Law 2, BUL4422, Exam 1
If a corporate transaction is expected to personally benefit an individual officer or director, that person has a duty to
- disclose any conflict of interest - abstain from voting on the issue
The three property rights of partners include
- the right to participate in the management of the business - the right to specific partnership property - the right to their partnership interest
In what year did the ABA replace the MBCA with the Revised Model Business Corporation Act?
1984
Revised Model Business Corporation Act (RMBCA)
A 1984 revision of the MBCA that arranges the provisions of the act more logically, revises the language to be more consistent, and makes substantial changes in the provisions
Personal Self Dealing
A director or officer makes business decision that benefit him personally.
Business Self-Dealing
A director or officer makes decision that benefit other companies with which she has a relationship.
Shareholder's Derivative Suit
A lawsuit filed by a shareholder on behalf of the corporation. Important way for shareholders to hold directors accountable for their behavior.
Directors Roles
A minimum number must attend board of directors meetings. They are legally responsible for day-to-day managerial activities. Elected by shareholders majority vote.
Which of the following is an accurate statement regarding the creation of a partnership
A written agreement is not required to create a partnership
Which of the following refers to a review and listing of all partnership assets and/or profits?
An accounting
Suppose that Steve, one of the partners in a home improvement company, intends to dissolve the partnership. Before he can give notice of his intent, one of the other partners, Hala, makes a contract with some clients for a home office renovation.
As a consequence, Steve will still be liable for Hala's contract.
What is the term for the powers given to a corporation by the state to fulfill its express powers?
Implied Powers
Duties of Shareholders
In certain situations, majority shareholders may be regarded as having a fiduciary duty to minority shareholders and will be liable if that duty is breached
Which of the following is an accurate statement regarding the legal identity of a partnership?
In most cases, a partnership is not considered a legal entity separate from its owners.
Identify a true statement about sole proprietorships
Keep all the profits from the business
Liability of Shareholders
Liable for the debts of the corp. to the extent of their investment. Liable for a breach of contract is a stock subscription agreement was signed and yet no stock was purchased. Liable for watered stock. Can be held personally liable for receiving illegal dividends.
What are the major forms of business organizations in the United States include
Sole Proprietorship, the partnership, the corporation, and the limited liability corporation
Which of the following indicates a partnership?
Two co-owners receive equal shares of profits earned in their unincorporated business
According to the Uniform Partnership Act, a partnership is an association of two or more persons to carry on as co-owners in
a business for profit
Sole Proprietorship
a business organization in which you, as the owner, are in sole control of management and profits.
Shareholder's Direct Suit
a lawsuit filed by a shareholder against the corporation
The partners may agree to terminate an agreement
at any time
According to the Uniform Protection Act, if a partnership is liable
each partner has unlimited personal liability
Statutory Law
ensures that the directors, officers, and shareholders work together to the benefit of all.
When a third party is aware of and consents to a misrepresentation of the partnership, a partnership by
estoppel exists
An additional advantage of the LLC is the
flexibility it offers members in terms of alternative ways to structure its management
Dissolution of a partnership is complete when any partner stops
fulfilling the role of a partner to the business (either by choice or default)
What is usually required for a franchisor to terminate a franchise?
good cause, documented warnings to franchisee, notice to the franchisee
Joint Stock Company
specialized form of business organization is defined as a partnership agreement in which company members hold transferable shares, while all the goods of the company are held in the names of the partners.
During the process of winding-up, the partners must
still fulfill their fiduciary duties to one another and disclose all information about the partnership assets.
Nonprofit corporations do not issue
stocks
Through a tender offer
the aggressor offers target shareholders a price above the current market value of the target corporation's stock
In a cash tender offer,
the aggressor offers to pay cash for the target corporation's stock
In an exchange tender offer,
the aggressor offers to trade the target shareholder's current stock for stock in the aggressor's corporation
When a hostile takeover succeeds,
the target corporations management frequently compares the transition to a full-scale invasion characterized by layoffs and dramatic changes in company policy
In an LLC, each partner has limited liability which is dependent upon the investments he or she makes, while still receiving
the tax breaks often afforded to those in a partnership
In a limited partnership, an additional right of a limited partner is that they often recover
their investment before general partners do
If a corporation is deemed defective,
then shareholders may be personally liable for the corporations actions
A shareholder can transfer their shares in a corporation by
-selling their shares to a new shareholder - giving them to charity, who becomes the new shareholder
Liability for Torts and Crimes (Directors & Officers)
1. Can be held personally responsible for their own torts and crimes and even for those of other employees whom they have failed to adequately supervise. 2. Can be held liable for wrongful transactions involving company stock. 3. Cannot be held liable for decisions that harm the company if they were acting in good faith at the time of the decision
Shareholders Rights
1. to vote 2. to have a stock certificate 3. to dividends, when declared by board 4. to inspect corp records 5. to transfer shares (w/ some exceptions) 6. to an accurate share of corp assets on dissolution 7. to file suit on behalf of corp
Duty of Care (Directors & Officers)
Acts in good faith and in the best interest of the company.
No-Par Shares
Shareholder must pay the fair market value
Which specialized form of business organization is an investment group that comes together for the explicit purpose of financing a specific large project?
Syndicate
In what decade was the Revised Uniform Partnership Act approved?
The 1990's
Which body of law states that partners have the authority to bind a partnership in an agreement?
The Uniform Partnership Act
Directors
The people who have overall responsibility for managing the company's business activities. Decision makers. Ensure the business survives and that they keep their job.
Which of the following is not an implied property right of a partner?
The right to privileges and benefits based on seniority
Which of the following is an accurate statement regarding a partner's right to compensation?
Unless otherwise agreed, no partner will receive a salary for participation in partnership related business activities.
Chain Style Business
a franchise operates under a franchisor's trade name, generally required to follow standardized or prescribed methods of operation
If the partnership agreement does not indicate to the contrary,
all partners share in both profits and losses
Limited Liability Partnership
all the partners assume liability for one partner's professional malpractice, but only to the extent of the partnership's assets.
Limited Partnership
an agreement between at least one general partner and at least one limited partner.
In liquidation
corporate directors convert the corporation's assets into cash and distribute it among the corporation's creditors and shareholders.
A partner has the right to an accounting when any partner fails to disclose a profit or benefit from the partnership, thus breaching his or her
fiduciary duty
unless otherwise agreed, no partner will receive a ____________ for participation in partnership business regardless of the time and effort expended
salary
A written agreement that creates a partnership is called
the articles of partnership
When a merger occurs,
the corporation that is absorbed is known as an absorbed, or disappearing corporation
Unless otherwise agreed, partnership records must be kept at
the firm's principal business office
In an LLC, each member is allowed to participate in
the management of the company
General Partnership
the partners divide the profits and the management responsibilities.
Through a stock purchase
the purchasing corporation gains control of the selling corporation in a corporate takeover
Because shareholders have limited decision-making power,
they have rights that allow them to participate within the corporation
Unless otherwise stated in the partnership agreement, all partners have the right
to participate equally in the profits of the partnership
An example of the implied power that a state gives a corporation is the power
to take whatever actions are necessary to execute express powers
According to the right of survivorship, the rights in specific partnership property pass
to the surviving partner.
Generally shareholders can
transfer their corporate shares as they choose
What are the two types of dissolution?
voluntary and involuntary
Partnership
voluntary association between two or more persons who co-own a business for profit.
Watered Stock
when a corporation issues shares for less than their fair market value
When a partnership adds another partner, the new partner assumes
limited liability for any obligations that occurred before he or she was added
Which of the following terms refers to an aggressor's gradual accumulation of the target company's shares?
Beachhead acquisition
Which of the following is not a major group of individuals within a corporation
Corporate arbitrators
What document dictates the number of members of a board of direction in a corporation?
Corporate bylaws
Who has a duty to disclose any potential conflict of interest
Directors and officers of a corporation
Shareholders are directly responsible for the daily management of the corporation
FALSE
Duty to Disclose Conflict of Interest
Fiduciary duty to fully disclose conflicts of interest that arise in corporate transactions that can benefit a director or officer directly.
In the United States, corporations are protected from
Fourth Amendment unreasonable searches
Which specialized form of business organization exists because of an arrangement between the owner of a trade name or trademark and the person who sells goods or services under the trade name or trademark?
Franchise
Par Value Shares
Shareholder must pay the corp. at least the par value of the stock.
Approximately how many states have adopted the Revised Uniform Partnership Act?
One-half
Shareholders Roles
Owners of the firm by purchase of stocks. Majority shareholder - more than 50% Minority shareholder - less than 50% Equitable interest. Elect the directors and remove them. Meet at least once a year. Proxy can vote for a shareholder.
In which of the following forms of business organizations are owners personally liable for business debts?
Partnership
Duty of Loyalty (Directors & Officers)
Put the corporations interest above their own when making business decisions.
Corp Directors Unique Rights
Right to: 1. Compensation - through management positions in the company or nominal sums as honorariums. 2. Participation - Involved in and understand every aspect of the business 3. Inspection - notified of all meetings and has access to all books and records. 4. Indemnification - can be reimbursed for any legal fees incurred in lawsuits against them.
Officer's Rights
Rights determined in employment contract
Officers Roles
Run the day-to-day business of the organization. Act as agent of the corporation.
Almost all individuals within a corporation have fiduciary responsibilities to the corporation and
can be liable for failing those responsibilities
Although a partner's creditor cannot seize specific items of partnership property, the creditor can obtain ____________ , which entitles the creditor to the partner's profits, while the partner continues to act as a partner and engage in the partnership business.
charging order
Any property brought into or acquired by the partnership is
considered property of the partnership
In a ______________, because the new corporation has independent legal status, the articles of _____________ of the original companies are void
consolidation; incorporation
Like mergers, ________________ legally combine two or more corporations
consolidations
An agreement that states that partners can preserve a partnership business is known as a
continuation agreement
A director of a corporation who also serves as an officer or employee of the corporation is called an
inside director
Cooperative
is a business organization formed by individuals who usually pool their resources to gain an advantage in the market.
Business Trust
is a business organization governed by a group of trustees who operate the organization for the beneficiaries.
Joint Venture
is a relationship between two or more persons or corporations created for a specific business undertaking
Limited Liability Corporation
is an unincorporated form of business organization that combines the most advantageous features of a partnerships and corporations.
When a partner commits a tort or a breach of trust, all partners are
jointly and severally liable
A partnership is often considered a _________________ when it is sued or being sued.
legal entity
Corporation
legal entity formed by selling stock to investors, who then become owners of the company.
If a corporation purchases the assets of another corporation, rather than merging or consolidating with that corporation, it generally does not acquire that corporation's
liabilities
According to the fiduciary duty partners owe each other,
partners must work for the benefit of the partnership and not engage in any action or business that could undermine or compete with the partnership.
An S corporation is a corporation under federal tax law, but is taxed like a
partnership
Implied authority
permits a partner to purchase good necessary to perpetuate the partnership business..
Subscribers are individuals who agree to
purchase stock in a new corporation