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100 Brainscape Flashcards

1
Q

Test

A

Answer

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2
Q

Q001. - Types of Business Structures

A

A001. - 1 sole proprietorships - 2 general partnerships - 3 limited partnerships - 4 limited liability partnerships (LLP) - 5 joint ventures - 6 limited liability companies (LLC) - 7 corporations

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3
Q

Q002. - Advantages of a Sole Proprietorship

A

A002. - 1 easy to form & operate - 2 business can be sold without approval from others - 3 owner has right to make all business decisions - 4 profits are not shared w/others

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4
Q

Q003. - Disadvantages of a Sole Proprietorship

A

A003. - 1 the owner suffers all of the loss - 2 capital is limited by what the owner has or can borrow - 3 unlimited personal liability

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5
Q

Q004. - Definition of Partnership

A

A004. - An assn of two or more persons and/or entities to carry on a business as co-owners for profit (not including passive co- ownership & not-for-profit unincorporated assns)

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6
Q

Q005. - Elements of Co-ownership in a Partnership

A

A005. - 1 profit sharing (is not always in equal increments) - 2 joint control (each partner has = right to participate in mgmt) - 3 RUPA states that partner is no longer co-owner of partnership property

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7
Q

Q010. - Unanimous Consent of Partners is Needed for;

A

A010. - 1 admission of a new partner - 2 amendment of partnership agreement - 3 assignment of partnership property - 4 making partnership a surety or guarantor - 5 admitting to a claim a/g partnership in court - 6 any action outside the scope of the business

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8
Q

Q011. - Partner Liability:

A

A011. - 1 each partner is jointly & individually liable for all debts (creditors required to attempt collection from partnership 1st) - 2 still liable to 3rd party despite agreement (meaning that if any partner pays more than required the others are to reimburse the overage) - 3 incoming partners are liable for existing debts to the extent of their capital contributions (unless agreed otherwise) - 4 outgoing partners are liable for existing & subsequent (if notice is not given to 3rd parties) liabilities

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9
Q

Q012. - Partnership Terminates when:

A

A012. - 1 dissolution (stop carrying on business together) - 2 remaining partners elect to wind up & terminate partnership

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10
Q

Q013. - Distribution Order upon Termination:

A

A013. - 1 creditors (including partner loans to partnership) - 2 equity due to/from each partner

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11
Q

Q014. - Priority of Creditors:

A

A014. - 1 partnership creditors —> 1st to partnership assets, excess to personal creditors - 2 personal creditors —> 1st to personal assets. excess to partnership creditors

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12
Q

Q015. - Creation of Limited Partnership

A

A015. - 1 file certificate w/the SOS (to include names of all general partners) - 2 requires @ least 1 general & 1 limited partner - 3 contributions may be in the form of —> cash, services performed & property (also includes promises of the previous)

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13
Q

Q016. - Limited Partner CAN do this without the Risking Loss of Limited Liability:

A

A016. - 1 act as agent or employee of partnership - 2 consulting with & advising general partner - 3 voting on amendments to the partnership agreement - 4 voting on: dissolution, winding up, loans, change in the nature of the business or removal of a general partner - 5 bringing derivative lawsuit on behalf of the partnership - 6 being surety for partnership

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14
Q

Q017. - Limited Partnership on Sharing of Profits (Losses)

A

A017. - 1 shared as agreed upon in agreement - 2 if no agreement, then based on % of capital contributions

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15
Q

Q018. - Termination of Limited Partnership Occurs When:

A

A018. - 1 completion of time period - 2 specified event in the agreement - 3 unanimous written consent of all partners - 4 court decree - 5 event that causes business to become illegal - 6 withdrawal of GENERAL partner (unless ALL partners agree to continue)

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16
Q

Q019. - Characteristics of LLC’s:

A

A019. - 1 all owners have limited liability (liability limited to capital contributions + equity in the LLC) - 2 separate legal entity (can sue & be sued in own name) - 3 must have LLC in name - 4 adopt agreement & file w/SOS - 5 has personal property interest in LLC (no specific interest) - 6 member has mgmt interest - 7 member may assign financial interest (unless otherwise specified)

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17
Q

Q020. - Liability Provisions of LLP Partners:

A

A020. - 1 each partner is a limited partner - 2 specified amounts of liability malpractice insurance REQUIRED (takes place of “general” partner) - 3 retain unlimited liability for OWN negligence & wrongful acts - 4 partners avoid some personal responsibility for mistakes or malpractice of other partners

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18
Q

Q021. - Advantages of sole proprietorship

A

A021. - - No need to file with government (unless operating under name other than sole proprietor) - Business can be sold without approval from others

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19
Q

Q022. - Disadvantages of sole proprietorship

A

A022. - - Cannot raise capital from partners or shareholders - Unlimited liability

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20
Q

Q023. - Examples of associations that cannot be partnerships

A

A023. - - Passive co-ownership of property - Not-for-profits: labor unions, charities, clubs

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21
Q

Q024. - 2 elements determining whether co-ownership (and hence partnership) exists

A

A024. - - Profit sharing (need not be equal) - Joint control (but the right to manage may be contracted away to a managing partner)

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22
Q

Q025. - 5 characteristics of partnerships: - Duration - Transfer of ownership - Lawsuits - Partners’ liability - Formation

A

A025. - - Duration: limited - Transfer of ownership: requires agreement - Lawsuits: partnership may sue and be sued as separate entity - Partners’ liability: unlimited for partnership debts - Formation: easy, can be informal

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23
Q

Q026. - Definition of limited partnership

A

A026. - - Consists of one or more general partners and one or more limited partners - Sole general partner may be a corporation

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24
Q

Q027. - 3 characteristics of a limited partner

A

A027. - - Contributes capital only - Liable only to extent of capital contribution - Does not participate in management

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25
Q

Q028. - Evidence of an implied partnership

A

A028. - - Agreement to share profits (prima facie evidence)

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26
Q

Q029. - Requirements to form partnership

A

A029. - - Written agreement needed only if partnership cannot be completed within one year - Filing not needed

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27
Q

Q030. - Definition of partnership interest

A

A030. - - Right to share in profits and return of capital contribution on dissolution - Is considered personal property

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28
Q

Q031. - Assignment of partnership interest: Rights of assignee

A

A031. - - Share of profits - Return of capital contribution

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29
Q

Q032. - Definition of partnership property

A

A032. - - Property acquired in name of partnership - Property acquired with partnership funds - Property acquired by partner in his/her capacity as partner

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30
Q

Q033. - Definition of silent partner

A

A033. - - Does not participate in management - Unlimited liability

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31
Q

Q034. - Partners’ share in profits and losses

A

A034. - - Equal unless stated otherwise in partnership agreement - Losses are shared per profit-sharing proportions unless stated otherwise in partnership agreement

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32
Q

Q035. - Partners owe fiduciary duty to one another - details:

A

A035. - - May pursue self-interest if it’s not competition - Any wrongly derived profits must be held by partner for others - Must abide by partnership agreement - Liable to other partners for liability caused by going beyond actual authority

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33
Q

Q036. - Types of authority whereby partners can bind partnership

A

A036. - - Actual authority - Apparent authority - Authority by Estoppel - Implied authority

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34
Q

Q037. - Definition of apparent authority

A

A037. - - Created when parties misrepresent to others that they are partners - Liable to third parties as if they were actual partners

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35
Q

Q038. - Definition of partnership by Estoppel

A

A038. - - Parties misrepresent to others that they are partners and others are hurt as they rely on this

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36
Q

Q039. - Implied authority of partners

A

A039. - - Examples: buy and sell goods, receive money, pay debts for partnership - Third parties can rely on implied authority even if secret limitations (among partners) exist

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37
Q

Q040. - Liability of partnership for acts by partners

A

A040. - - Not liable for acts outside of express, implied, or apparent authority - Liable for partner’s torts committed in course and scope of business and for partner’s breach of trust - Creditors must try to collect from partnership before individual partners

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38
Q

Q041. - Unanimous consent of partners needed (so no apparent authority) for:

A

A041. - - Admission of new partner - Amending partnership agreement - Assignment of partnership property - Making partnership a surety or guarantor - Admitting to a claim against partnership in court - Submitting partnership claim to arbitrator - Any action outside scope of partnership business

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39
Q

Q042. - Personal liability of partners

A

A042. - - Joint and several liability - Partners may agree to spilt liability according to any proportion, but third parties can collect full amount from an individual partner

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40
Q

Q043. - Dissolution of partnership can occur by:

A

A043. - - Prior or present agreement among partners - Partner’s withdrawal, death, or bankruptcy if remaining partners do not choose to continue partnership within 90 days

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41
Q

Q044. - Order of distribution on termination of partnership

A

A044. - - 1. To creditors (including partners as creditors) - 2. Allocation of profit or loss per profit-sharing agreement - 3. Allocation of remaining capital according to partners’ capital balances - Partners are personally liable to partnership for capital deficiency and to creditors for insufficiency of partnership assets

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42
Q

Q045. - Limited partners invest, not manage; can do the following without risking loss of limited liability:

A

A045. - - Act as agent or employee of partnership - Advise general partner on partnership business - Vote on or approve of changes in partnership business - Bring lawsuit on behalf of partnership - Being surety for partnership

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43
Q

Q046. - Profit and loss sharing for limited partners

A

A046. - - Losses and any liability are limited to capital contributions - If no profit-sharing agreement, then profits and losses are shared based on percentages of capital contributions

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44
Q

Q047. - Admission of general and limited partners

A

A047. - - Admission of limited partner requires written approval of all partners - Admission of general partner requires approval of general partners only

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45
Q

Q048. - Fiduciary duties of general and limited partners

A

A048. - - General partners owe fiduciary duty to general and limited partners - Limited partners do not owe fiduciary duty

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46
Q

Q049. - Withdrawal of general and limited partners

A

A049. - - Withdrawal of general partner causes dissolution of partnership unless prior or present agreement among partners to continue business - Withdrawal or death of limited partner does not cause dissolution

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47
Q

Q050. - Order of distribution on dissolution of limited partnership

A

A050. - - Same as general partnership - General and limited partners share equally

48
Q

Q051. - Definition of joint venture

A

A051. - - Association of two or more persons (or entities) organized to carry out a single business undertaking (or series of business undertakings) for profit

49
Q

Q052. - Differences between joint venture and partnership

A

A052. - - Each joint venturer is not necessarily an agent of other joint venturers - Death of joint venturer does not automatically dissolve joint venture

50
Q

Q053. - Advantages of LLC

A

A053. - - Limited liability for all members: limited to capital contribution and any equity in LLC - Limited liability is retained even if members fail to follow usual formalities in conducting business

51
Q

Q054. - Formation of LLC

A

A054. - - Members adopt operating agreement and file it with Secretary of State; required to be in writing - Members form articles of organization - Initials LLC or LC required in company name

52
Q

Q055. - Profit and loss sharing in LLC

A

A055. - - According to operating agreement - In absence of other agreement, members divide profits and losses equally

53
Q

Q056. - Member-managed and manager-managed LLCs: authority and compensation

A

A056. - - All members have authority to bind LLC unless LLC is manager-managed (then only managers have authority) - Member who is not manager has no right to compensation - Managers receive compensation according to agreed contract

54
Q

Q057. - Duties of members (if member-managed) and managers of LLC

A

A057. - - Fiduciary duty - Duty of due care - Duty of loyalty

55
Q

Q058. - Dissolution of LLC occurs when:

A

A058. - - All members agree in writing (prior or present) - Member withdraws, dies, goes bankrupt, or becomes incompetent - Court order

56
Q

Q059. - Formation of LLP

A

A059. - - File articles of LLP with Secretary of State - Firm’s name must include initials LLP or RLLP - Most states require only majority approval of partners to become LLP

57
Q

Q060. - Characteristics of LLP

A

A060. - - Works well for professionals who want to do business as professionals in a partnership but still pass through tax benefits while limiting personal liability of the partners - Most partnership law applies to LLP

58
Q

Q061. - Liability provisions of partners in LLP

A

A061. - - Unlike traditional partnerships, LLP has no general partner with unlimited liability - Regulations require liability malpractice insurance - Partners retain unlimited liability for their own negligence - Partners avoid some personal liability for mistakes or malpractice of other partners

59
Q

Q062. - Advantages of corporate structure

A

A062. - - Limited liability for shareholders: risk only their investment - Transferability of interest through sale of shares - Continuous life unless dissolved, merged, or otherwise terminated - Separate legal entity: can hold and convey property, can contract with shareholders or third parties, can sue and be sued - Easy to raise large amounts of capital by issuance of stocks and bonds

60
Q

Q063. - Disadvantages of corporate structure

A

A063. - - Tax burden: may be double taxation when income is taxed at corporate level and then dividends are taxed at shareholder level - Costs of incorporating - Formal operating requirements

61
Q

Q064. - Characteristics of foreign corporation

A

A064. - - Definition: corporation doing business in a state other than the one in which it is incorporated - “Doing business” includes maintaining an office or selling personal property in state - “Doing business” does not include defending against a lawsuit, holding bank account, using mail to solicit orders, collecting debts, using independent contractors to make sales

62
Q

Q065. - Promoter of corporation: characteristics

A

A065. - - Forms corporations and arranges capitalization - Has fiduciary relationship with corporation - Is not an agent of the corporation (because it is not yet in existence)

63
Q

Q066. - Articles of Incorporation (charter) contain:

A

A066. - - Proposed name of corporation - Purpose of corporation - Powers of corporation - Name of registered agent of corporation - Name and address of each incorporator - Majority vote (or sometimes two-thirds vote) required to amend Articles of Incorporation

64
Q

Q067. - Uncertificated securities

A

A067. - - Securities not represented by written documents

65
Q

Q068. - Authorized stock

A

A068. - - Amount and types permitted to be issued in Articles of Incorporation

66
Q

Q069. - Issued and unissued stock

A

A069. - - Issued stock: authorized and delivered to stockholders - Unissued stock: authorized but not yet issued

67
Q

Q070. - Outstanding stock

A

A070. - - Issued and not repurchased by the corporation (i.e., owned by shareholders)

68
Q

Q071. - Treasury stock

A

A071. - - Issued but not outstanding; corporation repurchased it - Are not votable and do not receive dividends - Corporation does not recognize gain or loss on transactions with its own stock - Must be purchased out of unrestricted retained earnings - May be distributed as part of stock dividend - Can be resold without regard to par value or preemptive rights - No purchase of treasury stock may be made if it renders corporation insolvent

69
Q

Q072. - Par-value stock

A

A072. - - Amount is set in Articles of Incorporation - Stock should be issued for this amount or more - May subsequently be traded for any amount - Creditors of corporation may hold purchaser liable (for difference between amount paid and par value) if stock originally purchased at below par (“watered stock”), unless purchased in good faith without notice that sale was below par

70
Q

Q073. - No-par stock

A

A073. - - Issued without a set par value - May have a stated value

71
Q

Q074. - Stated capital (legal capital)

A

A074. - - Number of shares issued times par value (or stated value) - Dividends may not be declared or paid out of stated capital - Increase stated capital: Exercise of stock option; Small common stock dividend - Do not change stated capital: Acquisition or reissuance of treasury stock under cost method; Stock splits; Payment of organization costs

72
Q

Q075. - Retained earnings (previously “earned surplus”)

A

A075. - - Cumulative amount of income (net of dividends) retained by the corporation during its existence

73
Q

Q076. - Surplus (of corporation)

A

A076. - - Excess of net assets over stated capital

74
Q

Q077. - Capital surplus (of corporation)

A

A077. - - Surplus [excess of net assets over stated capital] less retained earnings

75
Q

Q078. - Contributed capital

A

A078. - - Total consideration received by corporation upon issuance of stock

76
Q

Q079. - Characteristics of common stock

A

A079. - - Entitled to dividends if declared by the directors - Shareholders entitled to share in final distribution of assets - Votes may be apportioned to shares by one vote per share or other ways (one vote per ten shares, etc.) - Corporation may issue more than one class of common stock with varying terms (no voting rights, different par value, etc.)

77
Q

Q080. - Characteristics of preferred stock

A

A080. - - Usually nonvoting - Dividend usually a fixed rate - May be cumulative (dividends in arrears must be paid) or noncumulative (dividend will not be paid once it has passed); held to be implicitly cumulative unless different intent shown - Participating: may participate further in corporate earnings remaining after a fixed amount is paid to preferred shares - Callable: may be redeemed at a fixed price by the corporation - Convertible: gives shareholder option to convert to common stock at a fixed exchange rate

78
Q

Q081. - Powers of corporation

A

A081. - - To acquire or retire their own shares (typically limited to amount of surplus) - To make charitable donations - To guarantee obligations of others only if in reasonable furtherance of corporation’s business - Loans to directors: only with shareholder approval - Loans to employees: do not need shareholder approval

79
Q

Q082. - Liability of corporations for crimes or torts

A

A082. - - Corporations are liable for crimes they are capable of committing - Punishment for crimes usually consists of crimes or forfeiture; rarely, prison sentences for directors - Corporations are liable for damages resulting from torts committed by officers, directors, agents, or employees within the course and scope of their corporate duties

80
Q

Q083. - Ultra vires acts

A

A083. - - Definition: acts beyond the scope of the corporate powers (as defined in Articles of Incorporation) - State may dissolve corporation for ultra vires act - Stockholders have right to object to ultra vires acts - Directors or officers may be sued by shareholders or by corporation itself for ultra vires acts

81
Q

Q084. - Powers and duties of directors

A

A084. - - Cannot bind corporation except as board member at a board meeting - Declaration of dividends - Selection of officers - Must comply with Articles of Incorporation; cannot amend Articles - Delegate authority to officers and agents - Not entitled to compensation unless so provided in articles, bylaws, or a resolution of the board passed in advance

82
Q

Q085. - Liability of directors

A

A085. - - Directors must exercise ordinary care and due diligence in performing their duties - Directors are personally liable for torts committed while acting for corporation - Business judgment rule: if acting in good faith, not liable for errors of judgment unless negligent - May be held liable for wrongs of other directors if director intentionally or negligently does not prevent them - Personally liable for ultra vires acts of the corporation unless they dissented on the record

83
Q

Q086. - Negligence of directors

A

A086. - - Directors are liable for negligence if their action was the cause of the corporation’s loss - Corporation may indemnify directors against suits if acted in good faith and in best interest of corporation - Corporation may purchase liability insurance for directors

84
Q

Q087. - Fiduciary duty of directors

A

A087. - - Owe fiduciary duties of loyalty and due care to the corporation - Corporation may deal with other corporation in which director has interest if one of the following: - 1) Conflict of interest is disclosed or known to board and majority of disinterested members approve - 2) Conflict of interest is disclosed or known to shareholders and majority of voting shareholders approve - 3) Transaction is fair and reasonable to corporation

85
Q

Q088. - Characteristics of officers (as contrasted with directors)

A

A088. - - Is agent of corporation and can bind corporation if acts are within scope of authority - Selected by directors for a fixed term

86
Q

Q089. - Stockholder’s right to transfer stock

A

A089. - - Stock certificates are negotiable instruments - Reasonable limitations on transfer may be imposed; must be plainly printed on certificate

87
Q

Q090. - Stockholder’s voting rights

A

A090. - - Right to vote for election of directors, decision to dissolve the corporation, and any other fundamental corporate changes - Governed by the charter and the class of stock owned - Can assign voting rights (vote by proxy) - Requiring majority approval of shareholders: amendment of Articles of Incorporation; fundamental changes such as a merger, consolidation, or sale of all assets

88
Q

Q091. - Stockholder’s right to dividends

A

A091. - - No right to dividends unless declared by board of directors - Dividends become a liability of corporation only when declared, even for cumulative preferred stock - Cash dividends may be paid out of unrestricted retained earnings unless corporation will be insolvent because of dividend

89
Q

Q092. - Stockholder’s preemptive right

A

A092. - - Right to subscribe to new issues of stock at fair market value so that ownership will not be diluted without the opportunity to maintain it - Usually applies to common stock only - No preemptive right unless provided in Articles of Incorporation

90
Q

Q093. - Stockholder’s right to sue

A

A093. - - Stockholder may sue corporation on own behalf if interests have been directly injured - Stockholder may sue others on behalf of corporation (derivative suit) if a duty to the corporation is violated - In derivative suit, stockholder must first demand that directors sue in name of corporation (suit may be barred if directors make good faith business judgment that suit is not in corporation’s best interest) - In derivative suit, damages go to corporation

91
Q

Q094. - Stockholder’s right on dissolution

A

A094. - - Right to a pro rata share of distribution of assets after creditors have been paid

92
Q

Q095. - Stockholder’s liability

A

A095. - - Generally limited to price paid for stock - If corporate veil is pierced, court disregards corporate entity and holds stockholders personally liable - Majority shareholders owe fiduciary duty to minority shareholders and to corporation

93
Q

Q096. - Examples of piercing the corporate veil

A

A096. - - Corporation used to perpetrate fraud (e.g. forming an under-capitalized corporation) - Owners/officers do not treat corporation as separate entity - Shareholders commingle assets, bank accounts, financial records with those of corporation - Corporate formalities not adhered to

94
Q

Q097. - Merger

A

A097. - - Union of two corporations where one is absorbed by the other - Surviving corporation issues its own shares to shareholders of original corporations

95
Q

Q098. - Consolidation

A

A098. - - Joining of two or more corporations into a single new corporation - All assets and liabilities are acquired by the new company - New corporation is liable for debts of old corporations

96
Q

Q099. - Requirements to accomplish a merger or consolidation

A

A099. - - Boards of both corporations must prepare and submit plan to shareholders of both corporations - Approval of board of directors of both companies - Shareholders of both corporations must be given copy or summary of merger plan - Majority vote of shareholders of each corporation - Surviving corporation gets all assets and liabilities of merging corporations - Dissatisfied shareholders of subsidiary may dissent and assert appraisal rights, thereby receiving the fair market value of their stock

97
Q

Q100. - Dissolution of corporation

A

A100. - - Liquidation (winding up of affairs and distribution of assets) occurs in the following order: - 1) Expenses of liquidation and creditors - 2) Preferred shareholders - 3) Common shareholders - Dissolution may be voluntary (board of directors passes resolution) or involuntary (by state for cause)

98
Q

Q101. - Subchapter S corporation

A

A101. - - Avoid double taxation by not paying tax at the corporate level; instead, corporation income flows through to the income tax returns of individual shareholders - Shareholders report the income or loss even if income is not distributed to them - Rules involving criteria to be met to be taxed as Subchapter S corporation often change, e.g.: - 1) Number of shareholders S corporation can have - 2) Which types of entities cannot be shareholders - 3) Citizenship of shareholders - 4) How much of corporation’s income can come from passive income

99
Q

Q102. - What is a general partnership?

A

A102. - An association of two or more persons to carry on as co- owners a business for profit.

100
Q

Q103. - What is a joint venture?

A

A103. - An association of two or more persons in a single business venture.

101
Q

Q104. - What is the difference between a general partnership and a joint venture?

A

A104. - A general partnership can mean an ongoing relationship whereas a joint venture is usually for a one-shot deal.

102
Q

Q105. - What is a Limited Partnership (LP) ?

A

A105. - A partnership with at least one general partner and one limited partner.

103
Q

Q106. - What distinguishes a Limited Partnership from a General Partnership?

A

A106. - In a limited partnership, limited partners will enjoy Limited Liability!

104
Q

Q107. - What is a Limited Liability Partnership (LLP) ?

A

A107. - A partnership that CARRIES MUCH GREATER PROTECTON from liability than exists in a general or limited partnership.

105
Q

Q108. - What does Limited Liability mean?

A

A108. - Only liable up to personal investment.

106
Q

Q109. - What does Liability mean?

A

A109. - Legal responsibility

107
Q

Q110. - What is General Partnership Law governed by?

A

A110. - Model acts that the states adopt

108
Q

Q111. - What is the Uniform Partnership Act (UPA) and Revised Uniform Partnership Act (RUPA)?

A

A111. - Model acts that govern partnership law.

109
Q

Q112. - Joint ventures are essentially identical to partnerships and are governed by what?

A

A112. - UPA or RUPA, depending on the jurisdiction

110
Q

Q113. - What law governs Limited Partnership Law in most jurisdictions?

A

A113. - The Revised Uniform “Limited” Partnership Act (RULPA)?

111
Q

Q114. - What act was amended to provide limited liability for partners?

A

A114. - RUPA

112
Q

Q115. - RUPA Is functionally a form contract and provides what?

A

A115. - Default rules

113
Q

Q116. - By agreement, partners may vary most RUPA provisions but not prejudice rights of thrid parties. T or F

A

A116. -1

114
Q

Q117. - Is a written agreement required in a written partnership?

A

A117. - No, unless the partnership will last more than a year

115
Q

Q118. - Is an official filing required to form a General Partnership?

A

A118. - No

116
Q

Q119. - What are the characteristics of a General Partnership?

A

A119. - 1. Unlimited Liability for Partners - 2. Pass-thru Taxation - 3. An association of two or more persons to carry on as co- owners a business for profit.

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