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Legal Studies > Chapter 9: Corporate Governance > Flashcards

Chapter 9: Corporate Governance Flashcards

1
Q

Corporate Governance

A

The structure by which businesses are controlled

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2
Q

Entrepreneur

A

An individual who manages a business, assuming the risks in order to make a profit

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3
Q

Sole Proprietor

A

One owner of the business

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4
Q

Which entity is the least expensive and easiest to create?

A

Sole Proprietor

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5
Q

Does a sole proprietor need the government’s permission to open the business?

A

May need a license or permit

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6
Q

Can Joe Roberts just open his bar under the name of Tyler’s Sports Bar & Grill?

A

If you want to open a business in a name other than your own, must file a fictitious name registration; Allow government to see who owns the business

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7
Q

Can I open a business called Haha Food Markets?

A

Case where Wawa sued saying this is a name infringement; Court ruled that you can’t use a fictitious name that is misleading

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8
Q

Liability of a Sole Proprietor

A

Greatest liability because all the business debts belong to owner

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9
Q

How can a Sole Proprietor reduce his risk?

A

Can keep all of personal assets in joint names with a spouse and buy liability insurance

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10
Q

What are the tax implications of a Sole Proprietor?

A

Everything is on personal tax return; Business income goes on a “Schedule C”

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11
Q

How can a Sole Proprietor terminate its business?

A

Terminates whenever the owner stops doing business; No forms have to be filed with the government

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12
Q

What are the advantages to a Sole Proprietorship?

A

Owner is in complete control/receives all profits; Flexibility; Ease of creation/maitnence

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13
Q

What are the disadvantages to a Sole Proprietorship?

A

Owner is personally liable for all torts/contracts; Lacks continuity after death; Difficult to raise financing

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14
Q

Partnership

A

When two or more people operate a business as co-owners; Minimal cost

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15
Q

How do partners share in the profits and losses?

A

They will share in the profits/losses equally unless there is an agreement to the contrary

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16
Q

Can only individuals enter into a partnership?

A

It can also include other form of entities like a corporation

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17
Q

What forms can a Partnership be created in?

A

Oral, Written, Implication

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18
Q

Management of Partnership

A

Partnership agreement usually sets forth the rights and duties of the partners

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19
Q

Liability of Partnership

A

Each has an unlimited liability for the debts of the business

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20
Q

If a partner buys a car in the name of the business without the consent of the other, does it bind the other person?

A

Yes; Each partner is the agent for the partnership and can bind the others even if that person exceeded his or her authority

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21
Q

What are the tax implications of a Partnership?

A

Not a taxable entity; Profits and losses go on each person’s tax return “Schedule K-1”; Required to file an information return;

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22
Q

How can a Partnership terminate the business?

A

Terminates on happening on certain events such as a change in partners

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23
Q

What is the process for termination of a Partnership?

A

Two step– dissolution (when a partner ceases to be associated with the venue) and winding up

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24
Q

What are the advantages to a Partnership?

A

Easy to create/maintain; Informal; Partners share profits and losses equally

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25
Q

What are the disadvantages to a Partnership?

A

Partners personally liable for all torts/contracts; Dissolved upon death; Difficult to raise financing

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26
Q

Limited Partnership

A

Consists of one or more general partners and one or more limited partners

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27
Q

What are Limited Partnerships used for?

A

To raise revenue since the liability of the limited partners is limited to the person’s investment as long as they have no say in the operation of the business

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28
Q

True or False: Limited (silent) partner can’t complain how the business is run

A

True

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29
Q

How is a Limited Partnership formed?

A

Must file a Certificate of Limited Partnership with the state; Certificate must state that business is limited partnership

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30
Q

How is a Limited Partnership managed?

A

Business must be run by the general partners without the active participation of the limited partners

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31
Q

What is the liability of a Limited Partnership

A

Liability of a limited partner is restricted to the investment, but the general partners have unlimited liability

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32
Q

Example of Limited Partnership

A

Steve Starr; KOP Mall, How movies in Hollywood are made (Titanic)

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33
Q

Limited Liability Partnership (LLP)

A

Hybrid between a partnership and corporation

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34
Q

Who uses LLPs and for what reason?

A

Accountants, Lawyers, and Doctors uses them to avoid personal liability

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35
Q

Who is liable for an LLP?

A

The person who screwed up; Partners are not personally liable for the malpractice claims against the other partners

36
Q

What are the legal requirements for an LLP?

A

Must be registered with the state as an LLP and the business must file a certificate of annual registration each year

37
Q

What is the management for an LLP?

A

All manage the business on a routine basis

38
Q

Family Limited Liability Partnership

A

New type of entity in which the partners are related to each other

39
Q

What are Family Limited Liability Partnership used for?

A

As an estate planning tool for a client with a lot of money to save takes upon the person’s death

40
Q

Hows do Family Limited Liability Partnerships work?

A

The owner transfers the assets to the partnership; Owner supervises business as general partner and family members are limited partners; Take the assets out of the person’s estate

41
Q

Example of Family Limited Liability Partnership

A

Donald Trump and Father

42
Q

Corporation

A

Separate and distinct entity apart form its owners; Owners become stockholders; Allows corp. to own its own assets, borrow money, and enter into own contracts

43
Q

What happens if the Corporation goes bust?

A

The corporation is liable, not the owner; Ex: Trump casinos go bankrupt but he loses no money

44
Q

How are Corporations created?

A

Created by state charter; Corporation birth certificate; Owners get stock and liability is limited to stock

45
Q

Why are Corporations expensive to create?

A

Many legal fees and costs; Must create Articles of Incorporation and State must issue a charter

46
Q

Articles of Incorporation

A

Include name, purpose, duration, capital structure (share of stock), Registered office (address of attorney)

47
Q

What is the continuity of a Corporation

A

A corporation is a separate entity, so its status does not change with the death or sale of stock by shareholder; Ex: Steve Jobs & Apple

48
Q

What is the management of a Corporation

A

Shareholders elect the Board of Directors; Directors set policy and appoint officers; Officers run business on daily basis

49
Q

What is the liability of a Corporation

A

Owners liability limited to capital contribution; Can be liable if he or she guarantees corporate debt; Owners always liable for payroll taxes of corporation

50
Q

Pierce Corporate Veil–Is there ever a time where you can go after a person directly?

A

Disregard the corporate entity when you go and do business

51
Q

What is the taxation for a Corporation?

A

Double taxation; Business and Shareholders both pay taxes

52
Q

Is there any way of getting around double taxation?

A

Subchapter S Corporation

53
Q

How does a Subchapter S Corporation avoid double taxation?

A

Profits and losses go on the personal tax return of the stockholders and not on the corporate return; Only applies to small corporations, not big businesses

54
Q

What is the liability for a Subchapter S Corporation

A

No personal liability

55
Q

Subchapter S Corporation Small Business Requirements

A

(1) Must be a domestic corporation; (2) Can’t be part of another business; (3) Can’t have moe than 100 shareholders; (4) Can be no non-resident alients

56
Q

What percentage of retail sales in USA come from franchises?

A

50%

57
Q

Why do owners like franchises?

A

Has instant name recognition and given help in running the business; Ex: McDonalds

58
Q

Franchise

A

Arrangement in which the owner of a trademark, trade name, or copyright allows another to offer its products for sale or use in the geographic area

59
Q

Franchisor

A

Owner of business idea (grants the right)

60
Q

Franchisee

A

Owner of the store offering the item to the public (buys the right)

61
Q

Distributorship

A

Involves a manufacturing concern that licenses a dealer to sell its product such as a car dealership

62
Q

Chain Style Business

A

One in which the franchisee operates the business under the name of the franchisor and uses standardized methods of operations; Ex: McDonalds, Wendys

63
Q

Manufacturing Franchise

A

When the franchisor provides the franchisee with an essential ingredient or formula to make a particular product; Ex: Coca-Cola

64
Q

Franchise Agreement

A

Contract governed by state and federal laws that govern these types of businesses

65
Q

What is included in a franchise agreement?

A

Spells out terms of relationship including payment for franchise, purchase of products from franchisor and cost of advertising; Percentage of profits go to franchise

66
Q

Can a franchise agreement be terminated?

A

Franchise may able for a set number of years; There can be a termination clause that alls the license to be revoked if the franchisee fails to do certain things

67
Q

Top Franchises

A

Anytime Fitness, Denny’s, DD, 7/11, McDonalds, Subway, Servpro, Supercuts, Hampton Inn, Jimmy Johns

68
Q

Corporate Governance/Rules/Regulations

A

Requires that they be vigilante of these legal mandates when selling products, offering stock to the public, or when determining the compensation for the officers of the enterprise

69
Q

Why were some of the best business practices created?

A

Response to a scandal or economic collapse

70
Q

Where did corporate governance all begin?

A

As a result of the Great Depression

71
Q

Securities and Exchange Commission (SEC)

A

Created following Great Depression; Protects investors, maintains fair/efficient markets, and regulates capital formation

72
Q

What principle is the SEC based upon?

A

All investors should have access to the same information about an investment before buying item and as long as they own it

73
Q

The Securities Exchange Act of 1933

A

Allows the SEC to regulate the trading of stocks, to investigate securities fraud, and to regulate securities dealers; Mandates all information be available to public

74
Q

What must corporations going public do?

A

File a Registration Statement wit the SEC; Prospectus must be provided to investor

75
Q

What type of information must corporations give out?

A

Significant provisions of the security, how the proceeds of the sale are to be used, the management of the company, and a certified financial statement

76
Q

What does the SEA 1933 seek to do?

A

Increase corporate accountability for public trading companies through a number of incentives

77
Q

What must the CEO now do according to the SEA 1933?

A

Certify the validity of the financial statements and there can be no personal loans to officers and directors

78
Q

The Securities Exchange Act of 1934

A

Act regulates the subsequent sale of securities and requires registration of brokers and dealers of the markets in which securities are sold

79
Q

Example of SEA 1934

A

NY and American Stock Exchanges

80
Q

Insider Trading

A

SEA 1934 defines it as the buying or selling of a security, in breach of fiduciary duty or other relationship of trust and confidence, while in possession of non-public information about the security

81
Q

Dodd-Frank Act

A

Places a number of restrictions on the financial industry with the intention of preventing another collapse like Lehman Brothers; Protects consumers from improper bank loans and mortgage practices

82
Q

What is the major thrust of the Dodd-Frank Act?

A

Prevents excessive risk-taking that cause the financial meltdown of the Great Recession

83
Q

Anti-Trust Laws

A

Designed to prevent or control monopolies that restrict free trade and competition

84
Q

What is the goal of Anti-Trust Laws?

A

Make businesses compete fairly and to prevent price fixing

85
Q

Sherman Antitrust Act

A

First law enacted to prohibit monopolies and trusts

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