Business Law Final

Question 1

A business can take the form of:
1.
2.
3.

Answer 1

1. Sole Proprietorship
2. Partnership
3. Limited Liability Company (LLC)

Question 2

The simplest form of business. In this form, the owner is the business. Anyone who does business without creating a separate business organization has a ???

Answer 2

Sole Proprietorship

Question 3

An association of two or more persons to carry on as co-owners a business for profit. formed by an agreement among the partners (which does not have to be in writing – see Sacco v. Paxton)

Answer 3

Partnerships

Question 4

Can include almost any terms that the parties wish, unless they are illegal or contrary to public policy or statute. The Uniform Partnership Act (UPA), enacted in most states, governs the operation

Answer 4

A Partnership

Question 5

A partnership is typically characterized by:

Answer 5

(1) A sharing of profits or losses. If the agreement does not indicate how the profits will be shared, the UPA provides that profits will be shared equally.
(2) A joint ownership of the business.
(3) An equal right to be involved in the management of the business.

Question 6

A partner owes the partnership and the other partners two fiduciary duties:

Answer 6

duty of care and

the duty of loyalty

Question 7

A partner’s duty of care is limited to:

Answer 7

refraining from “grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.”

Question 8

The duty of loyalty can be breached by

Answer 8

self-dealing, misusing partnership property, disclosing trade secrets, or usurping a partnership business opportunity. See Meinhard v Salmon

Question 9

If a partner acts within the scope of her or his authority, the partnership is legally bound to honor the partner’s commitments to third parties. A partner may also subject the partnership to tort liability under agency principles.

Answer 9

Authority of Partners

Question 10

One significant disadvantage associated with a traditional partnership is that the partners are personally liable for the debts of the partnership. However, a partner newly admitted to an existing partnership is not personally liable for any partnership obligations incurred before the person became a partner. This is called ??

Answer 10

Liability of Partners

Question 11

Dissociation

Answer 11

when a partner ceases to be associated in the carrying on of the partnership business

Question 12

Generally can be brought about by acts of the partners, by operation of law, or by judicial decree. If the partnership agreement states that it will dissolve on a certain event, such as a partner’s death or bankruptcy, then the occurrence of that event will dissolve the partnership. A court may order dissolution when it becomes impractical for the business to continue.

Answer 12

Dissolution

Question 13

collecting and preserving partnership assets, discharging liabilities (paying debts), and accounting to each partner for the value of his or her interest in the partnership. If the partnership’s liabilities are greater than its assets, the partners bear the losses in the same proportion in which they shared the profits unless they have agreed otherwise.

Answer 13

Winding Up

Question 14

Franchise

Answer 14

a business arrangement in which the owner of intellectual property—such as a trademark, a trade name, or a copyright—licenses others to use it in the selling of goods or services

Question 15

Franchisee

Answer 15

(a purchaser of a franchise) operates under a franchisor’s (the seller of the franchise) trade name but is generally legally independent.

The franchisee ordinarily pays an initial fee or lump sum price for the franchise license. The franchise agreement may also require the franchisee to pay a percentage of the franchisor’s advertising costs and certain administrative expenses

Question 16

A hybrid that combines the limited liability aspects of a corporation and the tax advantages of a partnership. It has become the preferred structure for many small businesses.

Answer 16

Limited Liability company (LLC)

Question 17

Limited Liability company (LLC)

Answer 17

LLCs are governed by state statutes, which vary to some extent from state to state.

LLCs are legal entities apart from their owners. As a legal person, the LLC can sue or be sued, enter into contracts, and hold title to property.

The owners of an LLC, who are called members, are shielded from personal liability for debts or obligations of the business in most situations

Question 18

LLCs are governed by Operating Agreements (typically in writing) which include the following:

Answer 18

(1) How managers will be chosen or removed.
(2) How profits will be divided.
(3) How membership interests may be transferred.
(4) Whether the dissociation of a member, such as by
death or departure, will trigger dissolution of the
LLC.
(5) Whether formal members’ meetings will be held.
(6) How voting rights will be apportioned.

Question 19

Limited partnership

Answer 19

A limited partnership consists of at least one general partner and one or more limited partners. General partners are responsible for managing the partnership business and can be personally liable for partnership debts and obligations.

Limited partners generally contribute cash or other capital to the business but are not involved in management decisions. A limited partner is not personally liable for partnership debts beyond the amount of his or her investment.

Question 20

Corporation

Answer 20

A legal entity created and recognized by state law. As a legal “person,” corporations enjoy many of the same rights and privileges under state and federal law that U.S. citizens enjoy.

One of the key advantages of the corporate form is that shareholders are normally not personally liable for the obligations of the corporation beyond the extent of their investments

Question 21

Private corporations

Answer 21

privately-owned, for-profit businesses. Corporations whose shares are held by relatively few persons are referred to as closely held, or “close corporations.

Question 22

Benefit corporation

Answer 22

designed to make a profit, but also to benefit the public as a whole.

Question 23

Public corporations

Answer 23

formed by the government. Many federal government organizations such as the U.S. Postal Service and AMTRAK are public corporations

Question 24

Nonprofit Corporations

Answer 24

formed for purposes other than making a profit. Private hospitals, educational institutions, charities, and religious organizations are frequently organized as nonprofit corporations.

Question 25

The primary document needed to incorporate a business

Answer 25

Articles of incorporation

Question 26

PIERCING THE CORPORATE VEIL

Answer 26

Occasionally, the owners use a corporate entity to perpetrate a fraud, circumvent the law, or in some other way accomplish an illegitimate objective. In these situations, the courts will ignore the corporate structure by piercing the corporate veil and exposing the shareholders to personal liability

Question 27

The following are some of the factors that may result in piercing the corporate veil:

Answer 27

(1) A party is tricked or misled into dealing with the corporation rather than the individual.
(2) The corporation is too thinly capitalized to meet debts or liabilities, or is set up never to make a profit or always to be insolvent.
(3) The corporation is formed to evade an existing legal obligation.
(4) Statutory corporate formalities, such as holding required corporation meetings, are not followed.
(5) Personal and corporate interests are mixed together, or commingled, to such an extent that the corporation has no separate identity.

Question 28

Business judgment rule

Answer 28

Provides broad protections to corporate decision makers, unless there is evidence of bad faith, fraud, or a clear breach of fiduciary duties

Question 29

Duty of Loyalty

Answer 29

requires directors and officers to put the welfare of the corporation ahead of their personal interests

Directors are precluded from entering into or supporting businesses that operate in direct competition with corporations on whose boards they serve. Their fiduciary duty requires them to make a full disclosure of any potential conflicts of interest that might arise in any corporate transaction.

Question 30

Shareholders

Answer 30

Owners of a corporation. Shareholders have no responsibility for the daily management of the corporation, although they are ultimately responsible for choosing the board of directors.

Question 31

Based on the amount that would have been distributed to the partner if the partnership had been wound up on the date of dissociation.

Offset against the price are amounts owed by the partner to the partnership, including damages for wrongful dissociation, if applicable

Answer 31

Buyout Price

Question 32

Agreement may provide for one or more partners

to buy out the other or others, should the situation warrant

Answer 32

Buy-Sell Agreement

Question 33

In partnership law, an order granted by a

court to a judgment creditor that entitles the creditor to attach a partner’s interest in the partnership

Answer 33

Charging order

Question 34

One who initiates and assumes the financial

risk of a new business enterprise and undertakes to provide or control its management

Answer 34

Entrepreneur

Question 35

The valuable reputation of a business viewed as an intangible asset.

Answer 35

Goodwill

Question 36

tax return submitted by a partnership that reports the business’s income and losses. The partnership itself does not pay taxes on the income, but each partner’s share of the profit (whether distributed or not) is taxed as individual
income to that partner.

Answer 36

Information Return

Question 37

Third party has the option of suing all of the partners together (jointly) or one or more of the partners separately (severally).

All partners in a partnership can be held liable even if a particular partner did not participate in, know about, or ratify the conduct that gave rise to the lawsuit.

Answer 37

Joint and Several Liability

Question 38

A partnership imposed by a court
when non-partners have held themselves out to be partners, or have allowed themselves to be held out as partners, and others have detrimentally relied on their misrepresentations

Answer 38

Partnership by estoppel

Question 39

A business entity that has no tax

liability. The entity’s income is passed through to the owners and they pay taxes on the income.

Answer 39

Pass-through entity

Question 40

The second of two stages in the termination
of a partnership or corporation, in which the firm’s assets are collected, liquidated, and distributed, and liabilities are discharged

Answer 40

Winding Up

Question 41

A mark used by one or more persons,
other than the owner, to certify the region, materials, mode of manufacture, quality, or accuracy of the owner’s goods or services.

Answer 41

Certification mark

Examples of certification marks include the “Good Housekeeping Seal of Approval” and “UL Tested.”

Question 42

A mark used by members of a cooperative,
association, or other organization to certify the region, materials, mode of manufacture, quality, or accuracy of the specific goods or services.

Answer 42

Collective mark

Examples of collective marks include the labor union marks found on tags of certain products and the credits of movies, which indicate the various associations and organizations that participated in the making of the movies

Question 43

The exclusive right of authors to publish, print, or
sell an intellectual production for a statutory period of time. Has the same monopolistic nature as a patent or trademark, but it differs in that it applies exclusively to works of art, literature, and other works of authorship, including computer programs.

Answer 43

Copyright

Question 44

With respect to trademarks, a doctrine under which
distinctive or famous trademarks are protected from certain unauthorized uses regardless of a showing of competition or a likelihood of confusion.

Answer 44

Dilution

Congress created a federal cause of action for dilution in 1995 with the passage of the Federal Trademark Dilution Act

Question 45

Property resulting from intellectual,

creative processes. Patents, trademarks, and copyrights are examples of intellectual property.

Answer 45

Intellectual Property

Question 46

(1) In the context of intellectual property, a contract
permitting the use of a trademark, copyright, patent, or trade secret for certain purposes. (2) In the context of real property,
a revocable right or privilege of a person to come on another
person’s land

Answer 46

License

Question 47

A government grant that gives an inventor the exclusive right or privilege to make, use, or sell his or her invention for a limited time period.

Answer 47

Patent

Question 48

A mark used in the sale or the advertising

of services, such as to distinguish the services of one person from the services of others.

Answer 48

Service Mark

Titles, character names, and other distinctive features of radio and television programs may be registered as service marks

Question 49

The image and overall appearance of a

product—for example, the distinctive decor, menu, layout, and style of service of a particular restaurant.

Answer 49

Trade Dress

Basically, trade dress is subject to the same protection as trademarks.

Question 50

A distinctive mark, motto, device, or implement
that a manufacturer stamps, prints, or otherwise affixes to the goods it produces so that they may be identified on the market and their origins made known.

Answer 50

Trademark

Once a trademark is established (under the common law or through registration), the owner is entitled to its exclusive use.

Question 51

A term that is used to indicate part or all of a

business’s name and that is directly related to the business’s reputation and goodwill.

Answer 51

Trade Name

Trade names are protected under the common law (and under trademark law, if the name is the
same as the firm’s trademark).

Question 52

Information or a process that gives a business an
advantage over competitors who do not know the information
or process

Answer 52

Trade Secret

Question 53

What are Four things you should consider when choosing a business Form?

Answer 53

1. To what extent will the personal assets of the founders and investors be exposed to the liabilities of the business?
2. What format will make the business most attractive to potential investors, lenders, and employees?
3. What costs are associated with creating and maintaining an organization?
4. How can taxes be minimized?

Question 54

Burden-Shifting Procedure

Answer 54

Once the prima facie case is established by the plantiff, the burden then shifts to the employer defendant, who must articulate a legal reason for not hiring the plaintiff.

If the employer did not have a legal reason for taking the adverse employment action, the plaintiff wins

If the employer can articulate a legitimate reason for the action, the burden shifts back to the plaintiff.

To prevail, the plaintiff must then show that the employer’s reason is a pretext (not the true reason) and that the employer’s decision was actually motivated by discriminatory intent

Question 55

Title VII of the Civil Rights Act prohibits ??

Answer 55

Discrimination in the hiring process, discipline procedures, discharge, promotion, and benefits on the basis of race, color, national origin, religion, and gender.

Title VII also protects employees against sexual harassment in the workplace.

Pregnancy Discrimination: The Pregnancy Discrimination Act expanded Title VII’s definition of gender discrimination to include discrimination based on pregnancy.

Wage Discrimination: The Equal Pay Act requires equal pay for male and female employees working at the same establishment doing similar work.