Business Law

Question 1

Before registration is effective, what can a company do during the 20 day waiting period?

Answer 1

Make an oral offer and issue a preliminary prospectus, called a “red herring”.

Question 2

What is a “red herring”?

Answer 2

A preliminary prospectus missing certain key information, usually the issue price.

Question 3

What is an accredited investor?

Answer 3

Insurance companies, banks, wealthy individuals, credit unions, broker dealers, corporations, savings and loans, and certain trusts.

Question 4

What is considered a wealthy individual?

Answer 4

Someone with a net worth of $1M, excluding primary residence, or net income of $200k ($300k MFJ) for the two most recent years.

Question 5

What are the 2 main sources of contract law?

Answer 5

Common law derived from courts and UCC derived from Statutory Law.

Question 6

What is needed in order to have a valid contract?

Answer 6

Offer, acceptance, consideration, and a lack of defenses.

Question 7

Under common law, what happens if you modify a contract?

Answer 7

It requires new consideration.

Question 8

How are members of an LLC taxed?

Answer 8

As a partnership, unless they elect to be taxed as a corporation.

Question 9

Bilateral contract

Answer 9

A promise for a promise, I’ll pay you X for doing my audit.

Question 10

Unilateral contract

Answer 10

A promise for an act, I’ll pay anyone to find my dog.

Question 11

When is an offer communicated?

Answer 11

When it is received

Question 12

What terminates an offer?

Answer 12

Expiration, revocation, rejection, counteroffer, and operation of law.

Question 13

How long does an offer stay open?

Answer 13

Until it’s either accepted or terminated

Question 14

What represents acceptance of an offer?

Answer 14

Agree to all terms and conditions

Question 15

What is the mirror image rule?

Answer 15

The acceptance has to exactly mirror the offer

Question 16

What are the 2 rules of acceptance?

Answer 16

The mirror image rule and the early acceptance rule

Question 17

What is the early acceptance rule?

Answer 17

Aka, mailbox rule. Acceptance is effective when transmitted or dispatched.

Question 18

What is the difference between voidable and void?

Answer 18

Voidable means one or more of the party can escape it. Void means the contract is null and void and the courts will not enforce it.

Question 19

How is a contract voidable?

Answer 19

Duress, undue influence, misrepresentation of a material fact, mistake, capacity.

Question 20

How is a contract void?

Answer 20

Extreme duress, fraud in the execution, illegal subject matter, incompetent persons.

Question 21

What is a substituted contract?

Answer 21

Maintains the contractual relationship between the parties, but revises their obligations.

Question 22

What is novation?

Answer 22

When a new party replaces an original party to a contract and assumes (ie, steps into) the obligations and duties of that original party. All 3 parties must agree.

Question 23

Who pays for FUTA?

Answer 23

Paid for entirely by employer

Question 24

Who pays FICA?

Answer 24

Both employer and employee, 7.65% each

Question 25

What is Respondeat Superior?

Answer 25

Provides that an employer is responsible for torts committed by employees in the normal scope of employment

Question 26

Does assignment of a contract remove liability?

Answer 26

Assignment of a contract does not remove liability except in the case of novation

Question 27

What are the exceptions to the Statute of Frauds?

Answer 27

Specifically manufactured goods, Partial performance, Admitted in court by defendant, Merchant in goods does not object to written confirmation w/in 10 days

Question 28

Does an agency agreement have to be in writing?

Answer 28

Not unless either 1) agency sells real estate 2) agency relationship is over 1 year

Question 29

What is liquidated damages?

Answer 29

Specifies what damages a party will be entitled to upon breach of contract by the other party

Question 30

What are creditor rights for personal and real property?

Answer 30

Creditor rights against personal property are based on the secured transaction article of the UCC, while creditor rights against real property are based on state laws.

Question 31

What is an option contract?

Answer 31

Consideration paid to keep an offer open

Question 32

Are punitive damages available under the UCC Sales Article?

Answer 32

No, only under common law

Question 33

When would an uncompensated surety be released from liability?

Answer 33

Anytime the creditor makes a change to the agreement.

Question 34

What is the right of contribution?

Answer 34

The right of a co-surety to recover from other co-sureties a proportionate share of the liabilities

Question 35

What is exoneration?

Answer 35

The right of sureties and co-sureties to sue the debtor to compel payment to the creditor.

Question 36

What are duties of a principal?

Answer 36

Compensation, cooperation, indemnity/reimbursement, express contractual duties

Question 37

What are duties of an agent?

Answer 37

Reasonable care, loyalty, obedience, express contractual duties

Question 38

What is a right that a holder of public cumulative preferred stock always entitled?

Answer 38

Dividend carryovers from years in which dividends were not paid

Question 39

How can agent authority be terminated?

Answer 39

Agreement, unilateral, operation of law (death of principal/agent, insanity of principal, principal bankrupt, or subject becomes illegal or impossible.

Question 40

What is required to perfect a security interest?

Answer 40

Possession is required to perfect a security interest