Business Management 217 Final Exam Review Ch 12-16

General partnerships rights and duties

-Each partner is a co-owner of all partnership property -May not use partnership property for personal use without partnership consent -If a partner sells or assigns partnership interest, partnership continues, but new person not a partner. New person is entitled to receive partner's share of profits Cannot participate in management of partnership or partnership information -Each partner has a fiduciary duty to other partner(s) Must put partnership interests above personal interests No secret profits or self-dealing -Each partner is an agent for the partnership with the power to bind the partnership to contracts Profits and losses of the partnership are divided equally. -Each partner has unlimited personal liability for partnership debts and obligations.

Requirements for a partnership

-No requirement of a formal partnership agreement (orally or in writing) -If no agreement or formal Partnership Agreement is silent, UPA/RUPA govern ("default rules").

Agent's Duty to Principal

1. Performance 2. Notification 3. Loyalty 4. Obedience 5. Accounting

Wagner Act

1935, also National Labor Relations Act; granted rights to unions; allowed collective bargaining

Limited Liability Company

A business organization in which the business (not the owner) is liable for the company's debts

Limited Liability Company

A business organization in which the business (not the owner) is liable for the company's debts.•LLC can be taxed either as a partnership or as a corporation •Unless indicated, IRS automatically taxes like a partnership.

S corporation

A close business corporation that has most corporate attributes, including limited liability, but qualifies under the Internal Revenue Code to be taxed as a partnership

What constitutional protection does a corporation not have?

A corporation does not have the privilege against self-incrimination under the 5th amendment.

close corporation

A corporation whose shareholders/stock are limited to a small group of persons, often family members.

Why does a franchise exist?

A franchise exists when a franchisee pays a fee and is granted the right to sell a franchisor's goods or services. Marketing is associated with the franchisor's trade name or trademark.

Disclosed principal

A principal whose identity is known to a third party at the time the agent makes a contract with the third party.

S corporation

A unique government creation that looks like a corporation but is taxed like sole proprietorship and partnerships

Which of the following is not true about a partnership?

A. It is always an independent legal entity.

Candy bought a sofa from Max on credit. She is to make 5 monthly payments of $200 each. After one month Candy stops making payments. Max is a secured creditor; he may: a. none of the other choices b. may enter Candy's home at any time to take the sofa c. force Candy to turn over the sofa plus other property to make up for Max's time and efforts spent on collection d. do nothing because personal property may not be reclaimed e. require Candy to perform manual labor in exchange for the cash payments

ANSWER: A

Don borrows $90,000 to buy a home. His mortgage is with Western Bank. Don is unable to make his mortgage payments. Western forecloses on Don's house and sells it in a judicial sale. The bank gets $95,000 for the house. In this case, it: A. Must return the extra $5,000 to Don. B. Should seize Don's personal property to satisfy its claims. C. Must obtain a mechanic's lien against Don. D. Must pay the Secretary of State for the expenses the office has incurred.

ANSWER: A

Billy wants to borrow $10,000 to start a male belly dancing business. Creditors are not anxious to lend him the funds. Billy convinces Gary to back-up his credit. Gary is: A. The surety B. The testator C. The principal D. The grantor

ANSWER: A (Surety makes an unconditional promise to pay the debts of the debtor. The principal debtor is the original debtor.)

When a creditor extends credit to a debtor, to protect itself, the creditor should: a. make sure that its security interests are not perfected b. take a security interest in an asset owned by the debtor and make sure to attach any security interest it takes c. take a security interest in an asset owned by the debtor and make sure to attach any security interest it takes and make sure the security interests are not perfected d. take a security interest in an asset owned by the debtor e. make sure to attach any security interest it takes

ANSWER: B

When a business lends another business money, it should perfect its security interest by: A. Applying to the IRS for security. B. Filing its financing statement with the state's Secretary of State. C. Preparing a late-term guarantor. D.None of the choices are correct

ANSWER: B (Perfections provides public notice and ensures priority over later creditors.)

4) In a(n) ____, goods and services are sold on an invoice that shows transactions; full payment is expected within a fixed time period. A. Security Account B. Revolving Account C. Installment Account D. None of the choices are correct

ANSWER: D OPEN ACCOUNT - shows transactions, must be paid within fixed time period (net 30); INSTALLMENT ACCOUNT - Repay loan through regular payment schedule (mortgage loan). REVOLVING ACCOUNT - Make minimum payments and can add new debt (credit card).

If the principal does not pay the creditor, and the surety has to satisfy the debt, the principal: A. Is not obligation to repay the surety. B. Is only obligated to repay the surety 25% of the debt. C. Is only obligated to repay the surety 50% of the debt. D. Is obligated to repay the surety.

ANSWER: D (Subrogation - Surety is entitled to the same rights of the creditor against debtor)

10) Karen's Kitchens renovates Mark's old kitchen. Mark only pays part of his bill. To help try to collect the rest of the money owed her, Karen may obtain: A. An artisan's lien B. A writ of certiorariC. A lien of circumstance D. A mechanic's lien

ANSWER: D (mechanic's lien is a lien on real property for improvements/repair).

The primary distinction in secured credit transaction is whether the property: a. may or may not be stored b. is tangible or intangible c. is insured or not d. is money or something else e. is real or personal

ANSWER: E

Proprietorships must file a federal tax return in the name of the business, if there is positive income. a. True b. False

ANSWER: FALSE

Fern TV sells Ryan a 52" plasma television. Ryan does not have the cash necessary to buy the TV, so Fern allows him to make 12 monthly payments which Ryan agrees to in a signed writing. If Ryan misses any payments, Fern may take the TV back. Fern: A. Is a perfected debtor. B. Is an unsecured creditor with a perfected interest. C. Is an unsecured creditor. D. Has a security interest.

ANSWER:D (SI = enforceable right to take the collateral. This right has attached because there is a signed agreement, value was given, and Ryan had transferable rights in the collateral. The SI would need to be perfect in order to ensure priority over other lenders.)

A partnership can begin with either a(n) ____ or a(n) ____.

B. Oral agreement; implied agreement.

Dissolution of a partnership takes place, unless otherwise provided for by contract, in the following instances except:

C. Change in financial condition of a partner

which business organization has a legal entity?

Corporation. Corporations have constitutional rights such as free speech, equal protection under the law, and protections against unreasonable seizure and search.

Limited Liability Company: Taxation

If IRS conditions are met, same as a partnership: Profits taxed to each owner's share

Creating a Corporation

In general, a corporation's articles of incorporation, along with an application, must be filed with the appropriate state office (usually the Secretary of State), along with payment of a fee. After reviewing the corporation's application for completeness, the state issues a certificate of incorporation.

Always Liable for your own torts (anything you do that harms another person)

Limited Liability

Proprietorship: Transferability of Ownership Interests

May be sold at any time; new proprietorship formed

Example of a lien:

Mortgage: a lien that gives the lien holder the right to sell the property and repay the debt from sale proceeds in the event the borrower defaults. The debtor is the mortgagor, and the creditor is the mortgagee.

Structure of partnerships

Partnerships may be structured in almost any way that the partners decide. In general, partners share in the managerial control, debts, tort liability, and profits of the business, and are taxed personally on the Partnership profits.

Tort Liability of Principal

Principal is liable for agent's negligence and intentional torts

Proprietorship: Taxation

Profits taxed to owner as individual

Exception to employment at will: Public Policy

Refusals to violate the law; exercising an important public right (filing for worker's compensation); performing an important public obligation (jury duty); whistle blowing

Corporation: Liability of owners

Shareholders liable only to the extent of paid-in capital

Domestic Corporation

The corporation does business in and is organized under the law of that state

Foreign Corporation

The corporation does business in the state without being incorporated therein

Alien Corporation

The corporation was formed in another country but doing business in the United States

public corporation

a corporation formed to carry out government functions.

General Agent

a person authorized to execute all transactions connected with a certain business, such as a manager who runs all aspects of a hotel. The principal may limit the extent of the general agent's authority to a portion of the business.

lien

a right to keep possession of property belonging to another person until a debt owed by that person is discharged.

The franchise rule

a rule that prescribes that the franchisor must disclose certain information to prospective franchisees

Special Agent

an agent with authority to represent the principal only for specific transactions, usually for a limited time.

franchise agreement

an arrangement whereby someone with a good idea for a business sells the rights to use the business name and sell a product or service to others in a given territory

private corporations

created in whole or part for private benefits

Disadvantage of a corporation

double taxation: the imposition of two taxes on the same property or income during the same period;

Orders to pay

drafts and checks

Undisclosed principal

is one whose identity is unknown by the third party.

Advantage of a Corporation

limited liability: the fact that shareholders of a corporation are not liable for the debts of the corporation beyond the amount of money they have invested in the corporation.

Organizational Features for businesses to consider

oLimited liability oControl oCapital considerations (Investments) oTaxation oTransferability of ownership interests oMethod of creation and termination oEntity as a distinct status separate from its owner

nonprofit corporation

operates without profit—hospitals, charities, churches

Promises to Pay

promissory notes and CDs

Universal Agent

someone designated to do all acts that can be legally granted to an agent. The agent is usually given a general power of attorney to do all business transactions on behalf of the principal.

Exception to employment at will: Tort Theory

termination could lead to a wrongful discharge claim

fiduciary duty of loyalty

the duty of loyalty stands for the principle that directors and officers of a corporation in making all decisions in their capacities as corporate fiduciaries, must act without personal economic conflict. The duty of loyalty can be breached either by making a self-interested transaction or taking a corporate opportunity.

Gratuitous agent

when a person volunteers with no expectation of being paid for her services. The fact that there is no pay does not change the legal consequences of the agency relationship.

Subagents

when a principal authorizes an agent to delegate authority to other agents, that is, to subagents who assist the agent. The subagents work for the agent but owe duties both to the agent and the principal.

agency coupled with an interest

when an agent pays for the right to have authority for a business. Suppose you lend someone money to buy a house to use as a rental. The borrower agrees that rent from the property will be sent to you to pay off the loan. The borrower has become the agent of the lender for the purpose of collecting rent.

Agents Authority: Actual Authority

• (Expressed or implied) •Express authority is authority declared in clear, direct, and definite terms (Can be given orally or written)

What leads courts to pierce the veil

•(1) A party is tricked or misled into dealing with the corporation rather than the individual •(2) The corporation is set up never to make a profit or always be insolvent, or it is too "thinly" capitalized—that is, it has insufficient capital at the time of formation to meet its prospective debts or other potential liabilities •(3) The corporation is formed to evade an existing legal obligation •(4) Statutory corporate formalities, such as holding required corporation meetings, are not followed •(5) Personal and corporate interests are commingled (mixed together) to such an extent that the corporation has no separate identity

Piercing the Corporate Veil

•(4) Statutory corporate formalities, such as holding required corporation meetings, are not followed •(5) Personal and corporate interests are commingled (mixed together) to such an extent that the corporation has no separate identity

employment at will

•A common law doctrine under which either party may terminate an employment relationship at any time for any reason, unless a contract specifies otherwise

Surety

•A contract for a suretyship is an unconditional promise by a third party (the surety) to be responsible for the borrower's payment obligations, or performance, to a creditor. •Treated same as the debtor - can be sued directly by creditor.

Disassociation of Limited partnerships

•A general partner has the power to voluntarily withdraw from a LP unless the partnership agreement specifies otherwise

Leaving a Limited partnership

•A general partner has the power to voluntarily withdraw from a LP unless the partnership agreement specifies otherwise

Grantor

•A guarantor provides a conditional guarantee of payment to a creditor should the principal debtor fail to pay. •Creditor must sue debtor first

Tort Liability: •Principal's Tortuous Conduct

•A principal conducting an activity through an agent may be liable for harm resulting from the principal's own negligence or recklessness •For giving improper instructions, authorizing the use of improper materials or tools, or establishing improper rules that resulted in the agent's committing a tort •Ex. J knows S is not qualified to drive a large truck but nonetheless tells S to use the company truck to deliver some equipment to a customer

How is an Agency Created?

•Agency relationships are consensual •The agreement does not always need to be in writing •No consideration required •Can be backed into unintentionally

Reorganization Characteristics Ch 11

•Allows businesses to keep operating, without liquidation of assets •Available only to businesses not individuals

Formation of Limited Liability Company

•Articles of organization must be filed with a central state agency

Formation of limited partnership

•At least 1 general partner, at least 1 limited partner, and a certificate of limited partnership •The basic document filed with a designated state official by which a limited partnership is formed

Formation of limited partnerships

•At least 1 general partner, at least 1 limited partner, and a certificate of limited partnership •The basic document filed with a designated state official by which a limited partnership is formed

Attachment: to create security interest

•Attached (attachment) •Signed by customer •Seller provided value •Customer has legal, transferable rights in collateral

Agents Authority: Power of Attorney

•Authorization for another to act as one's agent or attorney in either specified circumstances (special) or in all situations (general)

Who can be in a corporation?

•Board of Directors •Responsible for overall management of company •Makes policy decisions and hires officers to run corporation on a daily basis •Owners (Shareholders) •Can sue the corporation, can be sued by the corporation, and can bring suit on behalf of the corporation •Have limited liability

Termination of an Agency: By Operation of Law

•Death or insanity of either principal or agent—automatic •Impossibility—subject matter is lost or destroyed •Changed circumstances •Ex. Sell land for $20,000, learns its worth 1 million •Bankruptcy—by principal. Not by agent if agent's finances are irrelevant to agency •War—principal's country and agent's country are at war

Liquidation Characteristics Ch 7

•Debtor is unable to pay debts •Discharge of most debts after sale and distribution of the sale proceeds of the debtor's non-exempt assets to the creditors •A trustee is appointed •Business or Individual

Liabilities of Partners in a Limited Partnership

•General partners are personally liable to the partnership's creditors •Limited partners enjoy limited liability so long as they do not participate in management

Liabilities of partner in limited partnership

•General partners are personally liable to the partnership's creditors •Limited partners enjoy limited liability so long as they do not participate in management

Agent's Authority: Equal Dignity Rule

•If the contract being executed is or must be in writing, then the agent's authority must also be in writing

Taxation of LLC

•LLC can be taxed either as a partnership or as a corporation •Unless indicated, IRS automatically taxes like a partnership

Termination of an Agency: •Termination by Act of the Parties

•Lapse of time •Purpose achieved •Occurrence of a specific event •Mutual agreement •Termination by one party •Actual authority ceases •Apparent authority persists until notice

Revolving Account

•Make minimum payment and can add new debt •Ex. Credit cards

Open Account

•Must pay within fixed time period

To create a security interest: Perfection

•Perfected (perfection) •Filed with proper official

posessory lien

•Provides a security interest for creditors that added value to or cared for personal property (lay-away program)

Installment Account

•Repay by regular (usually monthly) payments

Pricipals Duties to Agent

•Structured payment plan for staturoy period of time •Some debts paid, others discharged after statutory period •Available only to individuals, not businesses •Court-appointed trustee

Wage Earner Plan

•Structured payment plan for statutory period of time •Some debts paid, others discharged after statutory period •Available only to individuals, not businesses •Court-appointed trustee

Collateral

•The debtor's assets to secure debt

Franchises

•The owner of a trademark, trade name, or copyright licenses the franchisee to use it in the selling of goods or services •The franchisee is an independent business owner but receives the benefit of being associated with a well-known name

Mechanic's Lien

•The party that furnishes material, labor, or services for the construction or repair of a building or other real property can place a lien on the property for unpaid bills

Franchise Termination

•Through explicit events that bring about franchise's termination •Fixed expiration time •Franchisor's right: occurrence of events - -Inspection problems or violations by franchisee -Bankruptcy of franchisor -Some franchisees given extra protection by state laws - auto dealers and gas stations often have extra protections regarding termination.

Actual Authority: Apparent Authority

•When the principal, by either words or actions, causes a 3rd party reasonably to believe that an agent has authority to act, even though the agent has no express or implied authority

General Partnership

•a partner who assumes responsibility for the management of the partnership and liability for all partnership debts

limited partnership

•a partner who contributes capital to the partnership but has no right to participate in the management and operation of the business •Need at least one general partner and at least one limited partner

Exception to employment at will: contract theory

•if a contract exists, whether express or implied, that will control the employment arrangement

close corporation

•one whose shares are held by members of a family or by few persons