolution
state, shareholder, or creditor may bring a proceeding seeking ____________
partnership property
sum of all of the partnership's assets, including all property acquired by a partnership
f a principal is directly liable if he fails to exercise reasonable care in employing a competent agent
t/f a principal is nto directly liable if he fails to exercise reasonable care in employing a competent agent
f
t/f a principal may never be held criminally accountable for the acts of an agent
T
t/f an agent can bind the principal to a contract with apparent authroity
f
t/f an agent for a disclosed principal is a party to the contract made on behalf of the principal and is liable to the third person with whom the contract is made
f
t/f apparent authority is the same as express authority
t
t/f for the doctrine of respondeat superior to take effect, the agent must be acting within the normal scope of employment
f
t/f ratification by a principal of an agent's unauthorized acts may occur only through express language of the principal
f
t/f situations of apparent authroity apply to cases of both disclosed and undisclosed principals
t
t/f sub-agents acting on behalf of agents who lack authority to transfer their power to another cannot bind the principal to third parties
t
t/f sub-agents appointed with authority from the principal, are agents of both the principal and the agent
f
t/f the principal may be liable for an agent's contracts but not for the agent's torts
t
t/f under the second restatement, ratification cannot occur where the principal is undisclosed
t
t/f when conduct of the parties terminates an agency, the agent's apparent authroity continues with respect to some third persons until actual notice of the termination is given to them
Effect of Dissociation
terminates the dissociating partner's rights to participate in the management of the partnership business and duties to partnership
Filing
the LLC statues generally require the central filing of articles of organiztion in a designated state office
Profit and loss sharing
the LLC's operating agreement determines how the partners allocate the profits and losses; if the LLC's operating agreement makes no such provision, the profits and losses are typically allocated on the basis of the value of the members contributions
Remedies for Ultra Vires Acts
the RMBCA provides 3 possible remedies.
Authority
the actual authority of a member or manager to act for the LLC terminates, except so far as may be appropriate to wind up LLC affairs; apparent authority continues unless notice of the dissolution is given to a third party
Distribution of Assets
the assets of the partnership include all required contributions of partners; the liabilities of a partnership are to be paid out of partnership assets in the following order: (1) amounts owing to nonpartner and partner creditors and (2) amounts owing to partners on their partners' accounts
delegation of authority
the assignment of direct authority and responsibility to a subordinate to complete tasks for which the manager is normally responsible
Defective Corporation (common law approach)
the associates are denied the benefits of incorporation.
Procedure for Amending
the board of directors adopts a resolution, which must be approved by a majority vote of the shareholders
Articles of Incorporation
the charter or basic organizational document of a corporation.
Mergers
the combination of the assets of two or more business entities into one of the entities
Contribution
the contribution of a member to a llc may be cash, property, services rendered, a promissory note, or other obligation to contribute cash or property, or to perform services
Piercing the Corporate Veil General Rule
the courts may disregard the corporate entity when it is used to defeat public convenience, commit a wrongdoing, protect fraud, or circumvent the law.
disclosed principal
A principal whose identity is known to a third party at the time the agent makes a contract with the third party.
4 Ways a partner can dissociate
(1) gives notice of his/her will to withdraw(2) an event specified in the partnership agreement occurs (3) expulsion from the partnership(4) the partner's ability to participate in the partnership affairs comes to an end such as disability, incapacity, or a lawyer who loses his license, or moving to a different place.
Acts of Parties
-lapse of time-mutual agreement of the parties-revocation of authority -renunciation by the agent
and Grant, $11,000. Grant refuses to make any further contributions to the partnership. Ignore the effects of federal partnership tax law. After losses were allocated to the partners' capital accounts and all liabilities were paid, the partnership's sole asset was $106,000 in cash. How much would Elgar receive on dissolution of the partnership? 1) $37,000 2) $40,000 3) $47,500 4) $50,000
1) $37,000 A capital deficit may be corrected by the partner investing more cash or assets to eliminate the deficit or by distributing the deficit to the other partners in their resulting profit and loss sharing ratio. The latter was done in this case, as the facts in the question indicated that Grant refuses to make any further contributions to the partnership. The remaining cash is then used to pay the three partners' capital balances.
The officers of West Corporation wish to buy some used equipment for West Corporation. The used equipment is actually owned by Parks, a director of West Corporation. For this transaction to not be a conflict of interest for Parks, which of the following is (are) required to be true? I. Parks sells the used equipment to West Corporation in a contract that is fair and reasonable to the corporation. II. Parks' ownership of the used equipment is disclosed to the shareholders of West who approve it by majority vote. III. Parks' ownership of the used equipment is disclosed to the board of directors, who approve it by a majority vote of the disinterested directors. 1) Any one of I, II, or III. 2) I and II are both required. 3) I and III are both required. 4) All three of I, II, and III are required.
1) Any one of I, II, or III. The transaction the director wishes to have with the corporation is not a conflict of interest if any one of the following is true. (1) The transaction is fair and reasonable for the corporation. (2) The shareholders are given the relevant facts and they approve it by a majority vote. (3) The board of directors are given the relevant facts and they approve it by a majority vote of the disinterested members of the board of directors.
Application most frequently applied to:
1) Closely Held Corporations 2) Parent-Subsidiary Corporations
Defective Incorporation includes:
1) Common Law Approach 2) Statutory Approach
Duty of Loyalty includes:
1) Conflict of Interests 2) Loans to Directors and Officers 3) Transactions in Shares 4) Duty Not to Compete
Shareholder Suits include:
1) Direct Suits 2) Derivative Suits 3) Shareholder's Right to Dissent
Duties Directors and Officers owe to the Corporation:
1) Duty of Obedience 2) Duty of Diligence 3) Duty of Loyalty
Which of the following statements is correct concerning the similarities between a limited partnership and a corporation? 1) Each is created under a statute and must file a copy of its certificate with the proper state authorities. 2) All corporate stockholders and all partners in a limited partnership have limited liability. 3) Both are recognized for federal income tax purposes as taxable entities. 4) Both are allowed statutorily to have perpetual existence.
1) Each is created under a statute and must file a copy of its certificate with the proper state authorities. Corporations and limited partnerships may only be created pursuant to state statutes. Normally, both the Articles of Incorporation and a Certificate of Limited Partnership must be filed with the Secretary of State. Answer (b) is incorrect because a limited partnership requires at least one general partner who retains unlimited personal liability. Answer (c) is incorrect because a limited partnership is treated the same as a general partnership for tax purposes in that it is not recognized as a separate taxable entity. Answer (d) is incorrect because a limited partnership is not statutorily allowed perpetual existence.
Treasury stock of a corporation is stock that 1) Has been issued by that corporation but is not outstanding. 2) Was purchased from another corporation and is retained for a specified purpose. 3) Has been cancelled. 4) None of the above is true.
1) Has been issued by that corporation but is not outstanding. Treasury stock is stock that a corporation issued previously but is no longer outstanding because the corporation repurchased it back. Answer (b) is incorrect because treasury stock is a corporation's own stock that it has repurchased. Answer (c) is incorrect because canceled stock is no longer issued or outstanding. Answer (d) is incorrect because (a) is correct.
Which of the following is(are) true of a limited partnership? I. Limited partnerships must have at least one general partner. II. The death of a limited partner terminates the partnership. 1) I only. 2) II only. 3) Neither I nor II. 4) Both I and II.
1) I only. Limited partnerships must have at least one general partner who has the unlimited personal liability of the firm. Unlike a general partner, the death of a limited partner does not cause a dissolution or termination of a partner.
To create a limited partnership, a certificate of limited partnership must be filed with the Secretary of State. Which of the following must be included in this certificate under the Revised Uniform Limited Partnership Act? I. Names of all of the general partners. II. Names of the majority of the general partners. III. Names of all of the limited partners. IV. Names of the majority of the limited partners. 1) I only. 2) II only. 3) I and III only. 4) I and IV only.
1) I only. Under the Revised Uniform Limited Partnership Act, none of the names of the limited partners need to be listed in the certificate of limited partnership that is filed with the Secretary of State. However, all of the general partners must be listed.
Which of the following is a disadvantage of a Subchapter C corporation? 1) It may face higher tax burdens than a Subchapter S corporation. 2) The shareholders lose their limited liability when they switch from a general partnership to a corporation. 3) A Subchapter C corporation is not well defined under the law. 4) A Subchapter C corporation does not protect its shareholders from liability as well as a Subchapter S corporation does.
1) It may face higher tax burdens than a Subchapter S corporation. A Subchapter S corporation is often formed to help avoid the double taxation that a Subchapter C corporation may face. Answer (b) is incorrect because partners in a general partnership have unlimited personal liability. Shareholders of a corporation have limited liability with few exceptions. Answer (c) is incorrect because a Subchapter C corporation is any corporation that is not a Subchapter S corporation. Answer (d) is incorrect because both Subchapter C and Subchapter S corporations provide their shareholders with limited liability with few exceptions.
Exercise of Directors' Functions include:
1) Meeting 2) Action Taken without a Meeting 3) Quorum and Voting 4) Delegation of Board Powers 5) Directors' Inspection Rights
Which of the following must take place for a corporation to be voluntarily dissolved? 1) Passage by the board of directors of a resolution to dissolve. 2) Approval by the officers of a resolution to dissolve. 3) Amendment of the certificate of incorporation. 4) Unanimous vote of the stockholders.
1) Passage by the board of directors of a resolution to dissolve A corporation voluntarily dissolves when its board of directors passes a resolution to dissolve and liquidate. Answer (d) is incorrect because this resolution must be ratified by a majority of stockholders who are entitled to vote. Following ratification, the corporation must file a certificate of dissolution with the proper state authority, cease business, wind up its affairs, and publish notice of its dissolution. Answers (b) and (c) are incorrect because they are not requirements of a voluntary dissolution.
Concentrations of Voting Power include methods of:
1) Proxy 2) Voting Trust 3) Shareholder Voting Agreement
Duty of Diligence includes:
1) Reliance Upon Others 2) Business Judgement Rule
Enforcement Rights of Shareholders include:
1) Right to Inspect Books and Records 2) Shareholder Suits
Functions of the Board of Directors:
1) Selection and Removal of Officers 2) Capital Structure 3) Fundamental Changes 4) Dividends 5) Management Compensation
Which of the following is correct pertaining to the rights of stockholders in a corporation? 1) Stockholders have no right to manage their corporation unless they are also directors or officers. 2) Stockholders have a right to receive dividends. 3) Stockholders have no right to inspect the books and records of their corporation. 4) Stockholders have a right to get a list of their corporation's customers to use for a business mailing list.
1) Stockholders have no right to manage their corporation unless they are also directors or officers. Stockholders do not have the right to manage their corporation. However, stockholders who are also directors or officers do have the right to manage as part of their rights as directors and officers. Answer (b) is incorrect because stockholders generally have no right to receive dividends unless the board of directors declares such dividends. Answer (c) is incorrect because stockholders are given the right to inspect the books and records of their corporation. Answer (d) is incorrect because the stockholders may demand a list of shareholders for a proper purpose such as to help wage a proxy fight
Price owns 2,000 shares of Universal Corp.'s $10 cumulative preferred stock. During its first year of operations, cash dividends of $5 per share were declared on the preferred stock but were never paid. In the second year, dividends on the preferred stock were neither declared nor paid. If Universal is dissolved, which of the following statements is correct? 1) Universal will be liable to Price as an unsecured creditor for $10,000. 2) Universal will be liable to Price as a secured creditor for $20,000. 3) Price will have priority over the claims of Universal's bond owners. 4) Price will have priority over the claims of Universal's unsecured judgment creditors.
1) Universal will be liable to Price as an unsecured creditor for $10,000. Upon declaration, a cash dividend on preferred stock becomes a legal debt of the corporation, and the preferred shareholders become unsecured creditors of the corporation. However, any dividends not paid in any year concerning cumulative preferred stock are not a liability of the corporation until they are declared. Therefore, Universal will be liable to Price as an unsecured creditor for $10,000, which is the amount of the declared dividends. Answers (c) and (d) are incorrect because Price has become a general unsecured creditor for the declared dividends and will have the same priority as the debenture (unsecured) bond owners and the unsecured judgment creditors. Answer (b) is incorrect because the undeclared dividends did not become a legal liability to Universal.
$50,000 for Chan. 3) Up to each partner's capital contribution. 4) None of the above.
1) Unlimited liability for all three partners. Since Chan acted like a general partner and Ham thought he was a general partner, Chan has the liability of a general partner to Ham. Answers (b), (c), and (d) are incorrect because Ham believed Chan was a general partner based on Chan's actions. Therefore, Chan had the liability of a general partner, that is, unlimited liability.
The apparent authority of a partner to bind the partnership in dealing with third parties 1) Will be effectively limited by a formal resolution of the partners of which third parties are aware. 2) Will be effectively limited by a formal resolution of the partners of which third parties are unaware. 3) Would permit a partner to submit a claim against the partnership to arbitration. 4) Must be derived from the express powers and purposes contained in the partnership agreement.
1) Will be effectively limited by a formal resolution of the partners of which third parties are aware. Although individual partners normally have implied authority to buy and sell goods for the partnership, they do not have implied authority to do such things as making the partnership a surety or admitting a new partner. These require the consent of all partners.
Which form(s) of a business organization can have characteristics common to both the corporation and the general partnership? -Limited liability company -Subchapter S corporation 1) Yes-Yes 2) Yes-No 3) No-Yes 4) No-No
1) Yes-Yes A limited liability company provides for limited liability of its members, similar to the limited liability of the shareholders of a corporation. However, it typically has a limited duration of existence, similar to that of a partnership in which the death or withdrawal of a member or partner causes the business to dissolve unless the remaining members or partners choose to continue the business. The limited liability company can also be taxed similar to a partnership if formed to do so. The Subchapter S corporation has the limited liability of the corporation but is taxed similar to a partnership.
Which of the following facts is(are) generally included in a corporation's articles of incorporation? -Name of registered agent -Number of authorized shares 1) Yes-Yes 2) Yes-No 3) No-Yes 4) No-No
1) Yes-Yes The Articles of Incorporation are filed with the state and contain the names of the corporation, registered agent, and incorporators. This document also contains the purpose and powers of the corporation as well as a description of the types of stock and number of authorized shares.
Tort and Other Duties include
1-the duty to provide an employee with reasonably safe conditions of employment 2-the duty to deal with the agent fairly and in good faith
Mesa Corporation is planning on issuing some debt securities. Which of the following statements is true? 1) The holders of debt securities are owners of the corporation. 2) A bond is an instrument for long-term secured debt. 3) A debenture is an instrument for long-term secured debt. 4) None of the above is true.
2) A bond is an instrument for long-term secured debt. A bond represents long-term secured debt. Answer (a) is incorrect because holders of debt securities are creditors rather than owners of the corporation. Answer (c) is incorrect because a debenture represents long-term unsecured debt not long-term secured debt. Answer (d) is incorrect because there was one correct answer.
Under the Revised Model Business Corporation Act, which of the following statements is correct regarding corporate officers of a public corporation? 1) An officer may not simultaneously serve as a director. 2) A corporation may be authorized to indemnify its officers for liability incurred in a suit by stockholders. 3) Stockholders always have the right to elect a corporation's officers. 4) An officer of a corporation is required to own at least one share of the corporation's stock.
2) A corporation may be authorized to indemnify its officers for liability incurred in a suit by stockholders. Under the Revised Model Business Corporation Act, a corporation is authorized to indemnify its officers for expenses, attorney fees, judgments, fines and amounts paid in settlement incurred in a suit by stockholders when the liability is a result of the officer's good faith, nonnegligent actions on behalf of the best interest of the corporation. Answer (a) is incorrect because a corporate officer may also serve as a director. Answer (c) is incorrect because officers are appointed by the directors of a corporation who are in turn elected by the shareholders. Answer (d) is incorrect because there is no requirement that an officer must own any shares of the corporation's stock.
In a general partnership, which of the following acts must be approved by all the partners? 1) Dissolution of the partnership. 2) Admission of a partner. 3) Authorization of a partnership capital expenditure. 4) Conveyance of real property owned by the partnership.
2) Admission of a partner. In a general partnership, unanimous consent is required of all of the partners to admit a new partner. Answer (a) is incorrect because any one partner can cause a dissolution by actions such as withdrawing. Answer (c) is incorrect because each partner is an agent of the general partnership and thus may purchase items for the business of the firm. Answer (d) is incorrect
As a Citizen
a corporation is considered a citizen for some but not all purposes.
Lark, a partner in DSJ, a general partnership, wishes to withdraw from the partnership and sell Lark's interest to Ward. All of the other partners in DSJ have agreed to admit Ward as a partner and to hold Lark harmless for the past, present, and future liabilities of DSJ. As a result of Lark's withdrawal and Ward's admission to the partnership, Ward 1) Acquired only the right to receive Ward's share of DSJ profits. 2) Has the right to participate in DSJ's management. 3) Is personally liable for partnership liabilities arising before and after being admitted as a partner. 4) Must contribute cash or property to DSJ to be admitted with the same rights as the other partners.
2) Has the right to participate in DSJ's management. An incoming partner has the same rights as all of the existing partners. Thus, an incoming partner has the right to participate in the management of the partnership. Answer (c) is incorrect since a person admitted as a partner into an existing partnership is only liable for existing debts of the partnership to the extent of the incoming partner's capital contribution. Answer (d) is incorrect because a partner need not make a capital contribution to be admitted with the same rights as the other partners.
Corporations generally have which of the following powers without shareholder approval? I. Power to acquire their own shares. II. Power to make charitable contributions. III. Power to make loans to directors. 1) I only. 2) I and II only. 3) II and III only. 4) I, II, and III.
2) I and II only. Corporations generally have the power to acquire or retire their own shares without shareholder approval. They can also make charitable contributions without such approval. Loans to directors require shareholder approval.
Under the Revised Uniform Partnership Act, in which of the following cases will property be deemed to be partnership property? I. A partner acquires property in the partnership name. II. A partner acquires title to it in his/her own name using partnership funds. III. Property owned previously by a partner is used in the partnership business 1) I only. 2) I and II only. 3) II only. 4) I, II, and III.
2) I and II only. Under RUPA, partnership property not only includes property purchased in the partnership name but also includes property purchased by a partner, who is an agent of the partnership, with partnership funds. Note that a partner may use property in the partnership business without it becoming partnership property.
Colby formed a professional corporation along with two other attorneys. They took out loans in the name of the corporation. During the first year, Colby failed to file some papers on time for a client causing the client to lose a very good case. For which does Colby have the corporate protection of limited liability? I. The negligence for failure to file the papers on time. II. The corporate loans. 1) I only. 2) II only. 3) Both I and II. 4) Neither I nor II.
2) II only. In a professional corporation, the professional has most of the benefits of a corporation such as limited liability for corporate debts. However, the professional has personal liability for professional acts. Colby cannot avoid liability for the damage caused the client due to negligence in a professional act.
Cobb, Inc., a partner in TLC Partnership, assigns its partnership interest to Bean, who is not made a partner. After the assignment, Bean asserts the rights to I. Participate in the management of TLC. II. Cobb's share of TLC's partnership profits. Bean is correct as to which of these rights? 1) I only. 2) II only. 3) I and II. 4) Neither I nor II.
2) II only. A partner is free to assign his interest in any partnership to a third party. However, the assignee does not become a partner by virtue of this assignment, but merely succeeds to the assignor's rights as to profits and return of partner's capital contribution. The assignee does not receive the right to manage, to have an accounting, to inspect the books, or to possess or use any individual partnership property. Since Bean was not made a partner, he is entitled to Cobb's share of TLC's profits, but does not have the right to participate in the management of TLC.
Bond Company is incorporated in Florida but not in Georgia. Bond has branch offices in both states. Which of the following is correct? I. Bond is a domestic corporation in Georgia. II. Bond is a domestic corporation in Florida. III. Bond needs to incorporate also in Georgia. 1) I and II only. 2) II only. 3) II and III only. 4) I, II, and III.
2) II only. Bond is a domestic corporation in Florida since it incorporated there. It is a foreign corporation in Georgia since it did not incorporate there. Bond does not need to incorporate in Georgia but must qualify to do business there because it has branch offices in Georgia. This qualifying normally entails filing required documents with the state.
In which of the following respects do general partnerships and limited liability partnerships differ? I. In the level of liability of the partners for torts they themselves commit. II. In the level of liability of the partners for torts committed by other partners in the same firm. III. In the amount of liability of the partners for contracts signed by other partners on behalf of the partnership. IV. In the amount of liability of the partners for contracts they themselves signed on behalf of the firm. 1) I only. 2) II only. 3) I and IV only. 4) II and III only.
2) II only. In a limited liability partnership (LLP), where permitted by state statute, the basic difference between it and a general partnership is limited liability in some cases. In the LLP, partners have limited liability for the torts of the other partners. This is not true of a general partnership. Answer (a) is wrong because both in the LLP and the general partnership, the partners have unlimited liability for their own torts. Answers (c) and (d) are wrong because any contracts signed on behalf of the firm make all of the partners jointly liable in both the LLP and the general partnership.
Which of the following is true of a limited liability company under the laws of the majority of states? 1) At least one of the owners must have personal liability. 2) The limited liability company is a separate legal entity apart from its owners. 3) Limited liability of the owners is lost if they fail to follow the usual formalities in conducting the business. 4) All of the above are true.
2) The limited liability company is a separate legal entity apart from its owners. The limited liability company statutes provide that it is a separate legal entity apart from its owners. Thus it may sue or be sued in its own name. Answer (a) is incorrect because all owners have limited rather than personal liability. Answer (c) is incorrect because limited liability is normally retained even if the owners fail to follow the formalities usual in conducting the business. Answer (d) is incorrect because (b) is correct.
Johns owns 400 shares of Abco Corp. cumulative preferred stock. In the absence of any specific contrary provisions in Abco's Articles of Incorporation, which of the following statements is correct? 1) Johns is entitled to convert the 400 shares of preferred stock to a like number of shares of common stock. 2) If Abco declares a cash dividend on its preferred stock, Johns becomes an unsecured creditor of Abco. 3) If Abco declares a dividend on its common stock, Johns will be entitled to participate with the common stock shareholders in any dividend distribution made after preferred dividends are paid. 4) Johns will be entitled to vote if dividend payments are in arrears.
2) If Abco declares a cash dividend on its preferred stock, Johns becomes an unsecured creditor of Abco. The Articles of Incorporation must include, among other things, the amount of capital stock authorized and the types of stock to be issued. Specific provisions applicable to stock must also be stated. Examples of stock provisions which must be authorized by the Articles of Incorporation include number of authorized shares, whether the stock is to be par value or no-par value, and classes of stock, including voting rights and dividend provisions. Preferred stock is given preferred status as to liquidations and dividends. This is part of the definition of preferred stock and need not be specifically included in the Articles of Incorporation in order to be enforceable. Therefore, Johns becomes an unsecured creditor upon Abco's declaration of preferred stock dividend. In order for Johns to be entitled to convert his/her preferred shares to common shares, to participate with common shareholders in any dividend distribution made after preferred dividends are paid, or to be entitled to vote if dividend payments are in arrears, it must be stated in the Articles of Incorporation.
Which of the following is correct about the law of corporations? 1) Each shareholder owes a fiduciary duty to his or her corporation. 2) Majority shareholders owe a fiduciary duty to their corporation. 3) Majority shareholders do not owe a fiduciary duty to minority shareholders. 4) All of the above are correct.
2) Majority shareholders owe a fiduciary duty to their corporation. Majority shareholders now owe a fiduciary duty to their corporation. Answer (a) is incorrect because minority shareholders do not owe a fiduciary duty to their corporation. Their main purpose normally is to be investors. Answer (c) is incorrect because majority shareholders now not only owe a fiduciary duty to their corporation but also to the minority shareholders. Answer (d) is incorrect because answer (b) is correct.
By law, a corporation 1) Must issue both common stock and preferred stock. 2) May issue more than one class of common stock as well as more than one class of preferred stock. 3) Must issue dividends if it has earned a profit. 4) Must issue at least some cumulative preferred stock.
2) May issue more than one class of common stock as well as more than one class of preferred stock. A corporation by law may issue one or more classes of common stock. This is also true for preferred stock. Answer (a) is incorrect because a corporation is not required to issue preferred stock. Answer (c) is incorrect because it is at the discretion of the board of directors to declare a dividend. They may wish to keep the earnings in the corporation for expansion purposes, etc. Answer (d) is incorrect because if it issues preferred stock, it may be either cumulative preferred stock or noncumulative preferred stock.
Hogan is a director of a large corporation. Hogan owns a piece of land that the corporation wishes to purchase and Hogan desires to sell this land at the fair market price. If he sells the land to the corporation, has he breached any fiduciary duty? 1) No, a director does not owe a fiduciary duty to his corporation. 2) No, since Hogan is selling the land to his corporation in a fair and reasonable contract. 3) Yes, unless he discloses his conflict of interest to the shareholders who must then approve the sale of by a simple majority. 4) Yes, unless he discloses his conflict of interest to the shareholders who must then approve the sale by a two-thirds vote.
2) No, since Hogan is selling the land to his corporation in a fair and reasonable contract. A contract between a director and his/her corporation is valid if it is reasonable to the corporation. Hogan has not breached his fiduciary duty with the corporation since he is selling the land at fair market value. Answer (a) is incorrect because a director does owe a fiduciary duty to his/her corporation to act in its best interests. Answers (c) and (d) are incorrect because since the transaction is fair and reasonable to the corporation, the shareholders need not approve it.
Norwood was a promoter of Parker Corporation. On March 15, Norwood purchased some real estate from Burrows in Parker's name and signed the contract "Norwood, as agent of Parker Corporation." Parker Corporation, however, did not legally come into existence until June 10. Norwood never informed Burrows on or before March 15 that Parker Corporation was not yet formed. After the corporation was formed, the board of directors refused to adopt the preincorporation contract made by Norwood concerning the real estate deal with Burrows. Burrows sued Parker, Norwood, and the board of directors. Which of the following is correct? 1) None of these parties can be held liable. 2) Norwood only is liable. 3) Norwood and Parker are liable but not the board of directors. 4) Norwood, Parker, and the board of directors are all liable.
2) Norwood only is liable. Since the corporation never adopted the contract by words or actions, it is not liable. The board of directors is not personally liable either because they never agreed to the contract. However, Norwood is personally liable on the contract because he signed the contract and agency law will not protect him. This is true because he was not an agent, even though he claimed to be, because there was no principal to authorize him when the contract was made on March 15.
A silent partner in a general partnership 1) Helps manage the partnership without letting those outside the partnership know this. 2) Retains unlimited liability for the debts of the partnership. 3) Both of the above are correct. 4) None of the above is correct.
2) Retains unlimited liability for the debts of the partnership. A silent partner does not help manage the partnership but still has unlimited liability
All of the following distributions to stockholders are considered asset or capital distributions, except 1) Liquidating dividends. 2) Stock splits. 3) Property distributions. 4) Cash dividends.
2) Stock splits. A stock split increases the number of shares outstanding and proportionately decreases the par value per share. However, the total outstanding par value does not change and therefore no charge is made to retained earnings or capital. Liquidating dividends represent a return of the stockholders' capital and are considered a capital distribution. Both cash and property distributions are considered asset distributions. Property distributions are recorded at the fair market value of the asset at the date of transfer.
As a Person
a corporation is considered a person for some but not all purposes.
Which of the following is true of the typical limited liability company? 1) It provides for limited liability for some of its members (owners), that is, those identified as limited members (owners). 2) The members' (owners') interests are not freely transferable. 3) Voting members (owners) but not all members can help choose the managers of the company. 4) No formalities are required for its formation.
2) The members' (owners') interests are not freely transferable. In the typical limited liability company (LLC), unlike the common corporation, the interests of the members are not freely transferable. The other members have to agree to admit new members. Answer (a) is incorrect because it provides for limited liability of all of its members. Answer (c) is incorrect because all members have a voice in the management of the LLC. Answer (d) is incorrect because a limited liability company must be formed pursuant to the filing requirements of the relevant state statute.
The corporate veil is most likely to be pierced and the shareholders held personally liable if 1) The corporation has elected S corporation status under the Internal Revenue Code. 2) The shareholders have commingled their personal funds with those of the corporation. 3) An ultra vires act has been committed. 4) A partnership incorporates its business solely to limit the liability of its partners.
2) The shareholders have commingled their personal funds with those of the corporation. The court will disregard the corporate entity and hold the shareholders individually liable when the corporate form is used to perpetrate a fraud or is found to be merely an agent or instrument of its owners. An example of when the corporate veil is likely to be pierced is if the corporation and its shareholders commingle assets and financial records. In such a situation, the shareholders lose their limited liability and will be held personally liable for the corporation's legal obligations. Answer (a) is incorrect because the election of S corporation status is allowable under the law and is not, in itself, grounds for piercing the corporate veil. Answer (d) is incorrect because the desire of shareholders to limit their personal liability is a valid reason to form a corporation. Limited personal liability is one advantage of the corporate entity. Answer (c) is incorrect since the court will hold personally liable only those corporate officers responsible for the commission of an ultra vires act. The court will not pierce the corporate veil and hold the shareholders personally liable for such an act.
. Which of the following statements is correct with respect to a limited partnership? 1) A limited partner may not be an unsecured creditor of the limited partnership. 2) A general partner may not also be a limited partner at the same time. 3) A general partner may be a secured creditor of the limited partnership. 4) A limited partnership can be formed with limited liability for all partners.
3) A general partner may be a secured creditor of the limited partnership. C A general partner has a voice in management and has unlimited personal liability. Anyone, including a secured creditor of the limited partnership, may be a general partner if he/she takes on these responsibilities. Answer (a) is incorrect because an unsecured creditor of the limited partnership may also be a limited partner. A limited partner is defined as having no voice in management and his/her liability is limited to the extent of his/her capital contribution. Answer (b) is incorrect because a general partner may also be a limited partner at the same time. This partner would have the rights, powers, and liability of a general partner, and the rights against other partners with respect to his/her contribution as both a limited and a general partner. Answer (d) is incorrect because every limited partnership must have at least one general partner who will be liable for the partnership obligations.
Which of the following is not true of a general partnership? 1) Ownership by the partners may be unequal. 2) It is a separate legal entity. 3) An important characteristic is that the partners share in the profits equally. 4) Each partner has an equal right to participate in management.
3) An important characteristic is that the partners share in the profits equally. C The partners may agree to share profits as well as losses unequally. Answer (a) is incorrect because the partners may agree that ownership in the partnership is unequal. Answer (b) is incorrect because under RUPA, the partnership is a separate legal entity. Answer (d) is incorrect because the partners may agree to unequal management rights.
Murphy is an employee of Landtry Corporation. Which of the following acts would make the corporation liable for Murphy's actions? I. Murphy deceived a customer to convince him to purchase one of Landtry's products. II. Murphy hit a customer with his fist breaking his jaw. The management had warned Murphy that he and not the corporation would be responsible for any aggression against customers. 1) I only. 2) II only. 3) Both I and II. 4) Neither I nor II.
3) Both I and II. A business is liable for the torts of its employees committed within the course and scope of employment. This is true even if management has warned the employee that he and not the corporation will be liable. The injured third party can hold both the employee and the corporation liable in either case.
Mandy is a limited partner in a limited partnership in which Strasburg and Hua are the general partners. Which of the following may Mandy do without losing limited liability protection? I. Mandy acts as an agent of the limited partnership. II. Mandy votes to remove Strasburg as a general partner. 1) I only. 2) II only. 3) Both I and II. 4) Neither I nor II.
3) Both I and II. A limited partner is allowed, without losing the protection of limited liability, to act as an agent of the limited partnership. The limited partner may also vote on the removal of a general partner.
Which of the following actions require(s) unanimous consent of the partners under partnership law? I. Making partnership a surety. II. Admission of a new partner. 1) I only. 2) II only. 3) Both I and II. 4) Neither I nor II.
3) Both I and II. Although individual partners normally have implied authority to buy and sell goods for the partnership, they do not have implied authority to do such things as making the partnership a surety or admitting a new partner. These require the consent of all partners.
The admission of a new limited partner to a limited partnership requires approval by I. A majority of the general partners. II. All of the general partners. III. A majority of the limited partners. IV. All of the limited partners. 1) I only. 2) II only. 3) I and III only. 4) II and IV only.
4) II and IV only. Unlike the admission of a new general partner, the admission of a new limited partner requires the written approval of not only all of the general partners but also all of the limited partners.
The following are two statements concerning a fiduciary duty in a corporation. I. Officers and directors of a corporation owe a fiduciary duty to that corporation. II. Majority shareholders of a corporation can owe a fiduciary duty to the minority shareholders. Which of the statements is(are) correct? 1) I only. 2) II only. 3) Both I and II. 4) Neither I nor II.
3) Both I and II. Officers and directors are in important positions in a corporation. As such, they owe a fiduciary duty to the corporation to act in the best interests of the corporation. Courts have also recognized that because majority shareholders can exercise a lot of power in a corporation from their stockholdings and voting rights, they owe a fiduciary duty to the minority shareholders when these majority shareholders have de facto control over the corporation by virtue of their concentrated ownership.
McGarry is an officer of Norton Corporation. McGarry has committed a tort while acting for Norton Corporation within the scope of her authority. Which of the following is(are) true? 1) McGarry is liable for the tort committed. 2) Norton Corporation is liable for the tort committed. 3) Both McGarry and Norton are liable for the tort committed. 4) Neither McGarry nor Norton are liable for the tort committed.
3) Both McGarry and Norton are liable for the tort committed. McGarry is liable for the tort she committed. Because she was acting within the scope of her authority in the corporation, Norton corporation is also liable. Note that McGarry is not relieved of liability even though Norton Corporation is also liable because McGarry is the one who committed the tort. Therefore, answers (a), (b), and (d) are incorrect.
Owners and managers of a limited liability company (LLC) owe 1) A duty of due care. 2) A duty of loyalty. 3) Both a duty of due care and a duty of loyalty. 4) None of the above.
3) Both a duty of due care and a duty of loyalty. Owners and managers of an LLC owe a duty of due care. They also owe a duty to be loyal to their LLC.
Which of the following is(are) true concerning corporations? 1) Directors owe a fiduciary duty to the corporation. 2) Officers owe a fiduciary duty to the corporation. 3) Both of the above are true. 4) None of the above are true.
3) Both of the above are true. Both directors as well as officers owe a fiduciary duty to their corporation.
Pearl Corporation has some treasury stock on hand. Which of the following is(are) true? 1) Pearl may not vote these shares of treasury stock. 2) Pearl's treasury stock does not receive any dividends. 3) Both of the above statements are true. 4) None of the above statements are true.
3) Both of the above statements are true. Treasury stock are not votable nor do they receive dividends. Therefore, answers (a), (b), and (d) are incorrect.
Under the Revised Uniform Partnership Act, partners have joint and several liability for 1) Breaches of contract. 2) Torts committed by one of the partners within the scope of the partnership. 3) Both of the above. 4) None of the above.
3) Both of the above. Under the Revised Uniform Partnership Act, partners have joint and several liability for not only torts but also breaches of contract. This is a change from previous law.
Brawn subscribed to 1,000 shares of $1 par value stock of Caldo Corporation at the agreed amount of $20 per share. She paid $5,000 on April 1 and then paid $9,000 on August 1. Caldo Corporation filed for bankruptcy on December 1 and the creditors of the corporation sought to hold Brawn liable under her subscription agreement. Which of the following is true? 1) Brawn has no liability to the creditors because subscription contract was with the corporation, not the creditors. 2) Brawn has no liability to the creditors because she has paid more than $1,000 to the corporation which is the par value of the 1,000 shares. 3) Brawn is liable for $6,000 to the creditors for the amount unpaid on the subscription price. 4) Brawn is liable for $6,000 to the creditors based on the doctrine of ultra vires.
3) Brawn is liable for $6,000 to the creditors for the amount unpaid on the subscription price. Since Brawn had a contract to purchase 1,000 shares at $20 per share, this is binding. Therefore, the creditors can recover in bankruptcy the remainder of the price not paid. Answer (a) is incorrect because the creditors have the right to see that the bankruptcy estate includes this amount owed the corporation. Answer (b) is incorrect because the contract required that the full $20,000 be paid, not just the par value. Answer (d) is incorrect because ultra vires acts are acts that are beyond the scope of the powers of the corporation. These do not apply to this fact pattern.
Riewerts, Morgar and Stonk form a limited partnership. Riewerts is the one general partner. Which of the following events will cause this limited partnership to be dissolved? I. Riewerts dies and is survived by the other two partners. II. Morgan dies leaving Riewerts and Stonk. III. Riewerts takes out personal bankruptcy. IV. Stonk takes out personal bankruptcy. 1) I only. 2) I and II only. 3) I and III only. 4) III and IV only.
3) I and III only. Death or bankruptcy of a general partner in a limited partnership will cause dissolution of the limited partnership. However, this is not true if a limited partner dies or goes bankrupt.
Macro Corporation was incorporated and doing business in Illinois. It is doing business in various other states including Nevada. Which of the following statements is(are) true? 1) Macro must incorporate in Nevada. 2) Macro is a domestic corporation in Nevada. 3) Macro is a domestic corporation in Illinois. 4) All of the above are true.
3) Macro is a domestic corporation in Illinois. A domestic corporation is one that operates and does business in the state in which it was incorporated. Answer (a) is incorrect because Macro, instead of incorporating in Nevada, may qualify to do business by obtaining a certificate of authority from Nevada. Answer (b) is incorrect because Macro is a foreign corporation in Nevada because it did not incorporate there. Answer (d) is incorrect because the statement in (c) is the only one that is true.
Which of the following is not a power of the board of directors? 1) May select the officers of the corporation. 2) May declare the dividends to be paid to the shareholders. 3) May amend the Articles of Incorporation. 4) All of the above are powers of the board of directors.
3) May amend the Articles of Incorporation. The Articles of Incorporation may be amended by the shareholders' vote, not by the board of directors. Answer (a) is incorrect because one of the important powers of the directors is to select the officers of the corporation. Answer (b) is incorrect because it is up to the board of directors to declare any dividends to the shareholders. Answer (d) is incorrect because answer (c) is correct.
Which of the following is not characteristic of the typical limited liability company? 1) Death of a member (owner) causes it to dissolve unless the remaining members decide to continue the business. 2) All members (owners) are allowed by law to participate in the management of the firm. 3) The company has, legally, a perpetual existence. 4) All members (owners) have limited liability.
3) The company has, legally, a perpetual existence. Limited liability companies typically have a limited life. Provisions often provide that they exist for thirty years at most and dissolve if a member dies. Therefore (a) is an incorrect response. Answer (b) is also not chosen because members (owners) are permitted to participate in the management of the LLC or can choose the management. Answer (d) is an incorrect response because one of the main benefits of an LLC is the limited liability of its members (owners).
Which of the following is not considered to be an advantage of the corporate form of doing business over the partnership form? 1) A potential perpetual and continuous life. 2) The interests in the corporation are typically easily transferable. 3) The managers in the corporation and shareholders have limited liability. 4) Persons who manage the corporation are not necessarily shareholders.
3) The managers in the corporation and shareholders have limited liability. A major advantage is that shareholders have limited liability, that is, typically limited to what they paid for the stock. However, managers do not have limited liability for their actions as managers. If a manager is also a shareholder, that person has limited liability for the ownership in the stock but can still be sued for misdeeds as a manager. Answers (a), (b), and (d) are all considered to be advantages of a corporation. Note that since a person can manage a corporation without necessarily being an owner, this can encourage professional managers to get involved.
To which of the following rights is a stockholder of a public corporation entitled? 1) The right to have annual dividends declared and paid. 2) The right to vote for the election of officers. 3) The right to a reasonable inspection of corporate records. 4) The right to have the corporation issue a new class of stock.
3) The right to a reasonable inspection of corporate records. Shareholders have the right to inspect the corporate records if done in good faith for a proper purpose. Answer (a) is incorrect because shareholders do not have a right to dividends. It is the decision of the board of directors whether or not to declare dividends. Answer (b) is incorrect because although at least one class of stock must have voting rights to elect the board of directors, the officers may be selected by the board of directors. Answer (d) is incorrect because the shareholders cannot force an issuance of a new class of stock.
Which of the following securities are corporate debt securities? -Convertible bonds -Debenture bonds -Warrants 1) Yes-Yes-Yes 2) Yes-No-Yes 3) Yes-Yes-No 4) No-Yes-Yes
3) Yes-Yes-No Corporate debt securities include the following: (1) registered bonds, (2) bearer bonds, (3) debenture bonds, (4) mortgage bonds, (5) redeemable bonds, and (6) convertible bonds. A warrant is not a corporate debt security, but rather is written evidence of a stock option which grants its owner the option to purchase a specified amount of shares of stock at a stated price within a specified period of time.
Which of the following statements is not true of a sole proprietorship? 1) Federal and state governments typically require a formal filing with the appropriate government officials whether or not the sole proprietorship uses a fictitious name. 2) The sole proprietorship is not a separate legal entity apart from its owner. 3) The capital to start the business is generally limited to the funds the sole proprietor either has or can borrow. 4) It is generally considered to be the simplest type of business structure.
4
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, 2008, Owen had losses of $180,000. What amount of the losses should be allocated to Kale? 1) $ 40,000 2) $ 60,000 3) $ 90,000 4) $100,000
4) $100,000 4 Profits and losses in a general partnership are shared equally unless otherwise specified in the partnership agreement. If partners agree on unequal profit sharing but are silent on loss sharing, then losses are shared per the profit sharing proportions. The partnership agreement for Owen Associates provided that profits be paid to the partners in the ratio of their financial contribution to the partnership. The ratios are as follows: Total contributed $10,000 + 30,000 + 50,000 = $90,000 Moore $10,000 ÷ 90,000 = 1/9 Noon $30,000 ÷ 90,000 = 1/3 Kale $50,000 ÷ 90,000 = 5/9 For the year ended December 31, 2008, Owen had losses of $180,000. Therefore, Kale would be allocated $100,000 of the losses ($180,000 × 5/9).
Acorn Corp. wants to acquire the entire business of Trend Corp. Which of the following methods of business combination will best satisfy Acorn's objectives without requiring the approval of the shareholders of either corporation? 1) A merger of Trend into Acorn, whereby Trend shareholders receive cash or Acorn shares. 2) A sale of all the assets of Trend, outside the regular course of business, to Acorn for cash. 3) An acquisition of all the shares of Trend through a compulsory share exchange for Acorn shares. 4) A cash tender offer, whereby Acorn acquires at least 90% of Trend's shares, followed by a short-form merger of Trend into Acorn.
4) A cash tender offer, whereby Acorn acquires at least 90% of Trend's shares, followed by a short-form merger of Trend into Acorn. When Acorn pays cash and buys 90% or more of Trend's shares, it has control of the Trend stock. It can then accomplish a short-form merger of Trend Corp. into Acorn Corp. Answer (a) is incorrect because this can require the approval of Acorn shareholders. Answer (b) is incorrect because this is not a regular sale of Trend's assets and will require shareholder approval. Answer (c) is incorrect because the entire compulsory exchange for Acorn shares to accomplish the acquisition does require shareholder approval.
Sydney, Bailey, and Calle form a partnership under the Revised Uniform Partnership Act. During the first year of operation, the partners have fundamental questions regarding the rights and obligations of the partnership as well as the individual partners. Which of the following questions can correctly be answered in the affirmative? I. Is the partnership allowed legally to own property in the partnership's name? II. Do the partners have joint and several liability for breaches of contract of the partnership? III. Do the partners have joint and several liability for tort actions against the partnership? 1) I only. 2) I and II only. 3) II and III only. 4) I, II, and III.
4) I, II, and III. Under RUPA, the partnership is a legal entity that can own property in its own name. The partners also have joint and several liability for all debts whether they are based in contract or tort.
Which of the following statements is correct with respect to the differences and similarities between a corporation and a limited partnership? 1) Stockholders may be entitled to vote on corporate matters but limited partners are prohibited from voting on any partnership matters. 2) Stock of a corporation may be subject to the registration requirements of the federal securities laws but limited partnership interests are automatically exempt from those requirements. 3) Directors owe fiduciary duties to the corporation and limited partners owe such duties to the partnership. 4) A corporation and a limited partnership may be created only under a state statute and each must file a copy of its organizational document with the proper governmental body.
4) A corporation and a limited partnership may be created only under a state statute and each must file a copy of its organizational document with the proper governmental body. Corporations and limited partnerships may only be created pursuant to state statutes. Normally, both the Articles of Incorporation and a Certificate of Limited Partnership must be filed with the Secretary of State. Answer (c) is incorrect since limited partners do not owe fiduciary duties to the partnership. Answer (a) is incorrect since limited partners have the right to vote on partnership matters such as the dissolution or winding up of the partnership, loans of the partnership, a change in the nature of the business of a partnership, and the removal of a general partner without jeopardizing their limited partner status. Answer (b) is incorrect since sale of limited partnership interests is not automatically exempted from the general securities laws' registration requirements.
When a consolidation takes place under the law of corporations, which of the following is true? 1) Two or more corporations are joined into one new corporation. 2) All assets are acquired by the new corporation. 3) The new corporation is liable for the debts of each of the old corporations. 4) All of the above are true.
4) All of the above are true. Under corporate law when a consolidation takes place, one new corporation comes from the joining of two or more corporations. Also, the assets and liabilities of the old corporations are acquired by the new corporation and the new corporation is liable for the debts of the old corporations.
In a limited partnership, the limited partners' capital contribution may be in which of the following forms? 1) A promise to perform services in the future for the partnership. 2) An agreement to pay cash. 3) A promise to give property. 4) All of the above.
4) All of the above. Partners' capital may not only be in cash, property, or services already performed, but also may be in the form of promises to give or perform these at a future date.
Which of the following constitute(s) valid consideration or value to purchase shares of stock? 1) Services performed. 2) Intangible property. 3) Services contracted to be performed in the future. 4) All of the above.
4) All of the above. Valid consideration or value to purchase shares of stock can be any benefit to the corporation including any services contracted for that are yet to be performed in the future.
Absent a specific provision in its Articles of Incorporation, a corporation's board of directors has the power to do all of the following, except 1) Repeal the bylaws. 2) Declare dividends. 3) Fix compensation of directors. 4) Amend the Articles of Incorporation.
4) Amend the Articles of Incorporation. Normally, the board of directors of a corporation has the power to adopt, amend, and repeal the bylaws. It also has the power to declare dividends and fix the compensation of the directors. However, it does not have the power to amend the Articles of Incorporation.
A corporation as a separate legal entity can do which of the following? 1) Contract in its own name with its own shareholders. 2) Contract in its own name with its own shareholders only if a majority of its shareholders agree that such a contract can be made. 3) Contract in its own name with third parties. 4) Both a. and c. are correct.
4) Both a. and c. are correct. A corporation may make contracts in its own name with both its shareholders and third parties. Answer (a) is incorrect because it may also make contracts with third parties. Answer (b) is incorrect because corporations do not generally need the consent of other shareholders to contract with one shareholder. Answer (c) is incorrect because it may also contract with its shareholders.
Which of the following is not true of a joint venture? 1) Each joint venturer is personally liable for the debts of a joint venture. 2) Each joint venturer has the right to participate in the management of the joint venture. 3) The joint venturers owe each other fiduciary duties. 4) Death of a joint venturer dissolves the joint venture.
4) Death of a joint venturer dissolves the joint venture. The law of joint ventures is similar to the law of partnerships with some exceptions. One of these exceptions is that the death of a joint venturer does not automatically dissolve the joint venture. Answers (a), (b), and (c) are all incorrect because these are all examples in which joint venture law and partnership law are similar, involving liability, right to participate in management, and fiduciary duties.
Which of the following statements is(are) true under the law affecting corporations? I. A corporation may indemnify directors against lawsuits based on their good-faith actions for the corporation. II. A corporation may indemnify officers against lawsuits based on their good-faith actions for the corporation. III. A corporation is allowed to purchase liability insurance for its directors. 1) I only. 2) I and II only. 3) I and III only. 4) I, II, and III.
4) I, II, and III. A corporation may indemnify both its directors as well as its officers against suits based on their duties for the corporation if they acted in good faith and in the best interests of the corporation. A corporation may also purchase insurance to cover the liability for lawsuits lost based on actions of its directors and also its officers.
Which of the following statements is(are) true? I. Corporations can be found liable for crimes. II. Directors can face prison sentences for crimes committed by their corporations. III. Employees can be found guilty of crimes they commit while working for their corporation. 1) I only. 2) I and II only. 3) III only. 4) I, II, and III.
4) I, II, and III. All three statements are true in the interest of punishing all parties who commit crimes.
The admission of a new general partner to a limited partnership requires approval by I. A majority of the general partners. II. All of the general partners. III. A majority of the limited partners. IV. All of the limited partners. 1) I only. 2) II only. 3) I and III only. 4) II and IV only.
4) II and IV only. The admission of a new general partner to a limited partnership under the Revised Uniform Limited Partnership Act requires the approval of all partners.
When a corporation elects to be a Subchapter S corporation, which of the following statements is(are) true regarding the federal tax treatment of the corporation's income or loss? I. The corporation's income is taxed at the corporate level and not the shareholders' level. II. The shareholders report the corporation's income on their tax returns when the income is distributed to them. III. The shareholders report the corporation's income on their tax returns even if the income is not distributed to them. IV. The shareholders generally report the corporation's loss on their tax returns. 1) I only is true. 2) II only is true. 3) III only is true. 4) III and IV only are true.
4) III and IV only are true. When a corporation elects to be a Subchapter S corporation, the corporate income and loss flow through to the income tax returns of the individual shareholders even when the income is not distributed to them. Answer (a) is incorrect because the corporation's income is not taxed at the corporate level when the Subchapter S election is made. Answer (b) is incorrect because the income flows through to the stockholders' tax returns regardless of when the distribution takes place. Answer (c) is incorrect because statement IV as well as statement III are both correct as discussed above.
Which of the following can be a partnership? 1) Karen and Sharon form a charitable organization in which they received donations to give to their favorite charities. 2) Frank and Pablo are members of a union at work that has 150 members. 3) Janice and Stanley form a club to encourage business contacts for computer programmers. 4) None of the above.
4) None of the above. A partnership involves two or more persons to carry on a business as co-owners for a profit. Partnerships do not include nonprofit associations such as charitable organizations, labor unions or clubs.
Cleanit Corporation was incorporated in Colorado. Cleanit wishes to perform some transactions in other states but does not want to incorporate or obtain a certificate of authority to qualify to do business in those other states. Which of the following normally would require Cleanit to obtain a certificate of authority in other states? 1) Using the US mail to solicit orders in those states. 2) Holding bank accounts in those states. 3) Collecting debts in those states. 4) None of the above.
4) None of the above. None of the listed items are normally considered doing business in the other states such that Cleanit would be required to qualify to do business and thus have to obtain certificates of authority from those states. Therefore, answers (a), (b), and (c) are incorrect.
Which of the following statements best describes the effect of the assignment of an interest in a general partnership? 1) The assignee becomes a partner. 2) The assignee is responsible for a proportionate share of past and future partnership debts. 3) The assignment automatically dissolves the partnership. 4) The assignment transfers the assignor's interest in partnership profits and surplus.
4) The assignment transfers the assignor's interest in partnership profits and surplus. A partner's interest in a partnership is freely assignable without the other partners' consent. A partner's interest refers to the partners' right to share in profits and return of contribution. Answer (a) is incorrect because the assignee does not become a partner without the consent of all the other partners. Answer (b) is incorrect because the assignor remains liable as a partner. The assignee has only received the partner's right to share in profits and capital return. Answer (c) is incorrect because assignment of a partner's interest does not cause dissolution unless the assignor also withdraws.
Under the Revised Model Business Corporation Act, which of the following must be contained in a corporation's articles of incorporation? 1) Quorum voting requirements. 2) Names of stockholders. 3) Provisions for issuance of par and nonpar shares. 4) The number of shares the corporation is authorized to issue.
4) The number of shares the corporation is authorized to issue. Under the Revised Model Business Corporation Act, a corporation's Articles of Incorporation generally must include the name of the corporation, the purpose of the corporation, the powers of the corporation, the name of the incorporators, the name of the registered agent of the corporation and the number of shares of stock the corporation is authorized to issue.
A partnership agreement must be in writing if 1) Any partner contributes more than $500 in capital. 2) The partners reside in different states. 3) The partnership intends to own real estate. 4) The partnership's purpose cannot be completed within one year of formation.
4) The partnership's purpose cannot be completed within one year of formation. D A partnership agreement may be expressed or implied based upon the activities and conduct of the partners. The expressed agreement may be oral or in writing with, in general, one exception. A partnership agreement that cannot be completed within one year from the date on which it is entered into must be in writing. Answer (b) is incorrect because the partners may reside in different states without having to put the partnership agreement in writing. Answer (a) is incorrect because the $500 amount applies to the sale of goods which must be in writing, not partnerships. Answer (c) is incorrect because the purpose of the partnership is irrelevant. Agreements to buy and sell real estate must be in writing, while an agreement to form a partnership whose principal activity will involve the buying and selling of real estate normally need not be in writing unless the stated duration exceeds one year.
Which of the following statements is a general requirement for the merger of two corporations? 1) The merger plan must be approved unanimously by the stockholders of both corporations. 2) The merger plan must be approved unanimously by the boards of both corporations. 3) The absorbed corporation must amend its articles of incorporation. 4) The stockholders of both corporations must be given due notice of a special meeting, including a copy or summary of the merger plan.
4) The stockholders of both corporations must be given due notice of a special meeting, including a copy or summary of the merger plan. As one of the steps leading up to a merger of two corporations, the stockholders need to be given notice of the merger plan. This is true of the stockholders of both corporations, so a special meeting is called inviting both sets of stockholders. Answers (a) and (b) are incorrect because unanimous approval is not needed by either the stockholders or the boards of either corporation. Answer (c) is incorrect because the absorbed corporation will no longer exist after the merger plan is accomplished.
Dissociated Partner's Liability to Third persons
A partner's dissociation does not of itself discharge the partner's liability for a partnership obligation incurred before dissociation; a dissociated partner is liable for a partnership obligation incurred within two years after a partner dissociates unless notice of the dissolution is given to a third party
Binds Partnership
A partnership is bound by a partner's knowledge, notice, or receipt of a notification of a fact relating to the partnership.
Hart and Grant formed Hart Limited Partnership. Hart put in a capital contribution of $20,000 and became a general partner. Grant put in a capital contribution of $10,000 and became a limited partner. During the second year of operation, a third party filed a tort action against the partnership and both partners. What is the potential liability of Hart and Grant respectively? 1) $20,000 and $0. 2) $20,000 and $10,000. 3) Unlimited liability and $0. 4) Unlimited liability and $10,000.
4) Unlimited liability and $10,000. If the liability is more than the partnership can pay, each partner loses its capital contribution and then the general partner has personal, unlimited liability for the debt.
Wind, who has been a partner in the PLW general partnership for four years, decides to withdraw from the partnership despite a written partnership agreement that states, "no partner may withdraw for a period of five years." Under the Uniform Partnership Act, what is the result of Wind's withdrawal? 1) Wind's withdrawal causes a dissolution of the partnership by operation of law. 2) Wind's withdrawal has no bearing on the continued operation of the partnership by the remaining partners. 3) Wind's withdrawal is not effective until Wind obtains a court-ordered decree of dissolution. 4) Wind's withdrawal causes a dissolution of the partnership despite being in violation of the partnership agreement.
4) Wind's withdrawal causes a dissolution of the partnership despite being in violation of the partnership agreement. Even if a partner has agreed not to withdraw before a certain period of time, s/he has the power to do so anyway. That partner's withdrawal is a break of contract and causes a dissolution of the partnership. Answer (a) is incorrect because this dissolution is caused by an act of a partner rather than by operation of law. Answer (b) is incorrect because Wind's withdrawal does have an effect on the remaining partners because they must decide on what new terms they will operate or else wind up and terminate the partnership. Answer (c) is incorrect because the dissolution is effective once Wind does withdraw from the partnership. A court decree is not necessary.
1. Lapse of Time 2. Fulfillment of Purpose 3. mutual agreement of parties 4. revocation of authority 5. renunciation by the agent
5 Components of Termination of Agency:
C
A __________ is a partnership in which the liability of the general partners has been limited to the same extent as in a limited liability partnership. a. limited partnership b. limited liability company c. limited liability limited partnership d. None of these are correct.
Involuntary Dissolution
A corporation may be involuntarily dissolved by administrative or judicial dissolution
Winding up Required
A dissolved partnership must be wound up and terminated when the winding up of its business is completed unless all of the partners, including any rightfully dissociating partner, waive the right to have the partnership's business would up and the partnership terminated
B
A general partner of a limited partnership has a __________ relationship to the general and limited partners. a. limited b. fiduciary c. foreign d. None of the above.
a. limited liability partnership.
A general partnership that, by making the statutorily required filing, limits the liability of its partners for some or all of the partnership's obligations is known as a: a. limited liability partnership. b. limited liability company. c. limited liability limited partnership. d. limited partnership
D
A limited partner's financial obligation to the partnership may be increased if the: a. limited partner acts as agent for a competing partnership. b. limited partner takes active part in the management of the partnership. c. certificate of limited partnership is incorrect or incomplete. d. Both (b) and (c).
Quorum and Voting
A majority of the board members constitutes a _________. Supermajority or unanimous vote of the board may be required for some or all matters.
Crimes
A partner is not criminally liable for the crimes of her partners unless she authorized or participated in them
Cause of Dissolution - Dissolution by Operation of Law
A partnership is dissolved by operation of law upon the subsequent illegality of the partnership business (such as say alcohol become illegal then all liquor stores have to close)
b
A valid ratification a) may stem from unauthorized acts of an agent regardless of whether the principal existed at the time of the acts b) cannot be revoked once made c) relates back only to the time of disclosure of the principal d) none of the above
C
Actions by an agent that make the agent liable on the contract entered into between the principal and the third party include a) making the contract in the principal's name only b) committing any crime c) making the contract in the principal's name only d) all of the above
Creation of Agency
Agency is a consensual relationship that the principal and agent may form by contract or agreement. The Restatement defines an agency relationship as "the fiduciary relationship that arises when one person (a principal) manifests assent to another person (an agent) that the agent shall act on the principals behalf and subject to the principals control, and the agent manifests assent or otherwise consents so to act."
A
All statutes require LLPs to: a. designate themselves as LLPs. b. register or obtain a certificate of authenticity if they are foreign LLPs. c. make a new filing with the secretary of state after any change in membership. d. follow the laws of the jurisdiction under which they are registered regarding internal affairs and organization.
Agents and Employees
Although all employees are agents, not all agents are employees and are referred to as independent contractors. Not all independent contractors are agents because the the person hiring the contractor has no right of control over the independent contractor.
c
An LLC's limitation on liability will not affect the liability of a member who: a. committed the wrongful act giving rise to the liability. b. guaranteed the obligation. c. All of these are correct. d. None of these are correct.
Apparent Authority
An act of a partner for apparently carrying on in the ordinary course the partnership business or business of the kind carried on by the partnership binds the partnership, so long as that third person has no knowledge or notice of the lack of actual authority.
Agent Function
An agent functions as an agent by dealing with third persons, thereby establishing legal relationships between the principal and those third persons. Agency is primarily governed by state common law.
D
An agent is liable to the third person if the agent a) acts for an undisclosed principal b) exceeds the authority granted by the principal c) commits a tortious act d) all of the above
Participation in WInding up
Any partner who has not wrongfully dissociated may participate in winding up of the partnership's business
c. in violation of the partnership agreement or statute is liable to the partnership for six years for the amount wrongfully returned.
Any partner, in a limited partnership, to whom any part of her contribution has been returned: a. without violation of the partnership agreement or statute is not liable to the partnership to the extent necessary to pay creditors who extended credit during the time the partnership held the contribution. b. in violation of the partnership agreement or statute is liable to the partnership for no more than one year for the amount wrongfully returned. c. in violation of the partnership agreement or statute is liable to the partnership for six years for the amount wrongfully returned. d. in violation of the partnership agreement or statute has liability for an unlimited time period for the amount wrongfully received.
Combinations
Corporation may purchase or lease other corporations' assets, purchase a controlling stock interest in other corporations, merge with other corporations, or consolidate with other corporations
true
T/F: The RULPA and the 1985 RULPA are supplemented by the Uniform Partnership Act, which applies to limited partnerships in any case for which the Limited Partnership Act does not provide
true
T/F: The Revised Act considers a transfer of any or all of a corporation's assets to a wholly owned subsidiary to be a sale in the regular course of business
Termination of Agency
Authority of agency is based upon the consent of the principal, the agency is terminated when such consent is withdrawn or otherwise ceases to exist.
Actual Express Authority
Authority set forth in the partnership agreement, in additional agreements among the partners, or in decisions made by a majority of the partners regarding the ordinary business of the partnership.
Actual Implied Authority
Authority that is reasonably deduced from the nature of the partnership, the terms of the partnership agreement, or the relations of the partners
A general partnership must 1) Pay federal income tax. 2) Have two or more partners. 3) Have written articles of partnership. 4) Provide for apportionment of liability for partnership debts. 2) Have two or more partners.
B A general partnership is an association of two or more persons to carry on a business as co-owners for profit. There must be at least two partners involved in order for a partnership to exist. Answer (a) is incorrect because a general partnership is normally not recognized as a taxable entity under federal income tax laws. Answer (c) is incorrect because execution of written articles of partnership is not required to create a general partnership. A partnership agreement may be oral or in writing. Answer (d) is incorrect because a partnership does not have to provide for apportionment of liability for partnership debt. Note that even if the partners agreed to split partnership liability in a specified proportion, third parties can still hold each partner personally liable despite the agreement.
Cause of Dissolution - Dissolution by COurt Order
a court will order dissolution of a partnership under certain conditions
Joint and Several Liability
a creditor may sue the partners jointly as a group or separately as individuals
Dissociation
Change in the relation of partners caused by any partner's ceasing to be associate in carrying on of the business
Agency
Consensual relationship authorizing one party (the agent) to act on behalf of the other party (the principal) subject to the principals control
true
T/F: The Revised Act grants dissenters' rights in connection with a sale or exchange of all or substantially all of a corporation's assets not made in the usual or regular course of business, including a sale in dissolution
B
Daniel is a general partner in a real estate investment firm. Hank and Barry are limited partners. Daniel, without the consent or ratification of Hank and Barry, can: a. admit another limited partner. b. act as an agent of the partnership. c. rename the partnership using Hank's last name. d. not have almost exclusive managerial control of the business.
Operation of Law
Death- of either the principal or the agent
false
T/F: The certificate of limited partnership need not be amended if a new general partner is admitted or withdraws from the partnership.
Meeting
Directors have the power to bind the corporation only when acting as a board.
Effects of Dissolution - Liability
Dissolution does not in itself discharge the existing liability of any partner; partners are liable to the other partners for their share of partnership liabilities incurred after dissolution.
true
T/F: The laws of the state in which a foreign limited partnership is organized govern its organization, its internal affairs, and the liability of its limited partners.
false
T/F: The majority of states have adopted the 2001 revision of the Revised Uniform Limited Partnership Act (ReRULPA), which reflects that LLPs and LLCs can meet many of the needs formerly met by limited partnerships
B
Effective constructive notice is achieved through a) radio announcements b) statements in geographically proper newspaper of general circulation c) billboard ads d) handbills
connor engaged in self-dealing and the transaction may be rescinded
I hire connor to purchase land suitable for a basketball arena. connor already owns such land and sells it to me without telling me he already owned it. what are my legal options?
Amendments that can be adopted without shareholder action:
Extending the duration of a corporation that was incorporated when limited duration was required by law, changing each issued and unissued authorized share of an outstanding class into a greater number of whole shares if corporation has only one class of shares, and making minor name changes
D
Extinguishing a limited partnership involves: a. dissolution. b. winding up or liquidation. c. termination. d. All of the above.
A
If Jack contributed $1000 as a limited partner and signed a certificate, but the certificate was filed in the wrong office, Jack: a. will not be liable as a general partner if he quickly withdraws from the business and renounces future profits. b. is not a partner at all and may withdraw his contribution. c. cannot avoid liability as a general partner under any circumstances. d. may become a limited partner by giving constructive notice of the defective filing to all potential business contacts by an advertisement in a publication of general circulation.
Personal Liability
If the partnership is contractually bound, each partner has joint and several unlimited personal liability
Duty to Account
If you mishandle money you must show and tell people. You must disclose your mistake. an agent must maintain and provide the principal with an accurate account of money or other property that the agent has received or expended on behalf of the principal
ture
T/F: Unanimous written consent of all partners is required to add new limited partners to a limited partnership, unless the partnership agreement provides otherwise.
Voting
LLC statues usually specifiy the voting rights of members, subject to a contrary provision in an LLC's operating agreement
Name
LLC statutes generally require the name of the LLC to include the words Limited liability company or the abbreviation LLC
Information
LLCs must keep basic organization and financial record, each member has the right to inspect the LLC records
true
T/F: Under the RULPA, a limited partnership may not use a name that is deceptively similar to that of any corporation or other limited partnership.
Purchase or Lease of All or Substantially All of the Assets
Legal personality of neither corporation changes; Purchaser corporation acquires ownership/control of additional physical assets; selling corporation receives cash, other property, or stipulated rental; requires shareholder approval if not done in ordinary course of business; purchasing corporation does not assume other's liabilities unless purchaser expressly or impliedly agrees, transaction amounts to consolidation/merger, purchaser is mere continuation of seller, sale is for fraudulent purpose of avoiding seller's liabilities
true
T/F: Unless dissenting shareholder makes written demand within prescribed time period, he is not entitled to payment for his shares
true
T/F: When one corporation acquires all of, or a controlling interest in, the stock of another corporation, the legal existence of neither corporation changes
A
Normally the principal is not liable for contracts by an agent's acts that are a) unauthorized b) expressly unauthorized c) actually authorized d) implicitly authorized
C
Principals adjudged liable for their agents' torts have rights of a) equitable contribution b) injunctive relief c) indemnification d)condemnation against the agents
true
T/F: False statements in a limited partnership's certificate or amendment that cause loss to third parties who rely on the statement may result in liability for the general partners.
true
T/F: Foreign limited partnerships do not have to operate in another country to be identified as "foreign."
false
T/F: In Alzado v. Blinder, Robinson & Company, Inc., Blinder, Robinson & Co. was found liable to partnership creditors as a general partner because it assumed control of the business and thus lost its limited partnership status.
D
Ratification must be a) communicated to the agent b) communicated tot he third person c) manifested by words d) none of the above
true
T/F: Joe Stewart is a limited partner in a limited partnership. Joe does not have the right to dissolve the partnership except by decree of a court
false
T/F: Members of an LLC share profits and losses equally.
false
T/F: Not all of the states have enacted statutes enabling the formation of limited liability partnerships (LLPs).
false
T/F: One of the most appealing features of a limited partnership is the limited personal liability it offers to all of the partners.
false
T/F: Ordinarily, members of manager-managed LLCs have duties to the LLC and its members by reason of being members
true
T/F: RULPA does not distinguish between the duty of care owed by a general partner to a general partnership and that owed by a general partner to a limited partnership.
A corporate stockholder is entitled to which of the following rights? 1) Elect officers. 2) Receive annual dividends. 3) Approve dissolution. 4) Prevent corporate borrowing.
Shareholders have the right to vote on the dissolution of the corporation. Stockholders also have the right to elect the directors of the corporation, who in turn elect the officers. Answer (b) is incorrect as shareholders do not have the right to receive dividends unless they are declared by the board of directors. Answer (d) is incorrect as shareholders are not necessarily involved in the management of the corporation and cannot prevent corporate borrowing.
true
T/F: Some statutes permit the operating agreement of a limited liability company to deny members the right to withdraw from the company.
T
T/F An agent is always liable for his or her own torts either intentionally or negligently
true
T/F: A limited liability company is a relatively new form of unincorporated business association that blends the advantages of both general and limited partnerships, because all its members may have limited liability and all may participate in management and control without loss of limited liability.
false
T/F: A limited partner owes a duty of care to the partnership similar to that of a general partner.
false
T/F: A limited partnership agreement may not provide that limited partners have the right to vote on matters as a class separate from the general partners.
true
T/F: A limited partnership must continuously maintain within the state in which they do business, an office at which basic organizational and financial records are kept
true
T/F: A shareholder who dissents and strictly complies with the provisions of the statute is entitled to receive the fair value of his shares
true
T/F: Board of directors carry out voluntary dissolution; court-appointed receiver may conduct involuntary liquidation
D
The RULPA specifies the events that will trigger a dissolution, after which the limited partnership's affairs must be liquidated. These events include which of the following? a. The expiration of the time period specified in the certificate. b. The unanimous written consent of all the partners. c. A limited partner's withdrawal from the partnership. d. Both (a) and (b).
A
The __________ of a partner may be cash, property, services rendered, a promissory note, or an obligation to contribute cash or property or to perform services. a. contribution b. capital c. assets d. None of the above.
d
The definition of a limited liability company includes that: a. it is a noncorporate business. b. it limits liability for all its owners. c. all members may participate in management of the business. d. All of the above.
Liability of INcoming Partner - Antecedent Debts
The liability of an incoming partner for antecedent debts of the partnership is limited to her capital contribution.
Liability of Incoming Partner - Subsequent Debts
The liability of an incoming partner for subsequent debts of the partnership is unlimited
Torts
The partnership is liable for loss or injury by any wrongful act or omission or other actionable conduct of any partner while acting within the ordinary course of the business or with the authority of her copartners; the partners are jointly and severally liable
D
Typically, members of a limited liability company have the right to vote on proposals to: a. adopt or amend the operating agreement. b. admit any person as a member. c. sell all or substantially all of the limited liability company's assets prior to dissolution. d. All of the above.
Dissenting Shareholders
Under the Revised Act, _____________ receive the appraisal remedy only if an amendment materially and adversely affects their rights by altering or abolishing a preferential right of the shares, creating, altering, or abolishing a preemptive right of the holder of such shares, excluding or limiting a shareholder's right to vote on any matter or to cumulate his votes, or reducing to a fraction of a share the number of shares a shareholder owns
A
Under the Third Restatement, an agent's apparent authority ends when a third party knows that the principal is a) permanently incapacitated b) lost at sea c) terminally ill d) all of the above
general partnership
Unincorporated business owned and operated by two or more persons
A
When a third party discovers the identity of an undisclosed principal, the third party may a) hold either the principal or agent to performance of the contract b) hold both liable for the contract c) sue and get a judgment against both principal and agent d) none of the above
B
When a third party obtains a judgment against an agent who represents an undisclosed principal whose identity and existence have become known to the third party, a) the principal's liability remains intact b) a right of reimbursement against the principal arises in the agent's favor c) constructive ratification cuts off any rights the principal might have against the agent d) none of the above
B
When agents falsely represent to third persons that they are authorized by the principals to make contracts for them, the agents are _________ to the third party. a) ultimately not liable b) liable in tort c) liable in contract d) none of the above B
A
When the agents guarantee a third persons that principals will carry out the terms of contracts, a) the agents are liable for nonperformance by the principals. b) only principals are liable for their nonperformance c) no suretyship exists between the agents and third persons d) the principals have right of reimbursements against the agent
Crimes
a corporation may be criminally liable for violations of statutes imposing liability without fault or for an offense perpetrated by high corporate officer or its board of directors.
Purposes
a corporation may be formed for any lawful purposes unless its articles of incorporation state a more limited purpose.
4) All of the above are true. Persons who manage a corporation may be, but need not be, shareholders of that corporation. Also, a corporation as a separate legal entity may convey or hold property. It may also sue or be sued in its own name. Answers (a), (b), and (c) are not comprehensive enough.
Which of the following are characteristics of the corporate form of doing business? 1) Persons who manage corporations need not be shareholders. 2) The corporation may convey or hold property in its own name. 3) The corporation can sue or be sued in its own name. 4) All of the above are true.
B
Which of the following is NOT correct regarding a limited liability partnership? a. All of the states authorize them. b. It is the same as a limited partnership. c. A registered limited liability partnership is a general partnership that makes a statutorily required filing. d. All of the above.
B
Which of the following is NOT true about a limited liability company? a. It is a noncorporate business organization. b. In most states, an LLC must have at least two members. c. It may elect not to be a separate taxable entity. d. An ownership interest may be considered a security.
C
Which of the following is correct regarding a limited partnership? a. The general partner must make a capital contribution. b. It can be created in such a way that the general partner has limited liability. c. It can only be created pursuant to statutory provisions. d. Limited partners are unable to vote on the incurrence of debt other than in the ordinary course of business under the safe harbor provisions of the RULPA.
B
Which of the following is correct regarding the fiduciary duties in a limited partnership? a. A general partner has a fiduciary relationship to the limited partners, but not to any other general partners. b. Judicial authority seems to suggest that the limited partner has no fiduciary duty to the partnership. c. The fiduciary duty of the general partner has little effect upon the interests of the limited partners, because they have no ability to manage or control the partnership. d. All of these are correct.
4) A corporation is automatically terminated upon the death of a majority of its shareholders. The death of one or more of a corporation's shareholders does not automatically terminate it. Answer (a) is incorrect because a corporation continues to exist until it is dissolved, merged or otherwise terminated. Answer (b) is incorrect because shares in a corporation, represented by stocks, can be freely bought, sold, or assigned unless the shareholders have agreed to restrict this. Answer (c) is incorrect because a corporation is legally a separate entity apart from its shareholders.
Which of the following is not a characteristic of a corporation? 1) It has a continuous life. 2) Shares in the corporation can normally be freely transferred. 3) A corporation is treated as a legal entity separate from its shareholders. 4) A corporation is automatically terminated upon the death of a majority of its shareholders.
B
Which of the following is true with respect to the distribution of assets following dissolution of a limited partnership? a. Partners are paid before ex-partners for unpaid distributions. b. Limited partners who are creditors are paid at the same priority as third-party creditors of the partnership. c. The amount limited partners are paid on dissolution has no relation to the proportion in which they share in distribution of profits. d. Capital contributions are paid before unpaid distributions.
C
Which of the following is untrue of a limited partnership? a. Limited partnerships must be formed under a state statute. b. Limited partners' surnames ordinarily cannot be used in the partnership business name. c. Partners in limited partnerships must contribute services to the partnership. d. Limited partners in a limited partnership are generally not responsible for the debts of the partnership beyond their investment.
C
Which of the following need NOT be included in the certificate filed by a limited partnership? a. The name of the limited partnership. b. The name and address of the agent for service of process. c. The names and addresses of each of the limited partners. d. The name and business address of each general partner.
Creature of the State
a corporation may be formed only by substantial compliance with a State incorporation statute.
Indemnification of Directors and Officers
a corporation may indemnify a director or office for liability incurred if he acted in good faith and was not adjudged negligent or liable for misconduct.
D
With regard to a limited partner's capital contribution to the limited partnership: a. the limited partner can only contribute cash. b. a promise by a limited partner to contribute to the limited partnership is not enforceable unless it is in a signed writing. c. a limited partner is liable to the partnership for the difference between the contribution actually made and that which is stated in a signed writing promising a certain contribution. d. Both (b) and (c).
D
____________ is the missing factor that otherwise makes a principal criminally liable for an agent's unauthorized acts. a) privity b) equity c) estopple d) mental fault
Foreign LLC
a LLC is considered foreign in any state other than that in which it was formed
Legal Entity
a corporation is an entity apart from its shareholders, with entirely distinct rights and liabilities.
Fiduciary Duty
an agent owes a duty of utmost loyalty and good faith to the principal; it includes-conflicts of interest- I don't represent one client against the another or a former client. Don't serve two masters.-duty not to compete= agent can't assist competitors-misappropriation= agent can't us property of principal-confidential information=agent can't use disclosed info-duty to account for financial benefits= can't profit secretly ex: principal tells agent to sell land for $5 and the agent turns around and sell it for $10 and pockets the rest.
employment relationship
an agent whose principal controls or has the right to control the manner and means of the agent's performance of work
Corporation
an entity created by law whose existence is distinct from that of the individuals whose initiative, property, and control enable it to function.
power of attorney
an instrument that states an agent's authroity- it is a formal manifestation from principal to agent, who is known as "attorney in fact" as well as to third parties that evidences the agent's appointment and the nature or extent of the agent's authority
Preincorporation Subscribers
an offer to purchase capital stock in a corporation yet to be formed which under many incorporation statutes is irrevocable for a specified time period.
legal entity
an organization having a legal existence separate from that of its members; the revised act considers a partnership a legal entity for nearly all purposes
Partnership
an unincorporated business association of two or more persons to carry on as co-owners a business for profit
sole proprietorship
an unincorporated business owned by a single individual
Ultra Vires Acts
any action or contract that goes beyond a corporation's express and implied powers.
Agent
any person able to act may act as an agent
Requirements of Formalities
appointments of agents for a period of more than one year must be in writing
Partnership Creditors
are entitled to be first satisfied out of partnership assets
fiduciary duty
arises out of a relationship of trust and confidence and requires the utmost loyalty and good faith
lapse of time
authority conferred upon an agent for a specified time terminates when that period expires. If no time is specified, authority terminates at the end of a reasonable period
Proxy
authorization to vote another's share at a shareholder meeting.
loans
both general and limited partners may be secured or unsecured creditors of the parthsip
Direct Suits
brought by a shareholder of a class of shareholders against the corporation based upon the ownership of shares.
Derivative Suits
brought by a shareholder on behalf of the corporation to enforce a right belonging to the corporation.
Administrative Dissolution
may occur if corporation does not pay within 60 days after they are due any franchise taxes/penalties, corporation does not deliver its annual report to secretary of state within 60 days after its due, the corporation is without a registered agent or registered office in the state for 60 days or more, corporation does not notify the secretary of state within 60 days that it has changed its registered agent or registered office, the corporation's period of duration stated in its articles of incorporation expires
Dissociation
means that a member has ceased to be associated with the company and includes voluntary withdrawal, death, incompetence, expulsion, or bankruptcy
Member-managed LLCs
members of member-managed LLCs have the samw duties of care and loyalty that managers have in manager-managed LLCs
merged entity
merged into the surviving entity and ceasing to exist as a separate entity
Quorum
minimum number necessary to be present at a meeting in order to transact business.
formalities
most statues require only a majority of the partners authorize registration as an LLP; others require unanimous approval
Duty of Diligence
must act promptly and with reasonable care, and do what you can.
Duty of Obedience
must act within respective authority.
Restrictions on Transfer of Shares
must be reasonable and conspicuously noted on stock certificate.
Duty to Inform
must communicate with clients and your principal
Duty of Diligence
must exercise ordinary care and prudence.
liabilities
no member or manager of a LLC is obligated personally for any debt, obligation, or liability of the LLC solely by reason of being a member or acting as a manager of the LLC
Choice of associates
no person may be added as a general partner or a limited partner without the consent of all partners
Public Corporation
one created to administer a unit of local civil government or one created by the U.S. to conduct public business.
Domestic corporation
one created under the laws of a given State.
Foreign Corporation
one created under the laws of any other State or jurisdiction; it must obtain a certificate of authority from each State in which it does intrastate business.
Corporation de Jure (common law approach)
one formed in substantial compliance with the incorporation statute and having all corporate attributes.
Private Corporation
one founded by and composed of private persons for private purposes; has no governmental duties.
Profit Corporation
one founded to operate a business for profit.
Corporation de Facto (common law approach)
one not formed in compliance with the statute but recognized for most purposes as a corporation.
Closely Held Corporation
one that is owned by few shareholders and whose shares are not actively traded.
Nonprofit Corporation
one whose profits must be used exclusively for charitable, educational, or scientific purposes.
Publicly Held Corporation
one whose shares are owned by a large number of people and are widely traded.
Cause of Dissolution - Dissolution by act of the partners
partnership at will: withdrawal of a partner; term partnership: (1) the term ends, (2) all partners expressly agree to dissolve, (3) or a partner's dissociation is caused by a partner's death or incapacity, bankruptcy or similar financial impairment, or wrongful dissociation if within ninety days after dissociation at least half of the remaining partners express their will to wind up the partnership business; any partnership: an event occurs that was specified in the partnership agreement as resulting in dissolution
Term Partnership
partnership for a specific term or particular undertaking
Partnership at will
partnership in which the partners have not agreed to remain partners until the expiration of a definite term or the completion of a particular undertaking
Action Taken without a Meeting
permitted if a consent in writing is signed by all of the directors.
Promoter
person who takes the preliminary steps to organize a corporation.
Subscribers
persons who agree to purchase the initial stock in a corporation.
Apparent Authority
power conferred upon the agent by acts or conduct of the principal that reasonably lead a third party to believe that the agent has such power
actual authority
power conferred upon the agent by actual consent manifested by the principal to the agent
authority
power of an agent to change the legal status of the principal
Business Judgement Rule
precludes imposing liability on directors and officers for honest mistakes in judgement if they act with due care, in good faith, and in a manner reasonably believed to be in the best interests of the corporation.
Corporation de Estoppel (common law approach)
prevents a person from raising the question of a corporation's existence.
ostensible
professed but not necessarily true
Profit and loss sharing
profits and losses are allocated among partners as provided in the partnership agreement; if the partnership agreement has no such provision, then profits and losses are allocated on the basis of the contributions each partner actually made
Promoters' Fiduciary Duty
promoters owe a fiduciary duty among themselves and to the corporation, its subscribers, and its initial shareholders.
Promoters' Contracts
promoters remain liable on preincorporation contracts made in the name of the corporation unless the contract provides otherwise or unless a novation is effected.
Distribution of Assets
the default rules for distributing the assets of a LLC are (1) to creditors, including members and manager who are creditors, except with respect to liabilities for distributions; (2) to members and former members in satisfaction of liabilities for unpaid distributions, except as otherwise agreed; (3) to members for the return of their contributions, except as otherwise agreed; and (4) to members for their LLC interests in the proportions in which members share in distributions, except as otherwise agreed
Fundamental Changes
the directors have the power to make, amend, or repeal the bylaws, unless this power is exclusively reserved to the shareholders.
Employment Relationship
the employer has the right to control the manner and means of the employees performance of work
Statutory Approach
the filing or acceptance of the articles of incorporation is generally conclusive proof of proper incorporation.
Organizational Meeting
the first meeting, held to adapt the bylaws and appoint officers.
Formation
the formation of a LLC requires substantial compliance with a state's LLC statue
tests of partnership existence
the formation of a partnership requires all of the following: (1) association, (2) business for profit and (3) co-ownership
Control
the general partners have almost exclusive control and management of the limited partnership; a limited partner who participates in the control of the limited partnership may lose limited liablity
Liabilities
the general partners have unlimited liability; the limited partners have limited liability (liability for partnership obligations only to the extent of the capital that the limited partner contributed or agreed to contribute)
Causes of dissoluion
the limited partners have neither the right nor the power to dissolve the partnership, except by decree of the court; the following events trigger a dissolution: the expiration of the time period, the withdrawal of a general partner, unless all partners agree to continue the business, or a decree of judicial dissolution
Manager-Managed LLCs
the managers of manager-manged LLCs have a duty to care and loyalty; usualyl, members of a manager-managed LLC have no duties to the LLC or its members by reason of being a member
Distributions
the members share distribution of cash or other assets of an LLC as provided in the operating agreement; if the LLC's operating agreement does not allocate distributions, they are typically made on he basis of the contributions each member made
tort and contract liability
the most commonly occuring external liability
Selection of Name
the name must clearly designate the entity as a corporation.
Designation
the name of the LLP must include the words limited liability partnership or the abbrev. LLP
partner's transferable interest
the partner's share of the profits and losses of the partnership and the partner's right to receive distribution
Distributions
the partners share distributions of cash or other assets of a limited partnership as provided in the partnership agreement
Breach of Trust
the partnership is liable if a partner in the course of the partnership's business or while acting with authority of the partnership breaches a trust by misapplying money or property entrusted by a third person; the partners are jointly and severally liable
Incorporators
the persons who sign the articles of incorporation.
Reimbursement
the principal must pay back to the agent authorized payments the agent has made on the principals behalf. Secretary example: jane goes and buys printer paper with her own money the principal needs to reimburse her for that
Indemnification
the principal must pay the agent for losses the agent incurred while acting as directed by the principal