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Business Law For Accountants > Business Law Review > Flashcards

Business Law Review Flashcards

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1
Q

Constitutional Law

A

Supreme law of the land

Supremacy clause

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2
Q

10th amendment

A

Reserves to power of states all powers that are not granted in the constitution

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3
Q

At what level does Statutory Law fall under?

A
  1. Laws enacted by a legislative bodies (Congress / Senate / House of Reps) AKA FEDERAL LAWS
  2. Laws enacted by State legislatures
  3. Laws enacted by local governments that create ORDINANCES
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4
Q

Where are FEDERAL passed laws documented?

A

In the USC (United States Code) in an order where each section represents a different topic of law

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5
Q

Where are STATE passed laws documented?

A

In the State’s code

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6
Q

Uniform Laws

A

Suggested legislation that is suggested so every state has the same rules

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7
Q

When do Uniform Laws become adopted?

A

Only when it is adopted by the state legislature

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8
Q

Administrative Law

A

Laws created on the federal / state / and local levels

Ceation of an administrative agency to handle specific areas of the law who will then make the rules on that topic

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9
Q

Where are laws that are passed by administrative agencies documented?

A

In the Code of Federal Regulation

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10
Q

Ex. of State Administrative agencies

A

Colorado EPA (can run parallel to the federal administration)

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11
Q

What are the two types of Federal administrative agencies?

A

Executive and Independent

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12
Q

What are the differences between Executive and Independent agencies?

A

Executive: subject to the authority of the president (president has a lot of say Ex. (FDA)

Independent: created to deal with a topic and cannot be controlled as much
(officers serve for a specific period of time Ex. Federal Trade Commission)

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13
Q

Substantive Law

A

law that defines and regulates the rights and obligations of people and organizations

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14
Q

Procedural Law

A

rules that govern how legal cases are handled and resolved in a court system

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15
Q

Stare Decisis

A

judges are supposed to follow past court decisions

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16
Q

Case Law

A

laws based on past court decisions

judges deciding whether or not something is constitutional

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17
Q

What are the two general exceptions to Stare Decisis?

A
  1. arguing the fact pattern is different than those in past cases where a decision was made
  2. court decides the past ruling was incorrect
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18
Q

Can you overturn the Supreme Court?

A

No - you cannot directly overturn the Supreme Court BUT you can amend the Constitution (not easy, but doable)

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19
Q

Civil Law

A

individual vs. individual usually dealing with monetary settlements

Ex. contract law, tort law

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20
Q

Criminal Law

A

wrongs against society and has to be punished

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21
Q

Trial Court

A

Lowest forms of court

One judge who hears the case

Opinions are not usually documented at the trial level

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22
Q

Plaintiff + Petitioner / Defendant + Respondent

A

Trial level

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23
Q

Appellant (lost) + Appellee (won)

A

Appellate level

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24
Q

Concurring opinion

A

written by a judge who is voting with the majority but they are writing their own opinion/explanation

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25
Q

Dissenting opinion

A

written by judge who disagree with the majority

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26
Q

Plurality opinion

A

opinion of the most judges, but not enough for the majority

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27
Q

Per Curiam opinion

A

opinion of the court, but does not indicate which judge wrote the opinion

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28
Q

What level of court is used as the basis for Stare Decisis?

A

Appellate court (appeals court)

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29
Q

Federal Powers

A

specific powers set forth in the constitution

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30
Q

state powers (aka police powers)

A

if a power is not specifically set forth by the constitution, then that power belongs to the state

Ex. criminal law, public order, health, safety, building and zoning, etc.

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31
Q

Privileges and Immunities Clause

A

Prevents states from imposing unreasonable burdens on citizens from other states

Ex. Colorado showing preference to Colorado residents in hiring than those in Washington

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32
Q

Full Faith and Credit Clause

A

Each state must recognize other states rulings on deeds, wills, and contracts.

Ex. If I have a contract in Colorado, Washington has to recognize it

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33
Q

3 Branches of Government

A

Legislative: makes laws
Executive: enforces laws
Judicial: interprets laws

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34
Q

Commerce Clause (Constitutional Clause)

A

prevents states from making laws that interfere with commerce between states (interstate)

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35
Q

Supremacy Clause (Constitutional Clause)

A

Consitution is the supreme law of the land - if there’s a direct conflict between Federal and State laws, Federal always trumps

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36
Q

Taxing and Spending Power Article 1 (Constitutional Clause)

A

Congress (legislative) has the power to collect taxes and pay the debts of the country

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37
Q

1rst Amendment in the Bill of Rights

A

protects freedom of speech, the press, assembly, and the right to petition the Government for a redress of grievances.

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38
Q

4th Amendment in the Bill of Rights

A

protects citizens from unreasonable searches and seizures by the government

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39
Q

5th and 14th Amendments in the Bill of Rights

A

requires that the government to operate within the law and provide fair procedures - no one shall be “deprived of life, liberty or property without due process of law.” - EQUAL PROTECTION OF THE LAWS

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40
Q

Symbolic speech

A

Nonverbal expressions of opinions or thoughts about a subject - protected under the first amendment, guarantee of freedom of speech

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41
Q

Unprotected speech

A

Fighting words, or words that are likely to incite others to respond violently – also includes defamatory speech

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42
Q

Procedural Due Process

A

right to a notice and given an opportunity to be heard - following the process

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43
Q

Substantive Due Process

A

allows courts to protect fundamental rights from government interference

Ex. All people have the right to free speech, he right to own property, and the right to a fair trial

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44
Q

Strict Scrutiny

A

testing against the restriction of fundamental rights

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45
Q

Intermediate Scrutiny

A

used in gender and legitimacy cases

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46
Q

Rational Basis Test

A

used in economics and social welfare

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47
Q

Freedom of Information Act of 1966

A

people can request copies of personal information held by the government

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48
Q

Privacy act of 1974

A

Protects the privacy of individuals about whom the federal government has information

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49
Q

USA patriot act

A

Gives government officials increased authority to monitor Internet activities, and to gain access to personal financial information and student information

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50
Q

Legal vs. Ethical

A

required by law vs. a question of right or wrong

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51
Q

Moral minimum

A

the expectation that everyone is compliant with the law

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52
Q

Private Company Codes of Ethics

A

NOT LAW - company conduct

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53
Q

Industry Ethical Codes

A

NOT LAW - professional conduct

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54
Q

Duty based ethics

A

based on the philosophy that everyone has a duty to others (human and planet)

CANT WORRY ABOUT CONSEQUENCES, I JUST HAVE TO DO MY DUTY

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55
Q

Outcome based ethics

A

focuses on the consequence of an action (utilitarianism)

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56
Q

IDDR Ethical Decision Framework

A

I - Inquire about an ethical problem
D - discuss the course of action and impacts
D - decide the rational
R - review the solution for effectiveness

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57
Q

Short-run profit maximization

A

Company may increase its profits by continuing to sell a product, even though it knows that the product is defective

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58
Q

Intellectual Property

A

any product of someone’s creation

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59
Q

What is the only category of intellectual property that has to be registered in order to be protected?

A

Patents

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60
Q

Trademark

A

distinctive mark / motto or slogan / symbol to identify the seller

Ex. Nike Swoosh / Just Do It
Ex. McDonalds / Golden Arches

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61
Q

What are the 5 levels of mark distinctiveness?

A
  1. Fanciful
  2. Arbitrary
  3. Suggestive
  4. Descriptive
  5. Generic
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62
Q

Strong marks

A

Fanciful, arbitrary, suggestive (receives automatic protection)

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63
Q

Fanciful marks (trademark)

A

Made up word that doesn’t exist anywhere else, that is attached to a “product”

Ex. Google / Kleenex

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64
Q

Arbitrary marks (trademark)

A

Words that exist elsewhere but is attached to the product as a descriptor

Ex. Apple for a company that makes computers and tech

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65
Q

Suggestive marks (trademark)

A

a mark that implies a connection between a company and a product

Ex. Dairy Queen (dairy suggests milk / ice cream, etc.)

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66
Q

Generic (trademark) - not automatically protected

A

generic terms like “aspirin” or “escalator”

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67
Q

Descriptive (trademark) - not automatically protected

A

describes the exact product the company is providing

Ex. Calvin Klein

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68
Q

Collective Mark

A

Credits on movies

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69
Q

Service Mark

A

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 (airlines)

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70
Q

Remedies for Dilution

A

injunction (cease and desist) or damages when proven willful intent

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71
Q

Trademark Registration

A

Can only register if it’s currently in commerce, or if it will be in commerce within 6 months

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72
Q

Federal Trademark Dilution Act (Lanham Act)

A

suit in Federal court for trademark dilution

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73
Q

Trademark Dilution

A

confusing the association (making it less distinctive)

Ex. creating a hotdog company that’s logo is similar, but not the same to Nike’s swoosh DILUTING it’s distinctiveness in commerce

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74
Q

Trademark Infringement

A

use of a distinctive mark that was not authorized

Ex. Using the Nike swoosh on your shoe company (CREATING CONFUSION)

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75
Q

Remedies for Infringement

A

injunction, lost profits, destruction of infringed goods

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76
Q

Patents

A

Gives inventor exclusive rights to make, use, or sell their inventions for 20 years

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77
Q

What is NOT patentable?

A

laws of nature, natural phenomena, or abstract ideas

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78
Q

Patent Infringement

A

the make, use, or selling of another patented design without the owner’s permission

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79
Q

Remedies for Patent Infringement

A

injunction, lost profits

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80
Q

Copyrights

A

Intangible property (books, music, other literary works)

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81
Q

How long does a copyright last?

A

Life of the author + 70 years

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82
Q

What do copyrights protect?

A

reproduction of work or derivative work
distribution of work
public display of work

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83
Q

What can and cannot be copyrighted?

A

an idea, procedure, or method of operation CANNOT be copyrighted Ex. page numbers)

the way in which an idea is expressed CAN be copyrighted Ex. finding the same location, using the same camera as a famous photographer

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84
Q

Remedies for Copyright Infringement

A

damages, injunction

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85
Q

Trade Secrets

A

protects businesses and information that cannot be copyrighted or trademarked (customer list, R&D, etc.)

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86
Q

Punishments of Trade Secrets

A

tort action (civil suit) - HAS TO BE DISCOVERED BY IMPROPER SECRET

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87
Q

What is a contract?

A

an agreement (promise) between parties creating mutual obligation enforceable by law

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88
Q

What rules govern contracts?

A

Common law EXCEPT when replaced by statutory law

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89
Q

Common law ruling vs. UCC rulings

A

contracts, real estate, employment, and insurance vs. sales of tangible goods

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90
Q

4 Requirements for a valid contract

A
  1. Agreement - OFFER AND ACCEPTANCE
  2. Consideration - both parties have to give something of legal value
  3. Contractual Capacity - someone who is not a minor, and is of mental competency
  4. Legality -
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91
Q

Mirror image rule

A

Offer mirrors acceptance

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92
Q

Bargained for exchange (consideration)

A

both parties are giving something up

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93
Q

Predominant factor test

A

test that courts use to determine whether a contract is primarily for the sale of goods or for the sale of services

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94
Q

Usury

A

Lending money at an unreasonable or unfair interest rate

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95
Q

Procedural law

A

establishes the rules of the court system, how the court operates, and the procedures used to protect the rights of individuals

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96
Q

Substantive law

A

laws that define the rights, duties, and obligations of people and entities within a society, and how they should behave

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97
Q

Bilateral contract

A

promise for a promise
Ex. I will sell you my bike for $500 (promise to sell, promise to pay)

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98
Q

Unilateral contract

A

promise for an act - can only be accepted if there is completion of a performance
Ex. I will give you $100 if stop smoking for 6 months

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99
Q

Formal contracts

A

contracts that require a specific form

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100
Q

Informal contracts

A

oral or written contracts

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101
Q

Statute of Frauds (common law)

A

When a contract must be in writing to be enforceable:
- real estate
- sales of goods at $500 or more
- performance that will take more than a year to complete
- promises made in consideration of marriage

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102
Q

Performance and Discharge of a Contract

A
  • complete performance
  • substantial performance (complied with in good faith, most of the requirements of the contract)
  • material breach (nonperformance)
  • anticipatory repudiation (notice that one party will not complete the contract)
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103
Q

Mutual Recission

A

both parties agree to cancel the contract

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104
Q

Accord and Satisfaction

A

acceptance of something different than the original contract

ACCORD: contract to perform some duty

SATISFACTION: performance of an agreement

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105
Q

Settlement

A

replacing the old agreement with a new contract

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106
Q

Requirements of Termination by Operation of Law (beyond the control of either party)

A
  • Materially altering a written contract without consent of the other party
  • Statute of limitations: the time you have to sue if there’s a breach
  • bankruptcy
  • impossibility of performance
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107
Q

Novation

A

both parties agree to substitute a third party for one of the original parties

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108
Q

Damages for Contracts

A

Compensatory: compensating you to be in the same position that you would have been in if the breach didn’t occur
Specific Performance: requirement to carry out what you were contracted to do
Consequential: covers indirect and foreseeable losses
Punitive: punishment
Nominal: recognizing the wrongdoing when there’s no monetary loss shown

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109
Q

Uniform Commercial Code (UCC)

A

Deals with tangible and movable goods&raquo_space; All 50 states have adopted 2 (sale) and 2A (lease) - STATE LAW

Supersedes the common law

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110
Q

What is NOT covered by the UCC?

A

Real estate
Service contracts (NOT a tangible good)
Intangible property (stocks and bonds)

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111
Q

What is a sale defined by the UCC?

A

Passing of title from seller to buyer for a price

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112
Q

Merchant

A

A person who sells goods of a specific kind - has the special knowledge or skill

Selling a lot of one item, not just a one time item

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113
Q

Open Terms

A

Terms that can be filled in by the court later if their is a dispute with the contract

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114
Q

Do you need to have a contract under the UCC?

A

No but:
- Parties have to have the intention to contract
- Quantity has been established
- Reasonably certain basis

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115
Q

Requirements contract

A

Buyer agrees to buy all of what they need from the seller
* won’t buy from another seller - it has to come from this one seller only

116
Q

Output contract

A

Seller agrees to sell all that they produce to the buyer
* can only sell what’s produced to one buyer, can’t sell to any other buyer

117
Q

Merchant’s Firm Offer

A

Offer must be written and signed by the offeror - consideration is not required

Ex. Checking out a car on a car lot - merchant send you an email offering you a discount until a specified period of time signed&raquo_space; merchant can’t sell car until the end of the specified period in the contract

118
Q

What is considered acceptance of a sale or lease contract?

A

prompt promise or shipping of goods

119
Q

When are additional terms enforceable on a contract?

A

only if you are a merchant

120
Q

Unconscionable contract

A

A contract so unfair and one-sided that it would be unreasonable to enforce the contract

121
Q

Insurable interest (UCC)

A

insurance to protect against damage, loss, or destruction of the goods

122
Q

When can you obtain insurable interest?

A
  • when the goods are identified as product of the contract
  • goods cannot be future goods (have to be existing/manufactured)
  • ## must sustain actual loss
123
Q

Can the buyer and the seller both have insurable interest in an item/good?

A

Yes

124
Q

Shipment contract (buyer loss)

A

Title transfers to buyer when goods are given to the carrier service (unless otherwise agreed)

125
Q

Who is at loss if goods are damaged in transit?

A

BUYER

126
Q

Destination contract (seller loss)

A

Title transfers to buyer once seller delivers goods to a pre-determined destination

127
Q

Free on Board / Freight on Board

A

DESTINATION CONTRACT - Title transfers only when it arrives at the pre-determined location

128
Q

What is the standard contract under the UCC?

A

SHIPMENT

129
Q

Delivery without movement

A

Title passes when and where the title is delivered

130
Q

Obligations of the seller in a contract

A
  • Tender of delivery (goods that match what was purchased)
  • Place of Delivery (place of business, residence, predetermined location)
131
Q

Perfect Tender Rule

A

Conforming to the contract as it was agreed upon (seller has to give the buyer exactly what was contracted for)

132
Q

Exception to the Perfect Tender Rule

A

Cure - seller has the right to tender the correct goods

133
Q

What can the buyer do if the goods fail to conform to the contract?

A
  1. accept goods as is
  2. reject goods (full shipment)
  3. accept part and reject part of the shipment
134
Q

What are the rules of Cure for the seller?

A
  • delivery has been rejected
  • time of the performance hasn’t expired
  • notice has been given they want to fix it
  • must cure in a timely manner
135
Q

Obligations of the buyer in a contract

A
  • payment
  • right to inspect goods before making payment
  • acceptance: verbally, failing to reject, or start using/selling the goods
136
Q

Remedies for Breach of a Buyer

A
  • right to cancel contract
  • right to withhold delivery
  • right to resell the goods
137
Q

Remedies for Breach of a Seller

A
  • right to cancel contract
  • right to obtain specific performance (required to enforce contract)
  • right to cover (suing for the difference in cost of the substitute goods that had to be bought to replace the breached goods)
  • right of replevin (action to recover identified goods
  • right to reject goods
138
Q

Warranties

A

assurance by the seller about the quality and features of goods being sold

139
Q

Warranties of Title

A

seller has good title to sell the goods (a store has the right to sell the goods inside their store)

140
Q

Express Warranties

A

representation concerning the quality, condition, description, or performance potential of goods

Ex. What’s on the box is what you’re getting

** Only applies to statements of fact - NOT opinion

141
Q

Implied Warranty of Merchantibility

A

goods purchased are fit for ordinary purpose - warranty on EVERYTHING that’s purchased

Ex. Bought a toaster&raquo_space; expectation is that it toasts bread

142
Q

Implied Warranty of Fitness for a Particular Purpose

A

Only when you rely on the seller’s expertise to purchase a good suitable for a specific purpose

Ex. Looking for and communicated to seller that you want a toaster that will toast Texas toast&raquo_space; Seller sells you a toaster that they say that will fit your toast

143
Q

Secured loan

A

Loan backed by collateral

Ex. Mortgage, car loans, etc.

144
Q

Unsecured loans

A

loan without collateral

Ex. credit card, hospital bills, utilities, etc.

145
Q

Pass through entity

A

Business entity that has no tax liability&raquo_space; the individual is taxed, not the business

146
Q

Lien

A

claim on a property in order to satisfy a debt

147
Q

Artisan’s Lien

A

work done on personal property (things that can move)

Ex. Suit taken to the dry cleaners&raquo_space; cannot pay&raquo_space; they keep your property until you pay for it

148
Q

Mechanic’s Lien

A

property, land, and buildings

Ex. someone coming to paint your house&raquo_space; cannot sell the house without making payment towards services

149
Q

Judicial Lien

A

a judgement obtained from the court stating that money is owed to the creditor

150
Q

Writ of attachment

A

STATE LAW&raquo_space; COMPLETED BEFORE JUDGEMENT&raquo_space;> Request made by the creditor to physically obtain the assets of the debtor into custody

151
Q

Suretyship

A

Third party who is primarily liable&raquo_space; can be liable BEFORE the debtor defaults

152
Q

Writ of execution

A

Court ordered seizure of nonexempt property

153
Q

Guaranty

A

Third party who is secondarily liable&raquo_space; can only be liable once the debtor defaults

154
Q

Releases for Surety/Guaranty’s

A
  • Material modification: change to original contract without surety’s consent
  • Surrender of property
  • Payment
155
Q

Do Suretyship and Guaranty’s need to be in writing to be enforceable?

A

YES

156
Q

Defenses of the Surety/Guaranty

A
  • Personal defenses: incapacity: not mentally capable or bankruptcy
  • Statute of limitations: timeframe in which the creditor can chase after the debtor has passed
  • Fraud
157
Q

Rights of Surety/Guarantor

A

Right of subrogation: legal right that allows one party to assume the legal rights of another party (insurance going after the party at fault after paying out a claim to the insured)

Right of reimbursement: legal right to be reimbursed by the debtor after payment has been made on behalf of the debtor by the surety/guarantor

Right of contribution: two or more sureties - the right of one surety to seek 1/2 the amount paid on behalf of the debtor

158
Q

Fixed rate

A

interest rate stays the same on the entire life of the loan

159
Q

Adjustable rate (ARM)

A

interest rate changes periodically

160
Q

Forbearance

A

postponing some of the loan payments to the future

161
Q

Short sale

A

Loan holder agrees to take less than the balance due on the mortgage (house is sold for less than what’s owed on the mortgage)

162
Q

Workout agreement

A

Delaying foreclosure for additional financial info

163
Q

Homestead exemption

A

portion of personal property that cannot be taken by creditors (limited by a $ amount determined by the state residing)

164
Q

Personal property exemptions

A

Furniture, clothing, vehicles

165
Q

What are the 2 goals of bankruptcy?

A
  1. Give the debtor a fresh start without creditor claims
  2. Ensure equitable treatment of creditors competing for debtor assets
166
Q

Types of Bankruptcy

A

Chapter 7 - liquidation of nonexempt assets and distribution of proceeds to creditors
Chapter 11 - business reorganization
Chapter 13 - personal repayment plan for those with steady income

167
Q

Bankruptcy trustee

A

determines if there are nonexempt assets to sell in order to pay off debts

168
Q

Who can file Chapter 7?

A

Individuals, partnerships, or corporations

169
Q

Who cannot file Chapter 7?

A

railroads, insurance companies, credit unions, banks

170
Q

Who cannot be made to Involuntarily file bankruptcy?

A

Farmers, and charitable institutions

171
Q

What’s included in a Chapter 7 Petition?

A

** Must be filed within 45days
- list of secured and unsecured creditors
- list of property
- current income + expenses
- certificate of counseling
- proof of income
- tax returns

172
Q

Requirements of Chapter 7

A
  • attend credit counseling within 180 days to filing
  • Means test&raquo_space; determine if qualified to file (compare avg monthly income against median income for geographic area) Below = file / Above = cannot file
173
Q

Automatic stay

A

All creditors are required to stop attempting to collect against you as soon as you file for bankruptcy

174
Q

Adequate Protection Doctrine

A

protects secured creditors where payments are required to be made

175
Q

Exceptions to Automatic Stay

A
  • child support
  • divorce
176
Q

Exceptions to Discharge Bankruptcy Proceedings

A
  • child support
  • retirement account loans
  • government fines + penalties
  • student loans
  • drunk driving judgements
177
Q

Chapter 11 Bankruptcy

A

debtor in possession retains control of the business (business is allowed to keep running)

178
Q

Reaffirmation of debt

A

agreeing to take back on debt (home, car, etc.)

179
Q

Acceptance of plan

A

when each class of creditor accepts the plan by 2/3 of the amount of the total claim

180
Q

Fast Track

A

liability is less than $2.7M and/or
do not own or manage real estate

181
Q

Cram down provision

A

Court forcing creditors to accept a plan

182
Q

Chapter 13 Bankruptcy

A

individuals with regular income making payments to the court to pay creditors in full or in part depending on a plan

**Max length is 5 years

183
Q

What are the 4 main types of business organizations?

A
  • sole proprietorships
  • partnerships (general or limited)
  • corporations (S + C)
  • LLCs
184
Q

Sole Proprietorships

A

simplest form of business - one person owns the business

185
Q

Advantages of Sole Proprietorships

A
  • owns entire business
  • easy to start
  • only taxed once (as personal income on personal taxes)
186
Q

Disadvantages of Sole Proprietorships

A
  • personal unlimited liability
  • if owner dies, so does the business
  • hard to raise capital
187
Q

General Partnerships

A

two or more persons carrying the business for profit

188
Q

Uniform Partnership Act (UPA)

A

governs the operation of partnerships in absence of an express agreement (how partnerships should work)

189
Q

Elements of a General Partnership

A
  • sharing of profits and losses
  • joint ownership of the business
  • equal rights in the management of the business
190
Q

Pass-through entity

A

entity’s income is passed through to the owner to pay income tax on their personal returns

Partnership makes the money but the individual partners pay the taxes on their personal income returns (taxed only ONCE)

191
Q

What forms of business are pass-through entities?

A
  • General partnerships
  • Sole proprietorships
  • LLC’s
  • S Corps
192
Q

Articles of Partnership

A

legal document that outlines the rights and responsibilities of each partner, and acts as a rule book for the partnership

193
Q

Fiduciary duties of a Partnership

A

Duty of care&raquo_space; do a good job
Duty of loyalty&raquo_space; cannot put yourself ahead of the partnership

194
Q

Disadvantages of Partnerships

A
  • unlimited personal liability for the debts of the partnership
  • joint and several liability: if some partners can’t pay, then you are responsible for all of it
  • Liable even if you’re unaware or did not participate in the action
195
Q

Dissociation from a Partnership

A

to cease to being associated with the partnership&raquo_space; no further duty to the partnership

  • can volunteer to leave
  • can be voted out by other partners
  • bankruptcy or death
196
Q

Termination of a Partnership

A

Dissolution (the same thing as termination)

197
Q

Winding Up

A

process of collecting, liquidating, and distributing assets to creditors first, then to capital contributions

198
Q

Limited partnership - LP

A

Partnership consisting of one or more partners and one or more limited partners

199
Q

General partner

A

Partner who assumes responsibility for the management of the partnership and assumes full liability for the partnership debts

200
Q

Limited partner

A

Partner who contributes capital but has no right to participate in management and has no liability for any debts outside of their investments

201
Q

What must an LLC file to form?

A

Articles of Organization

202
Q

Who are Articles of Organization filed with?

A

filed with the Secretary of State

203
Q

Uniform Limited Liability Company Act (ULLCA)

A

Notes that if there is no federal uniform law, they are governed by state law

204
Q

What liabilities do members of an LLC have?

A

Limited to their investment only - UNLESS they have a personal guarantee

205
Q

Pierce the Corporate Veil

A

Owners using an entity to perpetrate fraud&raquo_space; court can rule that shareholders are personally liable

206
Q

Advantages of LLCS

A
  • limited liability
  • legal entity apart from it’s owner
  • flexibility in taxation
207
Q

Taxation in an LLC

A

can be taxed as a partnership (taxed once) or a corporation (taxed twice)

208
Q

Disadvantages of LLCS

A

State rules vary

209
Q

LLC Management

A

Member managed: all members participate by majority vote
Manager managed: members designate a group of persons to manage (does not have to be a member)

210
Q

Fiduciary duties of an LLC

A

Duty of care
Duty of loyalty

211
Q

LLC Operating Agreement

A
  • how profits will be divided
  • how members transfer interest
  • dissociation
  • how voting rights are allocated (voting rights are based on how much you invest)
212
Q

Corporations (C Corp)

A

Legal entity created and recognized by STATE law

One or more owner (shareholder)

NOT a flow through entity

Company is treated as a person

213
Q

Advantages of C corps

A

limited liability for shareholder&raquo_space; can only lose or be responsible for your investment

214
Q

Disadvantages of C corps

A

Double taxation

  1. entity (as being like a person) is taxed on their profits
  2. entity is taxed on dividend payments made to shareholders
215
Q

Corporations (S Corp)

A

Closed corporation

Flow through entity&raquo_space; only taxed once

216
Q

Requirements of an S Corp

A

can only be domestically owned

max of 100 shareholders

shareholders must be individuals

only one class of stock

must file Articles of Incorporation

217
Q

Articles of Incorporation

A

corporation’s highest governing document and legal proof of its establishment in a state

218
Q

How are corps financed?

A

Usually via stocks and bonds

219
Q

common stock vs. preferred stock

A

Common: voting rights&raquo_space; one vote per share
Preferred: priority over common in regards to getting payment on dividends&raquo_space; no voting rights

220
Q

Express powers

A

found in the articles of incorporation&raquo_space; outlines what powers you have as outlined by the state and federal laws

221
Q

Implied powers

A

implied power to perform all acts reasonably necessary to accomplish the business’s purpose

222
Q

Ultra Vires Doctrine

A

“beyond the power”&raquo_space; acts of the corp beyond the express/implied powers

Acting outside the interests of the corporation

223
Q

Who runs a Corporation?

A

Board of directors&raquo_space; ultimate authority in all policy making decisions (hire + fire people)

224
Q

Inside directors (Corporation)

A

People who are officers of the corp (president, secretary, etc)

225
Q

Outside directors (Corporation)

A

do not hold a management position in the company

226
Q

Fiduciary duties of Directors and Officers in a Corporation

A

Duty of care: do what you’re supposed to do (act in good faith)
Duty of loyalty: faithful to the obligations and duties of the business

227
Q

Business Judgement Rule

A

Courts ruling to forgive bad decisions that were made by directors/officers who have exercised their duty of care to the business

228
Q

Shareholders

A
  • purchase of stock in a corporation
  • not responsible for day to day
  • picking a board of directors
  • shareholders meeting (at least once annually)
  • voting rights (one vote per share of common stock)
229
Q

Quorum requirement

A

more than 50% of a corporation’s ownership must be represented in a shareholders meeting

230
Q

Preemptive rights

A

shareholder preference over new stock purchases

231
Q

What is agency?

A

Most common form of a business relationship

Fiduciary relationship to act primarily for another’s benefit

232
Q

Examples of Agency Relationships

A
  • Employer / Employee: salesperson, cashier, delivery driver
  • Employee / Independent Contractor: truck drivers, house painter, roofer
233
Q

How to determine Employee (agency) status

A
  • how much work does the employer exercise over the details of work being done?
  • is the worker engaged in an occupation that is separate from that of the employer?
  • is the work completed under the employer’s supervision?
  • does the employer supply tools for the job being performed?
  • For how long is the person employed?
  • What is the method of payment&raquo_space; by job or by time period?
  • What degree of skill is required of the worker?
234
Q

Work for hire

A

When you are creating something for a business (something that can be copywritten or patented)

235
Q

Formation of an Agency Relationship

A

Principal must have contractual capacity (must be allowed to be allowed to enter into a contract) + has to be created for any legal purpose

236
Q

Agency by Agreement

A

most common type of agency&raquo_space; voluntary consent of both parties and usually works for payment

237
Q

Agency by Ratification

A

when someone who is not your agent, but you approve of their actions that were performed on your behalf

238
Q

Agency by Estoppel

A

when the principal causes a third party to believe that someone is an agent acting on behalf of the company and they are relying on that “agent” when the agent does not exist

PRINICPAL HAS TO GIVE THE INDICATION&raquo_space; DOES NOT EXIST IF AGENT IS GIVING THE INDICATION

239
Q

Agency by Operation of Law

A

courts finding a agency relationship in the absence of a formal agreement&raquo_space; usually in family or emergency situations

240
Q

Agent’s Duties to the Principal

A
  • Duty to perform: using reasonable skills and diligence to perform work (failing = breach of contract)
  • Duty to notify: letting the principal know of all matters that come to the attention of the agent
  • Duty of loyalty: acting on behalf of the sole benefit to the business
  • Duty of obedience: duty to follow lawful instructions to the business
  • Duty of accounting: keeping a record of funds paid out on behalf of the business
241
Q

Principal’s Duties to the Agent

A
  • Duty to compensate: paying the agent for their services
  • Duty of cooperation: do nothing to prevent agent from performing
  • Safe working conditions
242
Q

Reimbursement vs. Indemnification

A

reimbursement: payment for necessary expenses incurred during the reasonable performance of an agent’s duties
indemnification: You hurt me - now you have to pay me back: BEING SUED

243
Q

Express authority of an Agent

A

authority declared in clear, direct, and definite terms

244
Q

Equal Dignity Rule

A

If a contract is required to be in writing, the agent ‘s authority must be in writing

245
Q

Implied authority of an Agent

A

doing what is reasonably necessary to carry out the express authority

246
Q

Apparent authority of an Agent

A

principal causing a third party to believe the agent has apparent authority

247
Q

If the principal is disclosed, who is liable to sue?

A

Principal

248
Q

If the principal is partially disclosed, who is liable to sue?

A

Agent (don’t know who the principal is)&raquo_space; agent can seek indemnification

249
Q

If the principal is undisclosed, who is liable to sue?

A

Agent (don’t know there is a principal)&raquo_space; agent can seek indemnification

250
Q

Respondeat Superior

A

“Let the master answer” - principals are responsible for their agents

When the agent is working negligently under a principal&raquo_space; principal AND agent are responsible

251
Q

Revocation vs. Renunciation

A

Revocation: termination by principal
Renunciation: termination by agent

252
Q

Termination of Agency by Operation of Law

A

termination of agency relationship beyond control of either party

253
Q

Federal Trade Commission Act

A

regulation of unfair trade practices (advertising included)

254
Q

What are the 2 types of deceptive advertising?

A
  1. Half truths: appears to be based on factual evidence but goes on a tangent
  2. Bait and Switch: luring in consumers with ads for low prices, then selling them something else because it’s “not available”
255
Q

Puffery

A

vague generalities and obvious exaggerations&raquo_space; IS ALLOWED

256
Q

Telephone Consumer Protection Act

A

Prohibits telephone solicitation using an automatic system

257
Q

Telemarketing and Consumer Fraud and Abuse Prevention Act

A

requires telemarketers to identify themselves, describe the product, and the cost

258
Q

Cooling-off laws

A

Buyer of goods sold door-to-door has the right to cancel the contract within 3 business days

259
Q

Telephone Order Merchandise rule

A

must give the seller an estimated shipping time&raquo_space; if no estimate has been given, it has to be within 30 days

260
Q

Truth in Lending Act

A

requires lenders to disclose the APR, total amount financed, etc.

261
Q

Equal Credit Opportunity Act

A

prohibits the denial of credit solely on basis of race, religion, gender, etc.

262
Q

Fair Credit Reporting Act

A

protects against inaccurate reporting credit

263
Q

Fair Debt Collection Practice Act

A

limits the collection practices by collection agencies

264
Q

Fair and Accurate Credit Transaction Act

A

efforts to combat identity theft&raquo_space; credit report has to be provided to consumers for free once per year

265
Q

What is a security?

A

Any kind of device used to show that you have interest in a company i.e. stocks and bonds

266
Q

Securities and Exchange Commission (SEC)

A

Independent federal agency that is responsible for protecting investors

267
Q

US Securities Act of 1933

A

governs the initial sale of stock by businesses with the goal to limit fraud and stabilize securities

268
Q

Securities Exchange Act of 1934

A

no insider trading

stock market - keeps it fair, open, and honest. Every investor should get the same info

269
Q

Howey Test

A

test to determine if something is a security: if someone is investing in it, if it’s a common enterprise, and if they’re not working in the company

270
Q

What must all companies who want to sell stocks and bonds do prior to selling?

A

Register with the SEC

271
Q

Prospectus

A

disclosure document that describes the securities being sold and the risk involved

272
Q

EDGAR (Electronic Data Gathering Analysis, and Retrieval)

A

SEC’s online database

273
Q

What is the waiting period after filing for registration with the SEC?

A

minimum of 20 days

274
Q

Exempt securities

A

Securities that don’t have to register with the SEC&raquo_space; low risk securities regulated by other statutes

Exs.
- government issued
- nonprofit / education
- common carries (railroads/trucking companies)
- insurance policies

275
Q

Exempt transactions

A

Nonpublic small offerings with a small amount of investors

Securities sold only to residents of a state

276
Q

Section 10b-5 (Insider Trading)

A

Prohibits commission of fraud in connection with the purchase or sale of securities

Have to show:
- material misrepresentation
- scienter (wrongful state of mind)
- reliance on bad info
- economic loss

277
Q

Corporate Governance

A

relationship between a corporation and it’s shareholders

278
Q

Sarbanes Oxley Act (SOX)

A

corporate responsibility law aimed at improving the accuracy and reliability of corporate disclosures and protect investors

279
Q

Requirements under SOX

A
  • requires CEO + CFO to take personal responsibility for the accuracy of financial statements and reports filed with the SEC&raquo_space; MUST CERTIFY that the report is compliant
  • Senior management have to establish and maintain effective system controls and reassess annually
  • independent auditors have to review management assessments
  • no loans to directors and officers during IPO
  • all members of public companies have to be outside directors
  • audit committee must have a written charter
280
Q

Exceptions to SOX

A

companies under $75M

281
Q

What source of law is considered primary?

A

Common law doctrine

282
Q

What is common law also known as?

A

Case law + judge law

283
Q

What is the eligibility requirement for a small business debtor to avoid the appointment of a creditors committee?

A

Small business debtors that do not own or manage real estate with liabilities not exceeding $2.7 million

284
Q

Statement of value

A

What ought to be the case

285
Q

When winding up an LLC, who is paid first from the sales proceeds?

A

Members who are creditors

286
Q

Do merchants have to follow the mirror image rule?

A

No

Business Law For Accountants (3 decks)

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