exam 2 chpater 404-420 Flashcards
most imoprtant and pervasive legal relationships is
agency
a relationship between two parties in which one party( the agent) agrees to represent or act for the other
agency
in a relationship between two parties, one of the parties is called the
agent
the _______has the right to control the agent’s conduct in matters entrusted to the agent
principal
defines agency as “the fiduciary relation which results form the manifestation of conesent by one person to antoher that the other shall act in his behalf and subject to his control, and consent by the other so to act
section1 restatement of agency
person having a duty created by his or her undertaking to act primarily for another;s benefit in matters connected with the undertaking. as as adjective, a relationship founded on trust and confidence
fiduciary
normally all employees who deal with third parties are deemed to be
agents
independent contractors are not employess because by deifntion
those who hire them have no control over the details of their physical performance
employers are required to pay certain taxes, such as social security and unemployment insurance taxes, for employes but not for
independent contractors
1.if an employee can exercise considerable control over the details of the work , this would indicate employee status
2.Does the person do a job or run a business that’s different from what the employer does? If yes, they’re likely seen as an independent contractor, not an employee.
3.Is the work usually done under the employer’s direction or by a specialist without supervision?if yes, then employee
determining whether a worker has the status of an employee or an independent contractor
workers may benefit from having employee status
for tax purposes
established its own criteria for determining whether a worker is an independent contractor or an employee
internal revenue service (IRS)
the IRS established its own rule to see if a worker is independent or employee which is
the determination of the degree of control the business exercises over the worker
the IRS closely scrutinize a firm’s classificaiton of its workers because,
employers can avoid certain tax liabilities by hiring independent contractors instead of employees
under the copyright act of 1976, any copyrighted work created by an employee within the scope of her or his employment at the request of the employer is a
work for hire and the employer owns the copyright to the work
agency relationships are normally considered
consensual
agency relationships typically come about by
voluntary consent and agreement between the parties
a person must have contractual capacity to be a
principal
two reasons where agency agreements must be in writing
- If the agent is allowed to make a contract that the law says must be written down (like for big deals), then the agent’s authority from the principal also has to be written down. This is called the “equal dignity rule.”
2.the power of attorney, which conferes authority to an agent, must be in writing
an agency relationship can be created for
any legal purpose
most agency relationships are based on
expressed or implied agreement that the agent will act for the principal and the principal agrees to have the agent to act
if the principal affirms that contract by word or by action, an agency relationship is created by
ratification
ratification involves a
question of intent
intent can be expressed by either
words or conduct
when a principal causes a third person to believe that another person is his or her agent, the third person deals with the supposed____, the ____ is “estopped to deny” the agency relationship
-agent
-principal
once the principal-agent relationship has been created
both parties have duties that govern their conduct
in a fiduciary relationship, each party owers the other the
duty to act with the utmost good faith
generally, the agent owes the principal five duties
- performance
2.notification
3.loyalty - obedience
5.accounting
a gratuitous agent cannot be liable for
breach of contract, bc there is no contract
gratuitous agent can be liable for
tort liability
the duty to act solely for the benefit of his or her principal and not in the interest of the agent or a third party
loyalty
principal also owes certain duties to the agent which are
compensation, reimbursement, indemnification, cooperation, and safe working conditions
An agent’s authority to act can be either
actual or apparent
authority declared in clear, direct, and definite terms
express authoirty
rule requiring that an agent’s authority be in writing if the contract to be made on behalf of the principal must be in writing
equal dignity rule
the equal dignity rule does not apply when an agent acts in the presence of a
prinicple or when the agent’s act of signing is merely automatic
giving an agent a power of attorney confers
express authority
authorization for another to act as one’s agent or attorney in either specified circumstances or in all situations
power of attorney
a public official authorized to attest to the authenticity of signatures
notary public
power of attorney can be
special or general
when the principal causes a third party to believe that the agent has authority, even though she or he does not
apparent authority
ratification occurs when the principal affirms an agents
unauthorized act
principals can be considered three different types of disclosed:
disclosed, partially disclosed, or undisclosed
liability for contracts formed by an agent depends on how the
principal is classified and whether the actions of the agent were authorized or unauthorized
principal whose identity is known to a third party at the time the agent makes a contract with the third party
disclosed principal
Principal whose identity is unknown by a third party, but the third party knows that the agent is or may be acting for a principal at the time the agent and the third party form a contract
partially disclosed principal
principal whose identity is unknown by a third party, and that person has no knowledge that the agent is acting for a principal at the time the agent and the third party form a contract.
undisclosed principal
agency law is similar to contract law that both an agency and a contract can be termined by
an act of the parties or by operation of law
for an agent’s apparent authority to be terminated
third persons may also need to be notified that the agency has been teminated
a doctrine under which a principal or an employer is held liable for the wrongful acts committed by agents or employees while acting within the course and scope of their agency or employment
respondeat superior
indirect liability imposed on a supervisory party for the actions of a subordinate because of the relationship between the two parties
vicarious liability
entrepreneurs primary motive for undertaking a business enterprise is to make
profits
question faced by anyone who wishes to start a business is
what form of business organization to use
three major forms to structure business enterprises:
sole proprietorship, the partnership, and corporation
The simplest form of business organization, in which the owner is the business
sole proprietorship
more than 2/3 of all US business are
sole proprietorships
major advantage of sole proprietorships
has right to recieve all profits
arises from an agreement, express or implied, between two or more persons to carry on a business for profit
partnership
prove the existence of a partnership:
sharing both profits and losses
modern law DOES treat partnership as
an aggregate of the individual partners rather than as a separate legal entity in one situation
a business entity that has no tax liability
pass-through entity
tax return submitted by a partnership that only reports the business’s income and losses
information return
agreements to form a partnerships can be
written, oral, or implied by conduct
written agreement that sets forth each partner’s rights and obligations with respect to the partnership
articles of partnership
common terms included in a partnership agreement
basic structure, capital contributions, sharing of profits and losses, management and control, dissociation and dissolution
partnership liability imposed by a court on persons who have held themselves out to be partners, even though they were not and others have detrimentally relied on their representations
partnership by estoppel
the rights of partners in a partnership relate to the following areas
management, interest in the partnership, compensation, inspection of book, accounting and property
in a general partnership, all partners have equal rights in
managing the partnership
unless the partners agree otherwise, each partner has one vote in management matters regardless of
the proportional size of his or her interest in the firm
the majority rule controls decisions in ordinary matters connected with partnership business
unless otherwise specified in the agreement
an accounting of partnership assets or profits is required
to determine the value of each partners share in the partnership
property acquired by a partnership is the property of the partnership and not of the
partners individually
partnership property is owned by the partnership as an entity and not by
the individual partners
in a partnership law, an order granted by a court to a judgmenet creditor that entitles the creditor to attach a partner’s interest in the partnership
changing order
Duties and liabilites of partners are derived from
agency law
each partner is a ____ of the partnership in carrying out the usual business of the firm
general agent
The diuciary duties a partner owes to the partnership and to the other partners are the
duty of care and duty of loyalty
Under the UPA, a partner’s duty of care involves refraining from
grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law
the duty of loyalty required a partner to account to the partnership for any
property, profit, or benefit derived by the partner from the partnership’s business or the use of its property
the extent of implied authoirty is geneally broader for partners than for
ordinary agents
third party must sue all of the partners as a group, but each partner can be held liable for the full amount
join liability
third party has the option of suing all of the partners together or one or more of the partners separately
joint and several liability
occurs when a partner ceases to be associated in the carrying on of the partnership business
dissociation
based on the amount that would have been distributed to the partner if the partnership had been wound up on the date of dissociation
buyout price
termination of a partnership is referred to as
dissolution
the actual process of collecting, liquidating, and distributing the partnership assets
winding up
A partnership’s assets are distribued according to the following priorities
- payment of debts, including those owned to partner and nonpartner creditors
- return of capital contributors and distribution of profits or partners
hybrid form of business designed mostly for professionals who normally do business as partners in a partnership
limited liability partnership
LLP is attractive for two cateogires of busienss
professional service firms and family businesses
partnership consisting of oneor more general partners and one or more limite partners
limited partnership
assumes management responsbility for the partnership and so has full responsibility for the partnership and for all of its debts
general partner
contributes cash or other property and owns an interest in the firm but does not undertake any management responsbilites and is not personally liable for partnership debts beyond the amount of his or her investment
limited partner
not only must a limited partnership have at one one general partner and one limited partner, but partners must also sign a
certificate of limited partnership
document that must be filed with a designated state official to form a limited partnerhsip
certificate of limited partnership
a general partner has the power to volunatarily
dissociate or withdraw from a limited partnership unless thhe partnership agreement specifies otherwise
in limited partnership, general partner’s voluntary dissociation from the firm normally will lead to dissolution unless
All partners agree to continue the business
bankruptcy of a limited partner, does not dissolve the partnership unless
it causes the bankruptcy of the firm
limited liability of limited partners is conditional:
limited liability exists only so long as the limited partner doe snot participate in management
hybrid form of business enterprise that offers the limited liability of a corporation and the tax advantages of a partnership
limited liability company
a person who has an ownership interest in a limited liability company
members
the document filed with a designed state official by which a limited liability company is formed
articles of organization
main disadvantage of the LLC is that
state LLC statutes are not uniform
Members of an LLC can decide how to operate the various aspects of the business by forming an
operating agreement
all of the members participate in management, and decisions are made by majority vote
member-managed LLC
the members designated a group of persons to manage the firm
manager-managed LLC
corporation is creature of
statute
codification of modern corporation law that has been influential in the drafting and revision of state corporation stautes
model business corporation act
legal entity created and recognized by state law.
corporation
in a corporation, the responsibility for the overall management of the firm is entrusted to a
broad of directors, whose members are elected by the shareholders
when corporation earns profits, it can either pass them on to its shareholders in the form of
dividends or retain them as profits
portion of a corporations profits has not been paid out as dividends to shareholders
retained earning
major disadvantage of the corporate business form is
double-taxation feature
company whose business activity consists of holding shares in another company
holding company
in a given state, a corporation that is organized under the law of that state
domestic corporation
corporation that does business in that sttae but is not incorporated there
foreign corporatoin
corporation formed in another country but doing business in the US
alien corporation
public corporation is one formed by the government to meet
political or governmental purpose
any corporation whose shares are publicly traded in securities markets
publicly held corporations
corporations formed for purposes other than making profit are called
nonprofit or not-for-profit
one whose shares are held by members of a family or by relatively few persons
close corporation
can provide for proportional control when one of the original shareholder dies
shareholder agreement
close business corporation that has most corporate attributes, including limited liability, but qualifies under the internal revenue code to be taxed as a partnership
s corporation
for-profit corporation that seeks to have a materiall positive impact on society and the environment
benefit corporation
The primary document to incorporate a business is called the
articles of incorporation
the internal rules of management adopted by a corporation at its first organizational meeting
bylaws
if a corporation has substantially complied with all requiremetns for incorporation, the corporation is said to have
de jure existence
If someone else ends up in a legal dispute with this group, the group can’t suddenly say they’re not a corporation to avoid responsibility
this is called an estoppel
when a corporation is created, the express and implied powers necessary to achieve its purpose
also comes into existence
the following order of priority is used when conflicts arise among documents involving corporations
- us constitution
- state constitution
3.state statutes - the articles of incorporation
- bylaws
- resolutions of the board of directors
a corporate officer does not have the authority to bind the corporation to an action that wil
greatly affect the corporate purpose or undertaking
this means beyond the powers
ultra vires
the action of a court to disregard the corporate entity and hold the shareholders personally liable for corporate debts and obligations
piercing the corporate veil
to put funds or goods together into one mass so that they are mixed to such a degree that they are no longer have separate identities, as when personal and corporate interests are mixed together to the extent that the corporation has no separate identity
commingled
part of the process of corporate formation involves
corporate financing
corporations are normally financed by the issuance and sale of
corporate securities
stocks, bonds, or other items that represent an ownership interest in a corporation or a promise of repayment of debt by a corporation
securities
represent the purchase of ownership in the business firm
stocks or equity securities
an ownership interest in a corporation, measure in units of shares
stocks
a security that evidence a corporate debt
bonds
represents the borrowing of funds by firms
bonds or debt securities
stocks represent____ and bonds represent___-
owernship, debt
bonds are issued by business firms and by governments at all levels as evidence of the
funds they are borrowing from investors
stocks do not have a
fixed dividend rate
interest on bonds must always be paid whether or not any
profit is earned
stockholders can elect the board of directors
which controls the corporation
bondholders usually have no voice in, or control over
management of the corporation
stocks do not have a maturity date, the corporaiton usually does not
repay the stockholderbo
bonds have a maturity date, when the corporation is to repay the bonholder
the face value of the bond
all corporations issue or offer to sell stocks, this is the usual definition of a
corporation
corporations do not necessarily issue
bonds
stockholders have a claim against the property and income of a corporation after all creditors
claims have been met
bondholers have a claim against the property and income of a corporation that must be met
before the claims of stockholders
bonds are issued by business firms and by governments at all levels as evidence of the funds they are borrowing from
investors
bonds normally have a
designated maturity date
another way corporations can obtain financing
issuing stocks
true ownership of a corporation is represented by
common stock
common stock provides a proportionate interest in the corporation with regard to
- control (voting rights),
- earnings and
- net assets
stock with preferences
preferred stock
corporations traditionally obtain financing thorugh
issuing and selling securities in the capital market
financing provided by professional, outside investors to new business ventures
venture capital
private equity firms obtain their capital from
wealthy investors in private markets
Funds invested by a private equity firm in an existing corporation, usually to purchase and reorganize it
private equity capital
cooperative activity in which people network and pool funds and other resources via the internet to assit a cause or invest in a venture
crowdfunding
a corporation typically extends it operations by
combining with another corporation through a merger, a consolidation, share exchange, purchase of assets, or purchase of controlling asset
consolidation generally is used as a generic term to refer to
all types of combinations, including mergers and acquisitions
involves the legal combination of two or more corporations in such a way tjhat
only one of the corporations continues to exist
two or more corporations combine in such a way that each corporation ceases to exist and a new one emerges
consolidation
some or all of the shares of one corporation are exchanged for some or all of the shares of another corporation
share exchange
a merger that can be accomplished without the approval of the shareholders of either corporation because one company owns at least 90% of the outstanding shares of each class of stock of the other corporaion
short-form merger
what if a shareholder disapproves of a merger or a consolidation but is outvoted by the other shareholders
the law recognizes that a dissenting shareholder should not be foreced to become an unwilling shareholder in a corproation that is new or different from the one in which the shareholder originally invested
the right of a dissenting shareholder, who objects to a merger or consolidation of the corporation
appraisal right
appraisal rights normally extend to
regular mergers, consolidations, share exchanges, short-form mergers, and sales of sustainability all of the corporate assets not in the ordinary course of business
shareholders may lose their appraisal rights if
they do not adhere precisely to the procedures prescribed by statute
the corporation that is selling all of its assets is substantially changing its business position and
its ability to carry out its corporate purposes
the acquisition of control over a corporation through the purchase of a substantial number of the voting shares of the corporation
takeover
an offer made by one company directly to the shareholders of another company to purchase their shares of stocks
tender offer
to resist a takeover, a target company can make a
self-tender
when threatened with a takeover, management makes the company less attractive to the raider by selling the companys most valuable asset to a third party
crown jewel
when takeover is successful, top management usually is changed, company may establish sepcial termination or retirement benefits that must be paid to top managers if theyy are “retired”.
golden parachute
the target corporation issues to its stockholders rights to purchase additional shares at low prices when ther eis a takeover attempt
poison pill
the target corporation solicits a merger with a third party, which then makes a better tender offer to the targets shareholders
white knight
Termination of a corporations existence has two phases
dissolution and winding
the legal death of the artificial “person” of the corporation
dissolution
dissolution can be brought about by the following
- an act of the state
- an agreement of the shareholders and the board of directors
- expiration of a time period stated in the certificate of incorporation
- court order
the process by which corporate assets are liquidated, or converted into cash and distributed among creditors and shareholders
winding up
dissolution can be either
voluntary or involuntarywi
Winding up may differ to some extent based on whether
voluntary or involuntary dissolution has occured
two possible methods to voluntarily dissolve a corporation
- by the shareholders unanimous vote to initiate dissolution proceedings
- by a proposal of the board of directors that is submitted to the shareholders at a shareholder’s meeting
when a corporation is dissolved voluntarily , the corporation must file
articles of dissolution with the state and notify its creditors of the dissolution
the court may dissolve the corporation if the controlling shareholders or directors have engaged in
fraudulent, illegal, or oppressive conduct
When the dissolution is involuntary, the court will appoint
a receiver to wind up the corporate affairs and liquidate corporate assets
legal entity formed in compliance with statutory requirements that is distinct from its shareholer owners
corporation
distribution of corporate profits to the corporations shareholderes in proportion to the number o shares held
Dividend
legal combination of two or more corporations in such a way that only one corporation continues to exist
merger
in corporate dissolution, a court-appointed person who winds up corporate affairs and liquidates corporate assets
receiver
