Business Law

Question 1

What is the list of how the debtor’s estate is divided in order?

Answer 1

• Perfected secured parties
• Claims for domestic support, including child support and alimony
• administration costs, related to bankruptcy fees
• employee wages within 180 days up to 13,650
• contributions to benefit plans, same as wages
• claims of farm producers, up to 6,725 per
• consumer creditors, up to 3,025
• gov taxes
• unsecured creditors
• if any left back to debtor

Question 2

What are debts that won’t release due to bankruptcy?

Answer 2

Alimony or child support
Student loans
Tax liens (unpaid taxes)
Debt acquired through false representation (lying about income or fraud)

Question 3

What is the difference between implied, express and apparent authority?

Answer 3

Apparent is when someone’s action give the impression of authority. Implied is the incidental decisions an agent must make to complete his job. Express authority is the specific authority a principle has given an agent.

Question 4

Under the 1933 securities act what must a registrant statement disclose?

Answer 4

Description of security 
How Corp will use proceeds of sale
Description of registrants business and management 
Financial statement 
A prospectus

Question 5

When will a security interest attach?

Answer 5

When the secured party gives value the debtor, has rights in the collateral (in writing) and a record of the security agreement exists

Question 6

What are the major differences between the tax courts, district courts , federal claims and small cases?

Answer 6

Tax court: you do not have to pay the refund to challenge

Us district: jury is possible. Must pay fine first

Federal claims: only in Washington. Must pay claims

Small courts: under 50,000

Question 7

What are the four main tax penalties for a taxpayer?

Answer 7

No filing
Not paying eat taxes
Not pay by 4/15
Accuracy penalty, taking improper positions.

Question 8

What is the difference between common law and Ucc law?

Answer 8

Common law applies to contracts of real estate or service (mowing the lawn).

UCC law applies to contracts for the purchase of goods

If there is service and goods involved, then the questions becomes what is the main purpose of the contract.

Ex buglar system purchased would be a common law, because the houseowners want the installation monitoring services.

Question 9

1.) When do contracts have to be in writing?

Are there any exceptions?

Answer 9

1.)Under UCC goods over 500 have to be in writing.

Under Common Law, Land contracts and services ( like the purchase of company pending performance) cannot be performed under 1 year.

2.) Yes:
UCC: a.) if there has been a partial payment or goods have been excepted
b.) specially manufactured good
c.)confirmation from one side
d.)admission

Common-Law: a.) Payment made and improvements to the property have been made and buyer lives there.

FYI if there is a modification, under UCC it is in good faith and no written contract or consideration is required. For common-law consideration is owed.

Question 10

What does parol defense mean?

Answer 10

Whatever is not in the contract is not enforceable. Unless there are modifications where both parties agree on new performance or compensation levels

Question 11

What are the UCC and common law defenses?

Answer 11

Same for both.
Voidable
Capacity: Age, mental efficiency
Duress: Threats, physical force, shame
Mistake: Unilateral material mistake,
Fraud

Enforceable:
a unilateral mistake of fact (mistake in ordering correct size)

Recission:
Mutual mistake of fact (mistake on both sides)
Material misrepresentation of fact that was relied on

Question 12

Common law substantial performance:
Contractor was hire to build a house and to use red herring pipes. Contractor used gold pipes, because red herring was not available, the red pipes are just as good. Can the owner sue?

Answer 12

The owner is entitled to the price difference because the contractor did it in good faith and it is just as good.

Question 13

UCC performance:

What are the rights of the buyer?

Answer 13

• Inspection upon deliverance of goods
• Right of rejection of all or some of the goods. Must notify seller
• Acceptance after inspection. Must notify seller, or acceptance can be due to failure of rejection.
• Revocation of acceptance, material defect after acceptance

FYI: seller has a right to cure, before the performance date

Question 14

Can you ever get out of performance?

Answer 14

Under UCC impracticability, like a war. Not foreseen
Under common law impossibility, means you are not exempt from unforeseen.

Yes. Under both Common law and UCC due to Novation, breach, illegality, Bankruptcy

Question 15

Does a surety have to be in writing?

Answer 15

Yes unless the surety is also a partner

Question 16

What releases a surety from the liability?

What doesn’t release a surety?

Answer 16

1.) Sell of collateral by creditor, sub of debtor, Fraud, refusal of creditor to accept payment of debtor

Question 17

How are secured interests perfected?

Answer 17

Filing a financial statement, possession of the collateral by the creditor.

Automatic perfection: Consumer goods Purchased money security interest (PMSI)

Temp perfection: State transfer by debtor. Creditor has 4 month perfection. Has to reperfect.

Question 18

Who gets priority over a perfected creditor and a liener?

Answer 18

The one who filed first

Question 19

What are the exceptions to the priority over perfected secured parties?

Answer 19

PMSI of fixtures, PMSI of equipment if perfected within 20 days of delivery, PMSI of inventory if perfected before delivery, Buyers in the ordinary course of business (unless the merchant files for perfection, which is not customary)

Question 20

Can a debtor demand the sale of a repossessed item?

Answer 20

Yes, only if the debtor has paid 60% of the loan.

Question 21

What are the 3 types of bankruptcy chapters?

Answer 21

Chapter 7: Voluntary or involuntary (stay is in affect). Has a trustee (appointed by court). Allows individuals and businesses and requires debts. Exemptions to involuntary are S&Ls, credit unions, SBA, RRs, municipalities

Chapter 11: no trustee, Voluntary or involuntary. Exemptions to involuntary are the Same as 7 plus brokers

Chapter 13: for individuals, trustee and only voluntary. No exemptions

Question 22

What is a voidable preference in a bankruptcy proceeding?

Answer 22

A transfer of debtor’s property to a creditor for a debt antecedent or preexisting within 90 days of bankruptcy. Made while debtor was insolvent

Question 23

What is an insider voidable preference in a bankruptcy proceeding?

Answer 23

Transfer of property to an insider for an antecedent or preexisting debt made within 1 year of bankruptcy. Must prove that debtor was insolvent at the time of transfer.

Question 24

Describe the general partnership business structure?

Answer 24

Partnership must have at least 2 partners (business can continue as a different structure).
No formality required for creation.
Has unlimited liability for each partner
Partnership can create their management agreement or use RUPA
dissolution can be based on agreement or based on RUPA
to sell requires the approval of partners

Question 25

Describe the limited partnership business structure?

Answer 25

Must have 2 or more partners
Must file with state
General partners have unlimited liability
Limited partners have liability up to amount invested
General partners manage day to day
limited partners can not be involved day to day to remain limited
dissolution can be based on agreement or based on RUPA
To sell you sell securities
Taxes flow through to individual

Question 26

Describe the limited liability company business structure?

Answer 26

Must file with agency
Liable only to extent of invested
Company is managed by members. Can also delegate
to sell must have majority consent
Taxes flow through to individual

Question 27

Describe the limited liability partnership business structure?

Answer 27

Must file with state
Liable only to extent of invested, except for lawsuits involving their own professional wrongful acts (i.e. doctors, accountants being sued)
Members can create their management agreement or use LLC statues
to sell must have majority consent
Taxes flow through to individual

Question 28

Describe the Corporation business structure?

Answer 28

Must file article of incorporation
Limited liability, except with piercing corp veil and water (must pay par value of stock)
Corp and owner must be separate entities
Management has to be officers and board
Dissolution is done through votes (a major transaction)

To sell a corp you can sell shares
An s corp
A c corp is the same as an s corp

Taxes:
S corp; Taxes flow through to individual
C corp & corporation both pay taxes and shareholers pay taxes on dividends

Question 29

According to the 1933 securities act, what are the entities that are exempt from securities registration?

Answer 29

• Securities issued by federal, state, county or municipal entities
• Commercial paper under 9 months
• Banks, savings and loans, charitable organizations

Question 30

What is the 147 and 147a exemption?

Answer 30

Corporations that are domestic to US and have 80% revenue, assets and use of the proceeds in one state are free from registering

Question 31

What is regulation D, rule 506?

Answer 31

Exemption from registering, unlimited revenue.

Question 32

What could be done before getting approved but after filing?

Answer 32

Tombstone ad
red herring (sample prospectus)
cannot make offers to sell

Question 33

Under securities section 11 of the 1934 act what must a plaintiff prove in court?

A defense?

Answer 33

Plaintiff must prove a false statement or omission of the fact that is material. Also that they bought securities under the registration statements and they suffered damages.

A defense must prove due diligence

Question 34

What is a short swing?

Answer 34

When an insdier purchases and sell stock within 6 months. The SEC will add up the highest sell price and the lowest purchase price to calculate the profit

Question 35

Under the Ultramares who is the accountant liable to fo negligence?

Answer 35

The client and the third party intended benificiary.

Question 36

Under common law what must a plaintiff prove in court?

Answer 36

Negligence, reliance and breach of contract

Question 37

Under section 10-b of the 1934 act what must a plaintiff prove?

Answer 37

Scienter by defendant (intent). Intent would mean fraud

Question 38

Under the 1933 securities act what must a plaintiff prove to win?

Answer 38

Damages were incurred, and there was a material misstatements or omission.

Question 39

Does a guaranty need to be in writing?

Answer 39

Yes, under the statues of frauds