Business Law Flashcards
What are the essential elements of a partnership?
- Sharing of profits and losses
- Joint ownership of a business
- Equal right to be involved in the management of business
What are the similarities and differences between the entity and aggregate theories of partnerships?
Entity versus Aggregate Theory of Partnerships: Under the UPA, a partnership is treated as an entity for most purposes. (ex. Can be sued and can sue)
How does tax treatment work?
Tax treatment
-Pass-through entity
-Information return: only reports the income and losses, does not pay taxes
Partnership Formation
-Agreement to form a partnership formation: written, oral, or implied (statute of frauds applies)
-Articles of Partnership: governing document; each partner’s rights and responsibilities
-Duration of partnership
-Partnership by estoppel: non-partnerships hold themselves out as partners and a third party detrimentally relied on the misrepresentation
What rights do partners have?
-Management Rights: all partners have equal management rights; one vote per partner regardless of ownership interest; usually majority, but unanimous is required for nature of business decisions and outside ordinary course of business
-Interest in the Partnership: equal or per agreement
-Compensation: distribution of profits, not time
-Inspection of books
-Accounting of partnership assets or profits
-Property rights
What are the duties and liabilities of partners in a partnership?
-Fiduciary Duties: duty and loyalty, duty of care
-Authority of Partners: each partner is an agent of the partnership
-Liability of partners
-Joint liability of partners
-Joint and several liability of partners
What events may cause a partnership dissociation?
- By partners voluntary notice of an “express will to withdraw”
- By occurrence of event agreed to in a partnership agreement
- By unanimous vote of other partners under certain circumstances
- By order of court (or arbitrator) if partner is engaged in wrongful conduct
- By partner’s declaring bankruptcy and capacitation or death
Wrongful dissociation: always has the power to dissociate, but not the right
What is the effect of a dissociation?
-Buyout price
What is an LLC?
abbreviation for Limited Liability Partnership
-Pass through Entity; limits personal liability
What is an FLLP?
-Family limited Liability Partnership (FLLP)
How is an FLLP formed?
-Compliance with statue statues; complete form
What is the liability like in an FLLP or LLP?
The professionals can avoid personal liability for malpractice
What is a Limited Partnership (LP)?
Limits the liability of only some owners
-Revised Uniform Limited Partnership Act (RUPLA)
-General Partner (manages the business) and Limited Partner (money)
Formation of an LP: public and formal proceeding
-certificate of limited partnership
Liabilities of Partners in a LP: general partners are personally liable to partnership’s creditor; limited partners are not liable beyond investment
What happens during dissociation and dissolution of an LP?
The assets of the partnership are distributed
Name the types of franchises
-Distributorships
-Chain-style business operations
-Location of the franchise and territorial rights
-Quality control by the Franchiser
Why would a franchise be terminated?
Grounds for termination set by the Franchise contract
-Wrongful termination
-The importance of good faith and fair dealing
State the natures and classifications of corporations
A legal entity created by state statutory law
Corporate earnings and taxation
-can payout profits to shareholders (dividends) or retain them (retained earnings)
Regarding corporations, what happens if a tort or criminal act is committed?
The corporation may be held liable for any torts and criminal acts committed by employees
What are the different classifications of corporations?
Domestic, foreign, and Alien Corporations
Public and private Corporations
Nonprofit Corporations
Close Corporations
S Corporations
What is the difference between a publicly held corporation and a privately held corporation?
-public corporation: one formed by the government to meet some political or governmental purpose
-Publicly held corporation: any corporation whose shares are publicly traded in the securities markets
What is a close corporation?
Close Corporations
-One whose shares are held relatively few persons, often members of a family
What is a non-profit corporation?
-Corporations formed without a profit-making purpose. Examples include hospitals, educational institutions, and charities
What is a S corporation?
A corporation that elects to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes
What requirements must an S corporation have?
- Domestic
- Not be a member of affiliated group of corporations
- Shareholders must be individuals, estates, or certain trusts
- No more than 100 shareholders
- Only one class of stock (i.e. common stock or preferred stock, not both)
- No shareholder may be a nonresident alien
How are S corporations taxed?
THE SAME WAY AS CORPORATIONS
What are the promotional activities of an incorporation?
Businesspeople personally liable for any perincorporation contracts made with investors, accountants, or others on behalf of future corporation
-Liability will continue until incorporation is formed and explicitly assumes the contract by novation (Corporation—-A(promotor)—(business) Liability is released=novation, one liable party is released from contract)
List the procedures to incorporate an incorporation
Select state of incorporation
-Select an appropriate incorporation name
-Prepare articles of incorporation
What elements MUST the articles of incorporation include?
- Corporation name
- Number of sales of stock that the corporation is authorized to issue
- Name and street address of the corporation’s initial registered agent and registered office
- Name and address of each incorporator (founder)
How are the Articles of Incorporation prepared?
-A corporation can be formed for any lawful purpose, and no specific statement of purpose is required
-File the articles of incorporation
-Once prepared and signed by the incorporators, the articles are sent to the appropriate state official.
-First organizational meeting to adopt bylaws
-Securities: stocks and bonds (debt security)
-Venture capital: financing provided by professional, outside investors (Venture capitalists) to new business ventures.
Define public entity capital
funds invested by a private equity firm in an existing corporation, usually to purchase and organize it
What powers do corporations have? (Corporate Powers)
Crowdfunding
Express Power(s)
Implied Power(s)
Ultra Vires Act
What is Implied Power?
the implied power to perform all acts reasonably and appropriately to accomplish their corporate purposes (barring express constitutional, statutory, or other prohibitions).
Define crowdfunding
Securities and Exchange Commission rules allow the law of the state of incorporation, in the state and federal constitution’s bylaws
What is the Ultra Vires Act and what does it allow?
Securities and Exchange Commission rules allow the law of the state of incorporation, in the state and federal constitution’s bylaws
Cases that allege ultra vires usually involve nonprofit corporations or municipal (public) corporations
-Shareholders can seek an injunction from a court to prevent (stop) the corporation from engaging in ultra vires acts.
What is a security?
any instrument that represents ownership, corporate security, or debt.
What are the different security types?
-Preferred and common stocks
-Treasury stocks
-bonds
-debentures
-stock warrants
-Stock options (puts, calls, or other privileges on a security (or right to purchase) on a national security exchange
What is an Investment Contract?
any transaction in which a person invests in a common enterprise, reasonably expects profits derived primarily (or substantially from) other managerial or entrepreneurial efforts
What securities are exempt?
-Securities that maintain their exempt status forever (FDIC)
-Securities that are low risk, or can be regulated by other statutes
-Securities that can be resold without being registered
What securities are included in the exempt status?
-Government issued securities
-banks and financial institution securities (FDIC)
-short-term notes and drafts
-securities of organizations, both educational and charitable
What are the disclosure types under SEC Rule 10b-5?
-Fradulent trading
-Dividend Charge
-Contract for sale of corporate assets
-New discovery, process or product
-Significant change in firm’s financial condition
-Potential litigation against company
What are the requirements for State Securities Laws?
-Interstate transactions
-Issuers must comply with both federal and state laws. Most duplicate regulations have been eliminated.
What does the Sarbanes-Oxley act do?
-introduced DIRECT federal corporate governance requirements for public companies
-Creates exemptions for smaller companies
-Introduces certification and monitoring requirements
What does Section 906 of the Sarbanes-Oxley act specify?
That CEOs and CFOs must certify that the financial corporate statements “fairly represents, in all material respects, the financial conditions and results in the operations of the issuer.”
At what level of the government do Administrative Agencies exist?
At ALL levels of the government
What are the different levels of Administrative Agencies?
-National Level
-State Level
What agencies are under the national level of Administrative Agencies?
-Executive Agencies (cabinet level-US Dept. of HHS, Independent Level-FTC, SEC, FCC
Why were state agencies created?
To be a parallel to the federal agencies
What is the purpose of agencies?
Agencies provide and comprehensive regulatory scheme
What is the Delegation Doctrine
-A process in which the courts interrupt Article I of the US constitution granting Congress the power to establish Administrative Agencies and delegating power for establish rules for implementing laws
What is the Regulatory Flexibility Act?
A time during which a regulation will have significant impact upon a substantial number of small entities, the agency must conduct a regulatory flexibility analysis considering cost to small businesses and alternative investments.
What is the nickname for the Administrative Agencies?
the “fourth branch” of the government
What is the role of the ALJ?
-Hearing procedures
-Agency Orders
-Initial Orders and final orders (if no appeals)
What does ALJ stand for?
Administrative Law Judge
What does the Freedom of Information Act require?
For government agencies to disclose certain records to any person upon request
What is the Federal Trade Commission Act?
An act that gives the FTC the authority to carry out the goal of preventing unfair and deceptive trade practices.
Describe puffery
Vague generalities and obvious exaggerations in advertisements
What does the Federal Food, Drug, and Cosmetic Act Protect?
-adultered and misbranded food and drugs
-Drugs and medical devices
What does the Consumer Product and Safety Act do?
- Sets safety standards for consumer products
- Bans manufacturers from the sale of any product that is believed to pose an “unreasonable risk” to consumers
- Removes any imminently hazardous product from the market
- Requires manufacturers to report any product already sold (or intended for sale) if the products have proven to be hazardous
- Administer any other product-safety legislation
How soon must a distributor notify the CPSC if they receive a product that contains a defect which poses a substantial or unreasonable risk of serious injury or death to the public?
Immediately
What are the different types of credit protection?
Define Real Property
The land and everything attached permanently to it; from the center of the earth up to the farthest end of the atmosphere
Referring to permissible uses of land, what are the different types of zoning variances?
- Residential
- Commercial
- Industrial
- Conservation Districts
- Agricultural Districts
- Business
Define Personal Property
Something that is both tangible and intangible.
How can personal property be acquired?
