Biz Orgs Final - Blackburn
Unless the partners have agreed otherwise, an act outside the ordinary course of business of a partnership must be approved by all partners. T or F
True
A finding of apparent authority will make a principal liable for the acts of its agents under the tort theory of agency law. T or F
False
A partner has a personal ownership interest in partnership assets even though the partnership is, in the eyes of law, a legal entity separate from each partner. T or F
False
A partner may in cases "freeze out" a co-partner by adverse pressure to use the business for his or her own use. T or F
False
A partnership agreement exists if there is a right to share in profits. T or F
False
A principal is never bound to contract liability if the act of the agent was "authorized." A principal is always bound to contract liability if the act of the agent was not "authorized." T or F
False
A principal is never liable for torts of independent contractor. T or F
False
Agency requires a contract between the parties. T or F
False
An investor must prove reliance on material, public misrepresentations to successfully sue under the fraud-on-the-market theory of Rule 10b-5. T or F
False
Courts usually treat the piercing of the LLC veil differently than that of a standard corporation. T or F
False
When a Board of Directors decides to split a corporation into several subsidiaries for the purposes of impeding a hostile takeover, it is permissible for those Directors to appoint themselves to the Board of Directors of one of those subsidiary corporations without holding a shareholder meeting. T or F
True
The business judgment rule creates a presumption of correctness for board of director decisions if the board acted in good faith, on an informed basis, and in a manner they honestly believed to be in the best interest of the corporation. T or F
True
The business judgment rule will protect directors as long as they act in good faith, on an informed basis and in a manner they believe is in the best interest of the corporation and their objective is to maximize shareholder wealth. T or F
True
The theory of Alter Ego makes a "parent" company liable for the actions of a "subsidiary" company. T or F
True
Unless otherwise provided or contracted all partners have equal rights in the management and conduct of the partnership business and any difference arising as to ordinary matters connected with the partnership business may be decided by a majority of partners. T or F
True
One device is when you deprive minority stockholders of corporate offices and of employment with the corporation. This device accomplishes a _______.
freeze-out
The key difference between adoption and ratification is that with ratification the principle __________________________________________.
had the power to authorize the act at the time it was done
Former employees have a fiduciary duty to former employers to: A. not operate a business offering the same services as the former employer B. not use customer information gained due to working for the former employer in soliciting business C. not solicit customers of the former employer D. none of the above
B
A creditor's inability to collect payment from a corporate defendant is sufficient cause alone to pierce the corporate veil. T or F
False
When faced with the question of how much weight a court should give a Board of Directors' independent committee decision to dismiss a shareholder complaint, the court will consider ___________________________.
1) Was the committee independent from the situation; 2) Did the committee make an informed decision (i.e., did the committee follow procedures that led to the bringing together of relevant information); and 3) using the court's business judgment, was the decision reasonable?
What two things must occur for a principle to be bound to a contract by the act of an agent?
1. A principal-agent relationship must exist, and 2. The agent must have "authority," or a "substitute for authority."
What are the seven sources from which agency may arise?
1. Express 2. Implied 3. Apparent 4. Estopple 5. Ratification 6. Adoption 7. Inherent Agency Power
The three main factors that courts look at in determining the existence of a partnership are?
1. Intent of the parties 2. Control over partnership management 3. Share in net profits or losses
If you are trying to prove that a partnership relationship exists in a situation as opposed to an different relationship (i.e. employment relationship), briefly describe what factors you would look at in making your determination.
1. Intention of the parties - 2. Right to Share Profits 3. Obligation to share in losses 4. Ownership and control of the partnership property and business 5. Community of power in administration 6. Language in the agreement 7. Conduct of the parties towards third persons 8. Rights of the parties on dissolution
An outsider's shaking down a target company by taking a controlling interest in it, then demanding a premium stock price for return of control is called: A. greenmail B. a white knight C. a poison pill D. a Revlon duty
A
During a takeover, an option granted by a seller to a favored buyer to purchase a valuable company asset at a bargain price: A. a lock-up option B. a golden egg option C. a golden parachute option D. a pac man option
A
Rupert Murdoch, member of the Board of Murdoch Media (a KY corporation), was checking his email on November 3rd, 2008. An email from an officer catches his eye. Fox J. Michaels, Vice-President asks permission to buy stock in NObamaCorp, a new company which Murdoch does not recognize at all and which Michaels admits he knows nothing about. Michaels just loves the name. Without a second thought, Murdoch sends Michaels e-mail permission to make a $50,000,000 purchase of a controlling interest in NObamaCorp with a mouse-click. What has he done wrong? A. He violated his duty of care to Murdoch Media B. He violated his duty of loyalty to Murdoch Media C. He violated his due diligence obligations D. He has done nothing wrong. Murdoch's judgment here, for better or for worse, is protected by the business judgment rule.
A
What percentage of stock must a shareholder (or group of shareholders) hold to trigger the Williams Act? A. 5% B. 10% C. 20% D. 50%
A
Which of the following is not an exception to the independent contractor doctrine (a person who engages a contractor is not liable for the negligent acts of the contractor) and would not subject the principal to possible liability? A. where the contractor is not insured B. where the principal retains control of the manner and means of doing the work required by the contract C. where the principal engages an incompetent contractor D. where the activity contracted for provides a nuisance per se (or is "inherently dangerous")
A
To form an LLC, one must file ______________ with the Secretary of State. A. Articles of Incorporation B. an Operating Agreement C. Articles of Organization D. none of the above
C
Which of the following is not a form of "authority" or a "substitute for authority" under the contract theory of agency law? A. Express B. Ratification C. Primary D. Apparent
C
_________ is the fiduciary relationship that arises when one person (a 'principal') manifests assent to another person (an 'agent') that the agent shall act on the principal's behalf and subject to the principal's control, and the agent manifests assent or otherwise consents so to act.
Agency
John, Sarah, and Susan are the sole shareholders and managers of the corporation Link, Inc. Link produces video games and distributes them worldwide. Charter, Inc., a transport company, ships the video games internationally for Link. Link is unexpectedly dissolved and Charter wants to bring an action to reclaim payment owed to them for their last shipment of video games to Anchorage, Alaska. Upon further investigation, it is revealed that John, Sarah, and Susan put their assets into a separate subsidiary entity (Mario, Inc.) to limit liability only to that subsidiary corporation and protect the parent company. Under what theory may Charter bring an action against Link?
Alter ego Under the alter ego theory of liability, the corporation and its owners are the same, and the corporation is the alter ago of the owners. Generally, this theory reveals a lack of respect for formalities of corporate life. That list of formalities may include shareholder meetings, shareholder elections, approval of extraordinary matters of business, Board of Directors powers, separate legal entities with separate bank accounts, etc. The alter ego theory is often connected with agency in courts. Under agency theory, the autonomy of the principal is respected, but that principle may still be liable. When combined with the alter ego theory, there exists a lack of respect for the separateness of the agent and the principle.
Energy Inc. is a regulated utility in the business of generating and delivering electricity to residential and commercial consumers in the Midwest. The company is profitable and generates a healthy return, but the board of directors thinks that if the company competed in unregulated markets Energy Inc. would generate healthier profits and would be able to pay larger dividends. Energy Inc.'s entire board, after thoughtful deliberation voted to enter the ping pong table manufacturing business. The vote of the board immediately is broadcast on CNBC and reported on in the Wall Street Journal. The ping pong business is a disaster and Energy Inc. loses tens of millions of dollars. Bill, an Energy Inc. shareholder, is furious and wants to sue Energy Inc.'s board of directors. Which of the following theories will Bill be able to argue? A. Breach of duty of loyalty B. Breach of duty of care C. Rule 10b-5 violation D. Breach of duty of loyalty and breach of duty of care
B
Congress passed the Williams Act in 1968 as a response to A. Increasing shareholder unrest. B. Increasing numbers of hostile tender offers. C. Unnecessarily heavy fiduciary duties on corporate Directors. D. A general public policy against mergers of any kind.
B
Don Jones and Stanley Poor are the sole stockholders in their company Market Street. Jones makes a contract with Poor. The contract states that Poor during his lifetime and, after his death, a trustee to be appointed by his will, would so vote his stock and so vote as a director that Jones (a) should continue to be a director of Market Street, (b) should continue as its general manager so long as he should be faithful, efficient and competent, (c) should during his life receive one-fourth of the net income of the corporations either by the way of salary or dividends, and (d) that no unreasonable or incommensurate salaries shout be paid to other officers or agents which would so reduce the net income as materially to affect Jones's profits. Jones's on his part agreed to disclose a secret formula to Poor's son and to instruct him in the details and methods of manufacture, and further at the end of his life to bequeath his stock to the wife and children of Poor. What is the test used to decide if this agreement is against public policy? A. Look to see if there is a more obligation imposed. B. Look for the damages suffered or threatened. C. Look to see if there is adequate consideration in the agreement. D. Look to see if there is a freeze out.
B
In Francis v. United Jersey Bank, Mrs. Pritchard had inherited a 48% interest in her deceased husband's reinsurance agency. She was found to have failed in her duty of care as a director, which proximately caused her sons misappropriations of company funds through the guise of loans. Which among the following did the court NOT declare was the among the many duties of a director: A. Directorial management requires only a general monitoring of corporate affairs and policies B. While directors are not required to audit corporate books, they must at least rely upon written reports setting forth the corporation's financial data prepared by an independent public accountant or upon financial statements from a firm of public accountants C. Upon discovery of an illegal course of action, a director has a duty to object and even resign if the corporation does not correct the conduct D. A director should acquire at least a rudimentary understanding of the business of the corporation and should become familiar with the fundamentals of the business in which the corporation is engaged
B
Person A has the right to review business B's marketing strategy, provides the training for employees, and even reviews the floor layout of the other business, what item is the best to defeat the theory of agency and control in torts? A. Business B gets most of its financing from a bank and not Person A B. Business B bears all the risks of loss and retains all the profit C. Business B hires its own employees D. Business B has its own lawyer
B
When a shareholder challenges the decision of the Board of Directors, he must prove his case by ________. A. Great weight B. Clear and convincing evidence C. Preponderance of the evidence D. Substantial evidence
B
When determining whether an offer for securities is exempt from registration as a "private offering" under § 4(2) of the Securities Act of 1933, which of the following factors is NOT usually considered? A. Number of offerees B. "Insider" status of the offerees C. Number of units offered D. Size of the financial stakes
B
When is an employee's conduct not within the scope of employment? A. If it exposes the employer to tort liability. B. If it does not serve the employer. C. If it exposes the employer to criminal liability. D. If it causes the employer to lose money.
B
When one firm wants to attempt a takeover of another, they may offer to buy stock at a set price, but only actually purchase the stock if they would be able to obtain a certain set amount, say 90%, of the outstanding stock. This is called A. A golden parachute B. A tender offer C. An acquisition offer D. A poison pill
B
Which of the following must be proved to overcome the defense that a board relied on an expert? A. The expert must commit malpractice. b. The expert was not selected with reasonable care. c. The advice was based on false information. d. All of the above.
B
Agency is the relationship which results from a manifestation of mutual assent that one person shall act for the ____________ of another and subject to his or her ___________.
Benefit, control
10(b)-5 mandates: It shall be unlawful for any person, in the connection with purchase/sale of any security . . . (which of the following DOES NOT belong): A. To employ any artifice, scheme, or device to defraud B. To make any untrue statement of a material fact C. To seize for personal gain any corporate opportunity for profit D. To engage in any act which operates or would operate as a fraud or deceit upon any person
C
Evaluating a stock's fair value based on asset costs and accounting principles is: A. Appraisal B. Director's Agreement C. Book Value D. "You name it"
C
If an acquiror makes a first tender offer for the stock of a target corporation, the Williams Act of 1968 requires that acquiror must A. Pay the highest price to the stockholders who respond to the initial tender offer first. B. Pay the offered price to all stockholders choosing to accept the initial tender offer. C. Pay the same price for all purchases made under the initial tender offer. D. Pay the price offered under the initial tender offer for no more than 51% of the total shares of stock.
C
It the not so distant future, Louisville has banned all petroleum powered cars from downtown. Axl owns a company that provides fancy rickshaws for the paying public to get around town with. Because of booming business, Axl incorporates under the name RickCorp and buys liability insurance to protect the corporation in case it gets sued. Two years later, Lance DuMond, repeat winner of the Tour de France, is in town for Derby and gets run over by one of RickCorp's rickshaws at 4th Street Live, ending the cyclist's lucrative career. During the high profile lawsuit, the local paper, the Courier-Murdoch, accurately reports that Axl, working closely with his attorney, was careful to follow all of the technical formalities of doing business as a corporation, but Axl did withdraw all of RickCorp's profits as quickly as they were earned, leaving only enough cash and other assets to pay RickCorp's debts in the ordinary course of business and to keep the total assets of RickCorp just slightly more than its total liabilities. Axl used the distributed profits to purchase Faberge eggs for his girlfriend. Which of the following is true: A. The frequent withdrawal of all profits was legal and should not result in Axl becoming personally liable for any claims against RickCorp. B. From the facts as a whole, it is not likely that a court would hold Axl personally liable for Lance DuMond's judgment claim. C. Both of the above D. None of the above
C
Lunch Inc. forms a subsidiary corporation (Meat Inc.) in Myanmar. Lunch Inc. owns 97% of Meat Inc. with members of Myanmar's ruling junta owning the other 3%. The minority shareholders are unhappy with Lunch inc. because Meat Inc. is paying very high dividends depleting the corporate funds. Additionally, Lunch Inc. is receiving lucrative business opportunities which Lunch is having wholly owned subsidiaries pursue those opportunities instead of Meat Inc. Additionally, the minority shareholders are unhappy because Meat Inc. is not enforcing contracts with affiliates of Lunch Inc. Lunch Inc. is most likely violating the fiduciary duty of loyalty (through it's completely dominated board of directors) in which of the following ways: A. High dividends depleting corporate funds B. Diverting corporate opportunities to wholly owned subsidiaries C. Not enforcing Meat Inc. contractual rights D. All of the above
C
Margie went into McDonalds and in the process of ordering Chicken McNuggets asked if they had any eggs or flour in the ingredients because her 3 year old daughter was allergic to those items. The sales clerk says the McNuggets don't contain those items, but they really do. McDonald's has a policy that if asked about the food a sales clerk is to hand the customer a sheet describing what is in the food, and the clerk did not do this. Margie's daughter is in the hospital and Margie asks McDonald's to pay the medical bills due to the fact that they never authorized the clerk to give warranties on the food, but only to interact with the customers to take orders and money. What would be Margie's best theory of agency to hold McDonalds liable for the statement of the clerk? A. Express authority B. Implied authority C. Apparent authority D. Ratification
C
Once a purchaser has bought a controlling majority share in a corporation, it may: A. Require current directors to resign before the end of their term by contract agreement B. Appoint new directors C. Increase or decrease the number of directors D. All of the above
D
To disregard a corporate entity and pierce the corporate veil, the Van Dorn test is used. This test looks at: A. Unity of Interest between the two parties B. Unity of Ownership C. Effect of not piercing the veil D. All of the above
D
Which of the following is not a method for a minority stockholder to force a closed corporation to buy his or her shares of stock? A. A provision in the articles of incorporation or bylaws which provides a "triggering event" and upon occurrence, the stockholder may demand a buy out. B. Shareholder may petition the court for involuntary dissolution of the corporation. C. A significant change in the corporate structure, such as a merger, for grounds for a statutory right of appraisal. D. Stockholder may make a demand fair value, to be determined by an appropriate method, for his or her shares of stock.
D
Which of the following people are not banned from insider trading through the judicial interpretation of § 10(b) of the Securities Exchange Act? A. officers B. directors C. 10% shareholders D. none of the above
D
Which one of the following is illegal? A. Greenmail B. Poison Pills C. Golden Parachutes D. None of the above.
D
What requirement, of not met, is fatal to the private placement exemption to the registration of securities before there is an offering?
Failure to determine number of offers given. If you cannot determine how many offers you have given of who those offerees are you cannot determine anything about the offer and it must fail.
Donald Dollar is married to Ivanna. Donald is in the real estate business and had done quite well. Due to a prenuptial agreement, he and Ivanna only own 7 of their 19 houses under both of their names. Six of these houses have changed over time, as Donald has bought and sold their homes to make further profits. Ivanna has never objected and has enjoyed the profits reaped from these sales. Her only request was that Donald not sell their first joint vacation home—a simple cottage in Colorado. Since the property was not particularly valuable, Donald did not mind keeping it. However, Donald and one of his friends, Chris Copper, a copper magnate, were using the house as a hunting lodge when Chris noticed an extraordinary piece of copper ore. He had never seen any ore so rich with copper, and even Donald immediately knew he'd struck a goldmine (of copper). On the spot, Donald agreed to sell the land to Chris for umpteen million dollars. He used the money to buy the nearby town of Vail, Colorado for his wife. For their anniversary, he presented Ivanna with a key to the city. She loved Vail and went to stay there for four weeks. But when she found out that Donald had sold their cottage, she was furious. On official owner-of-Vail stationery, she penned a piquant letter to Chris, saying that under no circumstances would she allow him to buy the cottage. Chris's attorney replied that by accepting and enjoying the benefits of the sale (the profits which allowed Donald to purchase Vail for her), Ivanna had ratified Donald's actions. T or F
False
If any director is entitled to the benefit and support of the business judgment rule, then all directors are also entitled to the protection of the business judgment rule on that issue. T or F
False
In a law office partnership, it is a violation of a partner/lawyer's fiduciary duty to plan to compete with the firm to which the partner/lawyer owes a fiduciary duty. T or F
False
In general, one partner can deny another partner's agency status, as well as deny that partner's authority to act for the purpose of conducting partnership business. T or F
False
Incumbent directors may not use corporate assets when contesting a policy matter in proxy fights, even if the expenses are reasonable. T or F
False
Joint Tenancies, tenancies in common, tenancy by the entireties, joint property, common property, or part ownership may be enough to establish a partnership. T or F
False
Ordinarily, a partnership may not reimburse a partner for payments made or liabilities incurred to benefit the principal in the ordinary course of business. T or F
False
The fiduciary duty requires that after an agent has stopped being an agent, they are not allowed to use any business knowledge they acquired as an agent to compete with the principle? T or F
False
The labels parties assign to their intended legal relationship are dispositive as to existence of a partnership relationship as a matter of law. T or F
False
Under the "alter ego" theory, where a parent company that controls several subsidiaries, each subsidiary then becomes liable for the actions of all other subsidiaries. T or F
False
Under the Alter Ego theory, a 'parent' company that controls several subsidiaries creates liability between the sister subsidiaries. T or F
False
Interested shareholders can ratify their own transaction with their corporation. T or F
False A majority of disinterested shareholders must ratify corporate transactions with an interested director
A partnership contract provision may prevent the dissolution of a partnership. T or F
False A partnership may be created by contract, but "dissolution" occurs by operation of law and cannot be prevented by the contract terms of a partnership agreement. Though a partnership contract cannot prevent dissolution, it can prevent the consequences of a dissolution, i.e., 1) a winding up and 2) a termination of the partnership.
Majority stockholders have a fiduciary duty to minority stockholders and cannot sell majority shares at a premium to the detriment of minority interests T or F
False Absent any looting of corporate assets, fraud, conversion of corporate property or other bad faith, a controlling stockholder (or group) is free to sell, and a purchaser is free to buy that controlling interest at a premium. A controlling stockholder has no obligation to share that premium with minority shareholders.
The only fiduciary duty a partner owes to a partnership and the other partners is the duty of loyalty. T or F
False Also a duty of care
A Partnership is an association of two or more persons to carry on as co-owners, a business or endeavor with a common purpose. T or F
False As co-owners of a business for profit
A person bringing an action for monetary damages against a board of directors must prove their case by a preponderance of evidence. T or F
False By clear and convincing evidence
A principal is not bound by the acts of an agent if there is no actual or apparent authority. T or F
False Can still be bound under ratification, estoppel, inherent agency, adoption
A promoter signs a contract for a yet to be formed corporation. The corporation may ratify the promoter's activities. T or F
False Corp not formed yet, so therefore not a principal yet
Unless otherwise contracted for, in order to raise additional capital among partners, a majority of affirmative votes for putting in a determined amount may bind the minority voting partners. T or F
False Default is unanimous
It is enough for a finding of partnership by estoppel that a defendant held himself out to the world as a partner. T or F
False Estoppel requires both an action by D holding himself out to be a partner/ship and a showing of detrimental reliance on this representation by P
In general, one partner can deny another partner's agency status, as well as deny that partner's authority to act for the purpose of conducting partnership business. T or F
False Every partner is an agent of the partnership for the purpose of its business and the act of every partner in the furtherance of partnership business binds the partnership, unless the partner acting has no authority to act for the partnership in the particular matter and the 3rd person knows he has no authority
In a reverse triangular merger, the target company merges into a subsidiary of the acquirer and ceases to exist. T or F
False Explanation: This is a forward triangular merger. In a reverse triangular merger, the target company becomes a wholly-owned subsidiary by merging with a subsidiary that then ceases to exist.
A, B, and C were members of Venture, LLC, which operated a restaurant. The members agreed to liquidate the LLC, which had three main assets: a commercial grade oven, a large refrigerator, and tables and chairs for the dining room. The members agreed that, under the liquidation, A would receive the oven, B would receive the refrigerator, and C would receive the furniture. Creditor, who was left unpaid after the liquidation and sued A contending that A is jointly and severally liable with the other members for all the distributions. A is liable to Creditor as a transferee for the combined value of the LLC's assets. T or F
False Explanation: Transferee liability arises when a person (the transferee) receives assets from a debtor that deprives a creditor of the transferor payment of the debt, so this statement is False. A is also liable under another theory - making an illegal distribution to owners that left the LLC's assets less than its liabilities, and also left LLC unable to pay its debts in the ordinary course of business. Under this theory, each member is jointly and several liable with the other members for the full amount of the illegal distribution.
Only majority shareholders may request the records of a corporation. T or F
False KRS only references "shareholders", without a minimum amount
The court looks primarily at corporate statutes to determine controlling authority for LLC's. T or F
False Looks at both partnership and corporate stats
To prove an act was ratified by the principal, a third party only has to show that the principal received benefit(s) from the agent's act and failed to repudiate it. T or F
False Must first show that the act was purported to have been done on account of the principal
An agent may create his or her own authority by acts of the agent creating the reasonable belief in the mind of a third party that the agent has authority to act for the principal. T or F
False Only the manifest acts of the principal can create apparent authority for an agent
An agent may create their own apparent authority; but only if the agent's representation or authority is manifested to third parties and clearly states that agent has apparent authority to bind principal to a contract. T or F
False Only the principal may create apparent authority
In tort cases, the defendant has the burden of proving that an agency relationship does not exist. Conversely, in breach of contract cases, the plaintiff has the burden of proving that an agency relationship does exist. T or F
False P always bears burden of proving agency relationship
Bill and Stephanie are discussing the super corn in a taxi while traveling home after a show. Dan the cabbie over hears them and purchases shares in Corn Corporation. Dan is liable for a Rule 10b-5 violation. T or F
False People who pick up info when other people do not intend for them to hear do no inherit a Kady Roberts duty
The Board of Directors of a corporation may not decide to give a donation for the public welfare, charitable, scientific, or educational purposes. T or F
False Permissible under KRS
Shareholders have all the power to manage AND the board of directors has no power to manage but has the right to vote and the right to receive distributions. T or F
False Shareholders have no right to vote or the right to receive distributions; BoD has the power to manage
A court will not recognize an action as the action of a "corporation" unless the entity was a least created as a valid corporation under state law. Courts do not recognize Kinko corporations (as we said in class) as corporations. T or F
False Sometimes business acts in GF and thinks they are a legit corp
Parent is a director of Banking, Inc., a corporation in the banking business. Parent did not have general knowledge about the business of Banking, Inc. or of business operations in general, but nevertheless Parent agreed to serve on the board of directors when Child asked Parent to accept a directorship position. In most states Parent will be held to a duty of care consistent with parents ability, because a person should not be expected operate at the level of a reasonably prudent bank director if clearly they are not capable of meeting that standard. The correct standard for Parent's decision making as a director is the best level of judgment Parent, given Parent's abilities, is capable of making. T or F
False Standard is reasonably prudent person in the same or similar circumstances
Strike suits are shareholder derivative suits brought by majority shareholders for the purpose of demanding the payment of dividends. T or F
False Strike suits are typically brought by minority shareholders seeking a quick and private settlement that provides personal financial gain to the plaintiff and plaintiff's lawyer rather than seeking to maximize the collective wealth of all shareholders. Lawyers for these plaintiffs are often the big financial gainers, e.g., a settlement that provides a large fee to the attorney with minimal recovery to the plaintiff-shareholder who typically owns only few shares.
In the realm of insider trading, the basic test of materiality of the information is whether there is any person who would attach importance to the information in determining his or her course of action to buy or sell. T or F
False Test is whether a reasonable person would attach importance to the info
Security Exchange act of 1934 applies to the primary market. T or F
False The Act of 1933 applies to the primary market. 1934 applies to all sales and offers after initial offering
Ordinarily, Directors owe a fiduciary duty to corporate bondholders. T or F
False The rights of bondholders are largely governed by private contract. The Board of Directors owes a fiduciary duty only to the shareholders of the corporation.
In Kentucky, if a Director of a corporation has a conflict of interest regarding a transaction entered into by the corporation, the transaction will be voidable. T or F
False The transaction will not be voidable only if: the conflict is disclosed to the Board or the Board has knowledge of the conflict; or there is disclosure of the conflict to the shareholders; or, if neither of the preceding options are workable, the transaction was fair to the corporation
A partner who has wrongfully dissolved a partnership may participate in the winding up of the partnership business. T or F
False There is no required pattern for winding up partnership business and winding up does not always mean the same thing. But a partner who has wrongfully dissolved the partnership is precluded from participating in the winding up of the partnership's business.
Chelsea may ratify the portion of the contract for the lease and sale and disaffirm the option to purchase. T or F
False You can only ratify something in its entirety
A security may be offered for sale prior to the registration statement becoming effective so long as the registration statement has been filed properly with the SEC. T or F
False § 5 of the Securities Act imposes three basic rules: (1) a security may not be offered for sale through the mails or by use of other means of interstate commerce unless a registration statement has been filed with the SEC; (2) securities may not be sold until the registration statement has become effective; and (3) the prospectus must be delivered to the purchaser for sale.
___________ is a termination agreement that provides substantial bonuses and other bonuses for managers and certain directors upon a change in control of a company.
Golden parachute
___________ is a takeover tactic where a corporation purchases the stock of a potential acquirer at a premium over the market price.
Greenmail
Describe the fraud-on-the-market theory.
In an open market, it is assumed that the price of a security is based on all available material information. Thus, when materially misleading information regarding certain stock has made it into the market, anyone who buys or sells that stock is presumed to have relied on the misleading information and need not prove individual reliance to bring a 10b-5 claim.
What are some of the factors used to evaluate the Unity of Interest when piercing the corporate veil?
Maintaining corporate formalities, commingling of funds, undercapitalization, treating corporate assets as personal.
Must a partnership formed prior to July 12, 2006 adhere to the Kentucky Revised Partnership Act (2006)?
No, but they may elect to be subject to the revised partnership act.
In a partnership for term can any partner terminate at will without penalty?
No. A partnership for term in an express agreement by the partners to continue the partnership for a specified time period in order to earn a specific amount of money or until certain debts are paid or until certain property can be disposed of.The agreement must be explicit and not implied.A hope for a profitable partnership does not imply a partnership for term
Shareholders have the right to add issues to the agenda of a corporate meeting, subject to certain limitations. T or F
True
Name three factors to aid in determining the alter ego status of a subsidiary under substantial domination of a parent corporation.
Parent and subsidiary have common directors or officers, the parent and the subsidiary have common business departments, parent and sub file consolidated tax returns and financial statements, parent finances the sub, parent caused the incorporation of the sub, the sub operates with grossly inadequate capital, the parent pays the salaries and other expenses of the sub, the sub receives no business except that given to it by the parent, the parent uses the sub's property as own, the daily operations of the two corporations are not kept separate, the sub does not observe the basic corporate formalities (separate books, records, board or shareholder meetings) These eleven factors are listed in the text on page 226 and are important to remember to establish independent or dependent subsidiary status. EVERYONE should be able to list 3!
Define Partnership. What is required to form a partnership?
Partnership is an association of two or more persons or entities who carry on as co-owners of a business for profit.
A director or officer who violates his duty of due care and thereby injures the corporation may be held personally liable for the corporation's damages. T or F
True
___________ are usually put in place by the board to avoid takeover. They can take the form of rights that only come into effect when an acquisition is announced or takes place.
Poison pills
_____ is any arrangement; under which one person turns over money to another person; largely to make profit through the efforts of another person.
Security
What is a voting trust?
Shareholders who wish to act in concert turn their shares over to a trustee and the trustee votes all the shares, in accordance with instructions in the document establishing the trust.
A deadlock between equal 50/50 owners of a closed corporation can be grounds for an involuntary dissolution by the courts. T or F
True
A creditor becomes a principal to a debtor when the creditor assumes de factor control over the conduct of the debtor. T or F
True
A member of an LLC who enters into a contract with a third party on behalf of the LLC, but does not fully disclose the identity of the LLC to the third party, is personally liable under the contract. T or F
True
A primary factor a court will consider in determining whether a partnership exists is the objective intent of the parties. T or F
True
A principal is always bound by the authorized act (or where there is substitute authority) of an agent. T or F
True
A principal may still be bound in tort or contract by the actions of an agent even though the agent disregarded the principal's directions, secret or otherwise, so long as the agent acted within the scope of the business entrusted to the agent's care and the third party is not aware that the agent has disregarded express directions of the principal.
True
A purchase of securities that results in the purchaser holding more than 10% of a corporation makes the purchaser an "insider" and as such the purchaser cannot make a short-swing profit from buying or selling that corporation's securities. T or F
True
Agreements among shareholders by which the shareholders bind themselves to electing themselves, or their representatives, as directors are enforceable in most jurisdictions? T or F
True
Although different states have adopted different rules, most states hold that shareholders do not owe fiduciary duties to one another and are free to vote their own selfish interests without regard to the interests of all shareholders as a group. T or F
True
An LLC Operating Agreement may limit the members' fiduciary duties. T or F
True
An employer is subject to liability for torts committed by employees while acting within the scope of their employment. T or F
True
As we discussed in class, Stockholders in a closely held corporation owe one another substantially the same fiduciary duty in the operation of the enterprise that partners owe to one another. T or F
True
As we studied in class, all of the power to manage a corporation is vested by state statutes in the board of directors. T or F
True
Bob was driving because he had a business meeting in Nashville and left his office in Louisville to go to the meeting. On his way to the meeting Bob decided to pick up his daughter from day care and drop her off with his wife. While pulling away from dropping his daughter off Bob ran over Carrie. Carrie wants to hold Bob's employer liable for the accident. Bob's employer moved for summary judgment that Bob was not acting within the scope of his employment. The judge would be correct in denying summary judgment. T or F
True
Even though the alleged principal and agent expressly agree by written contract that no agency relationship exists between them, as a matter of law an agency relationship may exist between them. T or F
True
If, in a transaction between a parent company and its subsidiary, the parent company controls the transaction and fixes the terms, the transaction must meet the intrinsic fairness test. T or F
True
In making ordinary business decisions, a Board of Directors may elect to donate modest amounts of corporate dividends to charitable organizations. T or F
True
One means of holding a parent corporation liable for the actions of its controlled subsidiary, is to prove that the subsidiary is a "mere instrumentality" of the parent, i.e., the subsidiary is but the agent of the parent. T or F
True
Theories for piercing the corporate veil include unity of interest and ownership between the corporation and the owners, failure of owners to respect the entity as an entity separate from the owners, or to be so thinly capitalized as to be considered a fraud on the privilege of doing business through a limited liability entity. T or F
True "'Piercing the corporate veil" refers to a situation in which courts put aside limited liability and hold a corporation's shareholders or directors personally liable for the corporation's actions or debts. Veil piercing is most common in close corporations."
A proxy coupled with an interest is not revocable. T or F
True An agency coupled with an interest is created for the benefit of the agent, not for the benefit of the principal. Because the agency is for the benefit of the agent, the principal may not terminate the agency without the consent of the principal.
The BJR (Business Judgment Rule) does not apply to defensive tactics used by a target company faced with a takeover. T or F
True Enhanced scrutiny applies, not BJR
Even though a person is not a partner, that person may be "estopped" to deny his or her partner status and be held liable as a partner for partnership liabilities. T or F
True Even though you aren't partners, this can be met is you prove by the elements that there was: 1) action by the Defendant, and 2) detrimental reliance by the plaintiff
A Board of Directors may choose to either pay or withhold dividends to shareholders and ordinarily the business judgment rule requires a court to uphold the board's decision. T or F
True Except when decision was not in GF, not made on an informed basis, or was not what the board honestly believed was in the best interest of the corp. Must maximize the shareholder's wealth, not serve the public good
Under the Blasius standard for the duty of loyalty, the Board must show that they had a compelling justification for interfering with a shareholder vote. T or F
True Higher standard than BJR
If the injury to a shareholder is direct, that person need not comply with procedures in a derivative suit. T or F
True Must allege injury and that injury is separate from other shareholders
Norton was a notorious silver trader who allegedly swindled many of his clients. Norton's employer and Norton were sued in a class action law suit. The employer eventually settled the litigation for 17 million dollars. The settlement contained language exonerating the Employer and Norton and Employer and Norton did not admit wrongdoing. Despite the settlement language, Employer agreed to pay (and did pay) a $17 million dollar settlement. Now Norton seeks to require Employer to reimburse Norton for the 2.2 million that Norton paid in legal fees to defend himself in the original lawsuit. It is likely that employer will be required to indemnify Norton for Norton's legal expenses. T or F
True Norton won, and he is a director, so he is entitled to indemnification
The demand requirement imposed on stockholders who want to file a derivative action against directors may be excused if the majority of the board has a material financial or familial interest. T or F
True Other reasons for excusal include the inability of the board to act independently or failure to exercise good business judgment.
Any partner who negligently causes injury to another while acting within the scope of partnership business has the right to be indemnified against loss by the partnership. T or F
True So long as the tort was not intentional or grossly negligent
Corn Corporation is a publicly traded corporation with an active research and development department. Bill A. Corn is a research scientist and employee of Corn Corporation. In the ordinary course of his research, Bill creates a hybrid corn plant that will generate 10 times the yield of a normal corn plant. Bill and Corn Corporation expect Bill's new creation to have enormous commercial potential. Frank the CEO of Corn Corporation sends out an interoffice memo instructing complete secrecy. After tests confirm the commercial viability of the new corn hybrid, but before public dissemination of the information, Bill informs Stephanie of his new super corn. Stephanie is a classmate of Bill's and Stephanie now works as a research scientist for another corporation. Bill told Stephanie about his new creation because he wants to impress her with his scientific success and he also lets Stephanie know he expects return favors regarding her research so he has as the opportunity to profit by buying stock in her company.Stephanie appreciates the tip and immediately buys stock in Corn Corporation knowing that the price will rise upon release of the new of the new hybrid corn plant. Stephanie is liable under Rule 10b-5 which may result in the imposition of civil and criminal penalties on her. T or F
True Steph is a tipee, and as a tipee she knows she received material nonpublic information due to Bill's breached fiduciary duty to Corn Corp (Kady Roberts duty)
When are corporations not personally liable to creditors under the theory of transferee liability?
When the assets taken deprive unknown creditors. There is a 2 year statute of limitations for a creditor to make a claim known. If the creditor does not do so the corporation cannot be liable.
Where two corporations co-mingle funds, hold out identical equitable ownership, have the same offices and employees, one company may be held liable for the actions of the other under the __________________ theory.
alter ego
These state laws of the same name come from the claim that these statutes protect investors from "speculative schemes which have no more basis than so many feet of _______."
blue sky
The __________ states that courts shall not question the wisdom of directors and officers business decisions, and will not impose penalty for even poor business decisions as long as the director/officer acted in good faith, acted on an informed basis, and acted in an honest belief that the action(s) taken were in the best interest of the company.
business judgment rule
The ____________________ protects a Board of Directors from liability in making their business decisions, so long as those decisions are made honestly, in good faith, and on an informed basis.
business judgment rule
Partners in a partnership owe two fiduciary obligations/duties to the other partners - the duty of __________ and the duty of ___________.
care and loyalty
Generally if the board of directors makes a decision not to take action demanded by a shareholder, it entitled to protection of the Business Judgment Rule. Unless there is a ________ ___ ________.
conflict of interest or fraud
In a limited partnership, a limited partner may lose protection if they were to participate in the _____________ of the business.
control
Like bonds, ______________ are long term debt obligations, but unlike bonds they are unsecured.
debentures
Trigger events for buyout agreements include death, _________________, or the will of any partner.
disability
The main purpose and role of the corporation is to _____________.
maximize shareholder wealth
The two types of LLC are (1) ________________ and (2) ________________.
member-managed, manager-managed
A partnership must indemnify a partner for liabilities incurred by the partner in the ____________ ___________ ____ ______________ of the partnership or for the preservation of its business or property.
ordinary course of business
A person who identifies a business opportunity + puts together a deal, forming a corporation as the car for investment by other people is known as a ____________.
promoter
To fulfill the ___________, the person making a false statement under Rule 10B-5 must have made it with the intent to deceive, manipulate, or defraud.
scienter requirement
A ______________ is a shareholder derivative action brought by a minority shareholder to harass the corporation into settling the case privately with the plaintiff and paying a large attorney fee to plaintiff's attorney.
strike suit
