LSB Final Exam

A bar would be _______ for the intentional torts of its bouncer because he serves the principal and is acting within the scope of employment.

Generally Liable

Authority is _______ when the authority that is reasonably necessary to further the principal's objectives, or based on custom, or past dealings

Implied

Principals are generally not liable for the negligent acts of __________.

Independent Contract

If a third party knows an agent is representing a principal but does not know the actual identity of the principal, the agency relationship is a(n) _______.

Partially Disclosed

Apparent Authority (Agency by Estoppel)

Principal acts as if an individual is their agent and makes a third party believe that person is their agent. The principal is "estopped" (prevented) from denying responsibility for the agent's acts later on.

Express or Actual Authority:

Principal explicitly gives the agent authority to do a specified act on their behalf.

_______ loans are typically through individuals who negotiate such items as interest rate directly with the proprietor.

Private

_______ loans come from family members and friends and are paid back according to their individual agreement

Private

______ corporations have substantial flexibility in terms of their internal operating procedures and do not generally have to comply with rigorous corporate structures or formalities.

Privately held

___ corporations restrict ownership to members in good standing of a particular profession.

Professional

When an individual begins to carry out a business venture's activities before actually filing the articles of incorporation, the individual is known as a(n) _______.

Promoter

Parties who suffer _______ losses as a result of another's negligence may only recover if those losses were a result of injury to person or property.

Purely Economic

Liability for principals based on agents who are classified as employees is derived from the doctrine of _______.

Respondeat Superior

The _______ rule is an attempt to place some limits on a principal's liability for the acts of its agent.

Scope of Employment

When an employee is commuting to or from work, the employer is shielded from liability because employees are said to be outside of the _______ during their daily commute.

Scope of Employment

___ have no oversight committees (such as a board of directors), do not require any agreements among principals, and may be converted to another form of entity.

Sole Proprietorships

Corporations that qualify for and elect _______ treatment offer pass-through (also known as flow-through) tax treatment under IRS rules.

Subchapter S

In an undisclosed agency, who is liable to a third party for the obligations under a contract?

The Agent

In a fully disclosed agency relationship, who is liable to a third party?

The Principal

Trademark infringement:

Unauthorized use of another company's or person's brand in a way that is likely to cause confusion for consumers.

In a(n) _________ a third party is completely unaware of an agency relationship and believes that the agent is acting on her own behalf when contracting.

Undisclosed Agency

_______ is funding provided by a group of professional investors for use in a developing business, usually in a particular industry such as health care.

Venture capital

Ratification:

When an individual claim to be an agent and acts on the principal's behalf, and the principal knows about the act and accepts the entirety of what the "agent" did, then the principal is liable for the agent's conduct.

Sole Proprietorship

a type of business entity owned by one individual. The entity has no separate legal existence from the owner and thus the owner will be responsible for all debts and liabilities of the company.

Joint and Several Liability

an injured party may elect to sue the principal and agent in a single tort claim if they are each to blame for the harm. If the court finds that the principal and agent are jointly and severally liable, each party is independently liable for the full amount of damages. The plaintiff may recover the full value of the judgment from the principal or the agent. Then the party who paid damages may seek contribution or indemnity from the other.

Non-delegable Duty:

an obligation that cannot be outsourced to an agent or third party. If adequately fulfilling one's duty of care is highly important, then it cannot be delegated to anyone else.

Even though an agent behaved in an unauthorized manner, the principal may ratify transactions by: _______ or _______.

approving the transaction retaining the benefits of the transaction

To form a corporation, principals file _______ with a state authority that sets out the corporation's name, purpose, number of shares issued, and address of the corporation's headquarters.

articles of incorporation

An LLC is formed by filing the _______ (also called the certificate of organization) with the designated public official in that state, such as the secretary of state or the state's corporation bureau.

articles of organization

An agent assumes a fiduciary duty __

as soon as the agency relationship is formed

Secretary of State

at the state level, the secretary of state is a position within state government in 47 out of 50 states. The duties of the secretary of state including administering elections and keeping state records from registering businesses to recording the official acts of the state governor.

In a(n) ______ partnership the partners agree to continue their association indefinitely.

at will

When a(n) _______ agent who enters into a contract with a third party, the principal is bound to the contract because because the third party may legally enforce the contract against the principal.

authorized

A corporation, like a(n)_______, may file suit or _______, or may form a contract or breach a contract.

be sued individual person

For a principal to be vicariously liable for the acts of her agent, the conduct must have: _______

been related to her duties as an employee of the principal been motivated by a purpose to serve the principal occurred substantially within the reasonable time and space limits

A proprietors ownership interest in a sole proprietorship _______ to her heirs through a gift or an estate.

cannot pass

Corporations are classified into one or more categories that reflect their overall _______.

capitalization purpose structure

The organizational meeting often involves the official issuance of _______ and _______.

certificates shares

A(n) _______ loan is usually collateralized by an asset of equivalent value typically consisting of the proprietor's personal assets to get a lower interest rate.

commercial

A sole proprietorship is generally not subject to _______ income taxation, and no tax return is filed on behalf of the business.

corporate

Subchapter S corporations are not subject to taxation at the _______ level because the taxable income or loss of the business operated by the entity flows through to the entity's _______.

corporate, shareholders corporate, directors

A(n) LLC _______ occurs when an individual member decides to exercise the right to withdraw from the partnership.

dissociation

When a partner no longer wishes to be a principal in the partnership, she may choose to leave the partnership. This is called ______.

dissociation

The _______ prohibits a general partner from engaging in competition with the interests of the partnership and also prohibits other conflicts of interest.

duty of care, loyalty

An LLC is a flexible type of business entity that offers its owners many advantages

easy formation limited legal liability flexible operation

Under the negligent hiring doctrine, courts are especially inclined to hold employers liable in cases where: _______.

employees are entrusted with vulnerable populations employees have a high level of public contact

LLCs are mainly capitalized via _______ or through the sale of _______ ownership in the LLC itself.

equity debt

Most partnerships are _______ partnerships, in which the principals agree orally or in writing to form an ongoing business relationship.

express

Officers have _______ authority which comes from the bylaws or directors and gives specific authority to a particular officer.

express

The _______ standard requires that partners exercise appropriate discretion in dealing with other partners and third parties concerning the partnership's business.

good faith

Board of Directors:

group elected by the shareholders to govern and manage the affairs of the corporation. A corporation's board of directors has authority to issue shares of stock, repurchase shares, declare dividends, adopt and amend bylaws, elect and remove officers, and fill board vacancies. Board members are not agents but owe a fiduciary duty to the shareholders of the corporation and may only act within their powers or scope of authority. Individual directors are personally liable for their own criminal or tortious conduct.

Partnership property is any property that is: _______.

held in the name of the partnership purchased with partnership funds used for partnership business

Corporate Officer:

high-level manager of a corporation, hired by the board of directors to run the day-to-day business operations. The chief executive officer (CEO), chief financial officer (CFO), president, vice president, secretary, and treasurer are all corporate officers. Officers are agents who owe a fiduciary duty to the corporation and must act within their powers or scope of authority.

Principal

hires an agent to represent their interests and act on their behalf.

Fiduciary Duty

in an agency relationship built on trust and confidence between the parties, the agent assumes a legal obligation to act in the principal's best interest. Specific responsibilities that fall under the broader concept of fiduciary duty include the duties of accounting, care, confidentiality, disclosure, loyalty, obedience, etc. The agent is sometimes known as the "fiduciary" of the principal.

One important factor courts consider in piercing the corporate veil is _______.

inadequate capitalization

The principal of a sole proprietorship reports business income and expenses on her own _______ and pays taxes on business income (or deducts business losses) based on the applicable _______.

individual tax return, individual tax rate corporate tax return, individual tax return

Incorporator:

individual who organizes the incorporation and arranges for the articles of incorporation to be filed with the secretary of state. The incorporator signs the articles and verifies that the information submitted is true and correct. Oftentimes, the incorporator is not a shareholder, director or officer of the corporation. Most frequently, the incorporator is the lawyer who is handling the formation of the corporation.

Generally, principals are not liable for the negligent acts of employees unless it involves _______ acts, and the principal has not taken reasonable steps under the ______ doctrine.

inherently dangerous, peculiar risk inherently dangerous, risk avoidance

liability insurance

insurance designed to provide protection for claims from injuries and damage to people or property.

Generally, employers are not liable for _______ torts committed at work, because the tort is outside the scope of employment.

intentional

In cases involving _______ creditors, courts are more likely to pierce the corporate veil when the claim involves negligence by the corporation's employees because the plaintiffs did not have the opportunity to mitigate the _______.

involuntary, risk of loss

Under RUPA, all partners face _______ liability for contract and tort-related obligations.

joint-and-several

A principal may face _______ liability for an agent's tort of negligence, even though the principal has not engaged in any wrongful conduct.

joint-and-several liability

Generally, a promoter is personally liable when signing a contract when she _______ or ________ that the corporation is not in existence on the day of the signing.

knows has reason to know

Material Benefit Rule:

part of the agent's duty of loyalty, that bars the agent from "acquiring a material benefit" from a third party as a result of the agency transaction. Self-dealing transactions, bribes, and gifts violate an agent's duty of loyalty because the agent unfairly takes a transaction benefit for themselves.

Partnership and agency law governs the relationship between the partnership and outside third parties and cannot be altered by a(n) _______ agreement.

partnership

A partnership is a(n) _______ entity which means that the partnership entity pays no _______ tax.

pass-through, corporate

LLC members are insulated from _______ for any business debt or liability (contract or tort) if the venture fails.

personal liability

In the context of business entities, ________ is a generic word for individuals who are entitled to the profits of a business based on their

principal

Each form of business entity has its attendant advantages, drawbacks, and legal consequences for the owners, known as _______, of the business.

principals

Corporations often borrow money from either: _______ or _______ to fund day-to-day operations.

private investors commercial lenders

In a partnership, _______ are taxed after they pass through the business and are distributed to the individual partners.

profits

Under RUPA's default rule, both ______ and _______ must be split equally among all partners.

profits, losses

Business Judgment Rule:

protects corporate managers from liability for a harmful decision if they satisfied their duty of care and acted in good faith. Under this rule, managers will be protected from liability if they (1) make an informed decision (2) after reasonable investigation; (3) with a rational basis for believing it serves the corporation's best interests; and (4) do not have a personal conflict of interest.

An agent can obtain retroactive (after-the-fact) power to bind a principal through _______.

ratification

Agency

relationship formed between a principal and an agent where the agent acts on the principal's behalf. Agency relationships can be formed informally or through a formal contract.

Agent

represents the interests of the principal and acts on the principal's behalf.

The doctrine of _______ is limited by a requirement that in order for a principal (employer) to be liable for the employee's tort, the act must have occurred within the employee's _______.

respondeat superior, scope of employment

Liable:

responsible for the damage caused by his/her/its action.

The RULLC attempts to clarify the following two matters: _______ and the _______.

rights of departing LLC members deadlocks

Corporations also sell equity, also called ________, to capitalize their operations.

securities

Businesses that are _______ and have a relatively low potential for liability usually do not require the protection and flexibility offered by more complex forms of business entities.

self-funded

A well-established and deep-seated principal of American law is that a corporation is a(n) ______.

separate entity separate person

A general partnership is legally defined as: ________. (1) (2) who are co-owners and co-managers of the business and (3) who share in the profits of their ongoing business.

share profits equally association of two or more people co-owners and co-managers

Most courts have used four factors to consider whether to pierce a corporation's protective veil, and if two are present is court is more likely to hold _______ personally liable for corporate debts.

shareholders

Inadequate capitalization may mean that a corporation is a(n) _______ company with nothing invested, or that _______ siphoned the profits and assets.

shell, shareholders

Under Rupa's default rules, partner's right to manage the business implies that each partner has the ability to _______.

sign contracts on behalf of the partnership

The chief drawback to the _______ as a form of entity is the owner's complete lack of protection for unpaid debts and liabilities of the business.

sole proprietorship

The easiest single-person ownership entity to form and maintain is a(n) _______.

sole proprietorship

The simplicity of the _______ makes this entity a top choice for start-up businesses with relatively low annual revenues and expenses.

sole proprietorship

Most _______ are relatively small in terms of assets and revenues, and are not restricted in terms of the number of _______ and can operate in as many locations as the principal desires.

sole proprietorships employees

Entity:

something that exists. Businesses of any type can be referred to as an entity.

Corporate Constituency Statute:

state law that allows corporate officers and directors to take different stakeholders' interests into account while carrying out their fiduciary duty to maximize shareholder profits. Corporations are permitted to take socially responsible action to benefit these stakeholders, so long as the managers maximize long-term profits.

State statutes covers such matters as the: _______.

structure of the corporation rights in the sale of assets annual reporting requirements

C-level executives may be _______ agents if they _______ employees within their departments.

subordinate, hire and oversee superior, hire and oversee

A CEO is referred to as a(n) _______ agent, and the C-level executives are _______ agents.

superior, subordinate

Because it is a pass-through entity, an LLC can avoid double-level taxation, which means _______.

taxes imposed on both the entity and its members

In a(n) _______ partnership, partners may set a specific future date or event for when the partnership will be dissolved.

term

A franchise agreement that covers _______ rights usually provides the franchisee with an exclusive geographic area.

territory

A franchise agreement generally covers the following: _______.

territory rights franchise fees term of the agreement

Authorized Shares (Authorized Stock):

the maximum number of shares that a corporation is legally permitted to issue.

Par Value:

the minimum price at which a corporation can sell its shares to its shareholders.

Actual Notice:

third parties who have had business interactions with the agent must be directly informed (orally or in writing) that the agency relationship has terminated.

Constructive Notice:

third parties who have not had business interactions with the agent may receive indirect notice that the agency relationship has terminated (usually through publication in a newspaper).

Employer-Employee

type of agency relationship where the employer (principal) hires the employee (agent) to perform some kind of physical service. The employer has control over the employee's conduct.

Employer-Independent Contractor

type of agency relationship where the employer (principal) hires the independent contractor (agent) to perform a specific task but has limited or control over the independent contractor's conduct. Independent contractors often have specialized skills and an occupation or business that is wholly separate from the employer's business.

Under the doctrine of respondeat superior, employers are _______ liable for the negligent acts of employee agents.

vicariously

Insolvent:

when a corporation is unable to pay debts as they fall due in the usual course of business or has liabilities in excess of a reasonable market value of assets held.

Trespass to Real Property

when a person goes on another's property or places an object on that property without permission. An invited guest is not a trespasser.

Termination by Act:

when an agency relationship ends because (1) the event or result specified in the agency agreement happens; (2) the principal and agent mutually agree to terminate; (3) the principal revokes (cancels) the agent's authority; (4) the agent renounces (rejects) that authority; or (5) a reasonable time lapses. If only one party terminates (revocation or renunciation), they might be held liable for any resulting damages.

The best choice of business entity is driven primarily by the following factors: _______

operational objectives risk tax

Most states recognize at least _______ forms of business entities.

6

Ratification Requirements

Agent acts on behalf of principal. Principal knows material facts of the transaction. Principal affirms agent's actions before the third party withdraws from the transaction. Principal and third party have legal capacity to contract when the agent made the deal. Principal observes the same formalities when approving the act done by the agent as would have been required to authorize it initially.

A _______ is an exception to the doctrine of respondeat superior because the conduct occurs when an agent, during a normal workday, does something purely for her own reasons that are unrelated to employment.

Frolic

A(n) ________ occurs when a third party enters into a contract and is aware of the principal's identity, and knows that the agent is acting on behalf of the principal in the transaction.

Fully Disclosed Agency

When a third party relies on a statement or action of the principal that creates a false appearance of an agent possessing authority this is referred to as _______ authority.

Apparent

When an agent acts in an unauthorized manner she may still bind the principal in contract based on _______ authority.

Apparent

In a partially disclosed agency, who is liable to a third party for the obligations under a contract?

Both Principal and Agent

An operating agreement generally includes the following aspects of the LLC: _______.

Dissolution Voting rights Governing structure

Which of the following types of firms are allowed to use the LLP business structure?

Family businesses. Law firms. Accounting firms.

Sole proprietorships are limited in their options for raising money. These options include:

Financing using the proprietor's personal resources. Financing the business through debt.

Suppose Joseph and James are shareholders of JJ, Inc and obtain a credit card from BIGBOX Credit Co. James and Joseph use the credit card in good faith to make purchases to operate the business. For several years, JJ Inc conducts business and pays its debts regularly. However, their business industry enters a 'great recession' and many are forced into default. Suppose that BIGBOX sues James and Joseph personally. Will the corporate veil protect them?

Yes, the corporate veil will protect them because they acted in good faith and paid their bills for three years.

Corporation

a business form that is owned by shareholders who have no inherent right to control the business, instead the business is managed by a board of directors that is elected by the shareholders.

Limited Liability Company (LLC):

a business form that may combine the characteristics of a corporation with those of a partnership or sole proprietorship, giving owners the benefits of liability protection from debts or other liabilities and the pass-through tax treatment of a partnership or sole proprietorship.

Joint venture:

a collaboration between two or more entities where all entities maintain their own distinct identities.

Bylaws:

a detailed set of rules adopted by a corporation's board of directors after incorporation. They are a legally binding document that specifies the internal management of the corporation and how it will be run.

Misrepresentation:

a false statement of material fact. A principal will be held directly liable for their agent's misrepresentations if they (a) intended for the agent or (b) negligently allowed the agent to make those misrepresentations. A principal can also be held vicariously liable for the agent's misrepresentations if the agent had actual or apparent authority to speak about that topic.

Partnership:

a form of business that is an association of two or more people people who carrying on a business together for profit.

Limited Liability Partnership (LLP):

a partnership that has elected to obtain limited liability protection.

Subagent:

a person appointed by the agent to perform some or all of their duties to the principal.

Dividend:

a portion of a corporation's profit which is paid to the shareholders. Dividends can only be given if the corporation can still pay its debts afterward and the dividend would not make the company insolvent.

Direct Liability:

a principal can be held directly liable for an agent's harmful conduct if the principal was somehow at fault in causing the harm. If the principal gives the agent actual authority or ratifies the harmful conduct, then the principal will be held directly liable. The principal will also be directly liable if they acted negligently in hiring, supervising, regulating, equipping, or retaining their agent.

Duty of Indemnity:

a principal may be obligated to indemnify (compensate) their agent if (a) the agent's tortious conduct was authorized by the principal and (b) the agent is required to pay damages to the injured party. The principal is not required to indemnify the agent if (a) the agent's actions were unauthorized; (b) the agent was solely to blame; or (c) the agent knew they were committing a tort.

Agents generally have a broad fiduciary duty to ____

act in the PRINCIPALS best interst.

Incorporation:

act or process of creating a corporation by complying with state statute. Generally, a fee must be paid and the proper documentation must be filed with a government official (usually the secretary of state).

An agent's power to bind the principal in contract is through _______ authority which arises in one of two ways: ___ , ___

actual implied express

Express Authority

agent's power to act on the principal's behalf which has been explicitly granted by the agreement between them.

Implied Authority

agent's power to act on the principal's behalf which is not expressly or impliedly granted. An agent only has inherent authority when it is required to exercise their actual authority.

Duty of Confidentiality

an agent is obligated to protect the principal's confidential information and may not use or disclose such information to a third party for their own benefit or a third party's benefit. Any valuable information that is not widely known or would harm the principal if disclosed would be considered confidential.

Duty of Care

an agent must act with the same care, competence, professionalism, and diligence that other agents would use in similar circumstances. This is sometimes called the "duty of performance" because the agent is obligated to perform the duties specified in the agency agreement.

Duty of Obedience

an agent must act within their scope of authority and obey the principal's reasonable, ethical, and legal instructions. If the principal's instructions are vague or unclear, the agent has a responsibility to communicate with the principal to clarify.

Duty of Accounting

an agent must keep accurate records of all transactions and disclose such records upon the principal's request. An agent may not commingle (mix) their own funds or property with the principal's (or anyone else's) funds or property.

Duty of Disclosure

an agent must keep the principal apprised of material information that is important to agency business. This includes offers from third parties. This is sometimes known as the "duty to notify" or "duty of notification

Duty of Segregation:

an agent must keep the principal's money and other property separated from their own and anyone else's property. In other words, the agent cannot "commingle" the principal's property with other property.

Operating Agreement:

an agreement by owners of an limited liability company that sets forth how the organization will be organized and the duties of officers and owners.

Frolic and Detour

an exception to the respondeat superior doctrine that applies when an agent, during a normal workday, does something for their own reasons (unrelated to their employment). Employers will not generally be held liable for an employee's negligence that occurred during a large deviation from their employment responsibilities (i.e. a frolic). However, an employer may still be held liable for an employee's negligence during a small deviation (i.e. detour).

A sole proprietorship is terminated either by _______ or by _______ in the case of the death or personal bankruptcy of the proprietor.

an express act of the principals operation of law

Nonemployee Agent:

an independent contractor who provides a limited service for the principal but retains control over the means by which they perform that work. In general, the principal will not be held liable for a nonemployee agent's harmful conduct unless (a) the principal is somehow at fault (directly liable) or (b) the harm resulted from a breach of the principal's non-delegable duty of care (vicariously liable)

Many states also give privately held corporations the option of electing to become either a(n) _______ or a(n) _______ entity.

family held closely held

A right to be informed about the partnership business involves the right to: _______.

financial information request and review contracts review minutes taken during meetings

A(n) _______ distributes its products to a broader market without the overhead costs of retail space, equipment, and employees.

franchise

A(n) _______ should be thought of as a method of conducting business that centers on a contractual relationship rather than as a business entity.

franchise

Federal statutes define a(n) _______ as an arrangement of a continuing commercial relationship for the right to operate a business with a particular trade name or sell the seller's branded goods.

franchise

franchise involves the two parties: the _________ who is a business entity that has a proven track record of success, who sells to a(n) _______ the right to operate the business and use the business's trade secrets, trademarks, and products.

franchisor, franchisee

If the employees conduct is a small-scale deviation that is normally expected in the workday, it is not considered a ______ but rather a simple _____ which are within the ambit of respondeat superior.

frolic, detour

LLP statutes provide ______ partnerships with the right to convert their entity and gain the protective shield ordinarily afforded only to limited partners or corporate shareholders.

general

A limited partnership has at least one _______ partner (managing principal) and at least one _______ partner (investing principal

general, limited

Many courts have adopted the _______ rule whereby employers are generally not vicariously liable for tortious acts committed by employees while on their way to and from work.

going-and-coming

Derivative Action:

lawsuit brought by a shareholder against the directors, management and/or other shareholders of the corporation, for a failure by management. The suing shareholder claims to be acting on behalf of the corporation, because the directors and management are failing to exercise their authority for the benefit of the company and all of its shareholders. This type of suit often arises when there is fraud, mismanagement, self-dealing and/or dishonesty which are being ignored by officers and the board of directors of a corporation.

Articles of Incorporation:

legal document filed with the state to create a corporation.

Respondeat Superior

legal principle that the employer is liable for any harm the employee causes, if the wrongful act occurred within the scope of their employment.

A(n) _______ partnership is an entity that exists by virtue of a state statute and has at least one general partner and one _______ partner. (Choose ONE correct answer)

limited

Perhaps the most important feature of an LLC is the _______ of its members.

limited liability

A close cousin to a commercial loan is a commercial ______ which allows a proprietor to draw against a predetermined credit limit.

line of credit

The biggest advantage of a(n) _______, which is typically secured by collateral, is that the borrower only pays interest on the funds actually drawn instead of the full amount of a loan.

line of credit secured

Duty of Loyalty

mandates that an agent must act in the principal's best interest and avoid any conflicts of interest with the principal (e.g., self-dealing transactions where the agent acquires a material benefit from a third party; competing directly or indirectly with the principal; etc.)

The owners of a limited liability company are called which of the following?

member

A majority of states recognize that employers are liable under the tort of "_______" when the employer had reason to know that the employee might cause intentional harm within the scope of employment.

negligent hiring

The RULLCA sets forth seventeen _______ statutory provisions related to liability of the entity and its members that are not subject to change by the operating agreement.

nonwaivable

Termination by Operation of Law:

when an agency relationship ends because (1) the principal or agent dies; (2) the principal or agent is incapacitated; (3) the principal or agent declares bankruptcy; (4) the agent's performance becomes impossible; (5) the agent commits a serious breach in their duty of loyalty; (6) the principal entity (ex. a corporation or partnership) is dissolved or ceases to exist; (7) there is a material change in circumstances surrounding the subject transaction (including war); or (8) changes in the law make the subject transaction illegal.

A partner violates his duty of loyalty if he personally takes advantage of a business opportunity that _______.

would have benefited the partnership.