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BLaw > Exam 3 > Flashcards

Exam 3 Flashcards

1
Q

Who are the principals of a business

A

formation
liability
capitalization
taxation of income
management and operation

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2
Q

What is a sole proprietorship

A

the easiest single-person ownership entity to form and maintain

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3
Q

What certificate just a sole proprietor file with a local or state office to use a trade name for the business rather than the sole proprietor’s personal liability for the debts and liabilities of the sole proprietorship

A

doing business as

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4
Q

What are the types of debt through which a sole proprietorship may be capitalized, and how do they differ from each other

A

short term
long term

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5
Q

What is collateral

A

assets borrower has pledged to secure loan

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6
Q

What are the types of taxation requirments for a sole proprietorship

A

Principal reports business income and expenses on
principal’s own individual tax return and pays taxes
on business income (or deducts business losses)
based on principal’s own individual tax rate

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7
Q

In genral, what are the two ways by which a sole proprietorship is terminated

A

Sole proprietorship is terminated either by:
* 1) express act of principal; or
* 2) operation of law.
-death or personal bankruptcy of proprietor.

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8
Q

What is the rule regarding passage of a sole proprietor’s ownership interest in the sole proprietorship to thje sole proprietor’s heirs through a gift or an estate

A

Although sole proprietor may sell assets of
proprietor’s business to another party, proprietor’s
ownership interest in sole proprietorship cannot
pass to proprietor’s heirs through gift or estate

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9
Q

What is a franchise

A

Franchise is method of conducting business that centers
on contractual relationship rather than as business
entity.

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10
Q

Which federal regulatory authority oversees the regulation of franchisors

A

federal trade commission

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11
Q

How did the Court of Appeals for the Fourth Circuit rule in Biller v. Snig Harbor Jazz Bistro of Louisiana, LLC (2012)

A

Snug was not the successor of the sole proprietorship

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12
Q

What is a general partnership

A

General partnership is legally defined as: (1) association of
two or more people (2) who are co-owners and co-
managers of business and (3) who share in profits of their
ongoing business.

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13
Q

What is necessary in terms of a government filing to form a general partnership

A

No formal document or government filing is necessary to
form general partnership.

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14
Q

What is the difference between a term partnership and a partnership at will

A

In term partnership, partners may set specific future date
or event for when partnership will be dissolved and may
agree to extend this date if necessary.
In partnership at will, partners agree to continue their
association indefinitely.

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15
Q

What is the difference between an express partnership and an implied partnership

A

Most partnerships are express partnerships, in which
principals agree orally or in writing to form ongoing
business relationship.
Even if parties may not actually intend to be partners or
call themselves partners, law will recognize their
relationship as implied partnership as long as the three
required elements are present.

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16
Q

What is the Revised Uniform Partnership Act (RUPA)

A

RUPA treats partnership as separate legal entity
distinct from its partners, while UPA does not

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17
Q

What are the taxation requirements for a general partnership

A

doesn’t pay income tax

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18
Q

What is the default rule regarding the sharing of profits and losses among the partners in a general partnership

A

Each partner is entitled to receive equal share of partnership’s profits regardless
of partner’s degree of involvement in success of business.

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19
Q

What is a limited partnership

A

Limited partnership is entity that exists by virtue of
state statute that recognizes one or more partners
as managing business while other partners
participate only in terms of contributing capital or
property

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20
Q

What is the general rule regarding a limited partner’s liability for the partnership’s debts
and liabilities in a limited partnership

A

To form limited partnership, general partner files certificate of limited
partnership with state government authority (usually secretary of state’s office

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21
Q

What is a family limited partnership

A

Family limited partnership is limited partnership that is used for estate planning
for families of considerable wealth.

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22
Q

What document must be filed with the appropriate public official to convert a general partnership into a limited liability partnership (LLP)

A

certificate of limited partnership

23
Q

What is windup

A

Windup is period of time necessary to settle affairs of partnership and
includes activities such as discharging partnership’s liabilities, settling and
closing partnership’s business, marshaling assets of partnership, and
distributing any net proceeds to partners.

24
Q

How did the New York appellate court, in an opinion written by Judge Cardozo, rule in
Meinhard v. Salmon et al. (1928)

A

a partner in a joint venture has a fiduciary duty to inform their co-partner of any profitable business opportunities arising during the partnership, and cannot personally take advantage of such opportunities without offering their partner the chance to participate, essentially requiring the partner to hold the new opportunity in trust for the benefit of the joint venture; in this case, Salmon was required to share the new lease with Meinhard as they were considered co-venturers with a fiduciary duty to one another.

25
Q

What is a limited liability company (LLC)

A

Limited liability company (LLC) is flexible type of business entity that offers its owners many advantages, including easy formation, flexible operation, limited legal liability of owners, and pass-through taxation

26
Q

What are the owners of an LLC called

A

members

27
Q

What are the Uniform Limited Liability Company Act (ULLCA) and Revised Uniform
Limited Liability Company Act (RULLCA)

A

Uniform Limited Liability Company Act (ULLCA) is model statute designed to promote uniformity among various state LLC laws; however, in practice LLC statutes can vary considerably from state to state.
RULLCA Modifies original act in areas of formation, organizational matters, and operating agreement and attempts to clarify some of more technical aspects of LLC governance, such as handling of
deadlocks and rights of members who depart LLC

28
Q

What must be filed with the designated public official in that state to form an LLC

A

articles of organization

29
Q

What is an operating agreement

A

LLCs frequently are governed by agreement of their members in form of operating agreement, which is similar
to partnership agreement and covers many of the internal rules for actual operation of business

30
Q

What is the difference between a member-managed LLC and a manager-managed LLC

A

In member-managed LLC, management
structure of entity is similar to that of general partnership, with all members having authority to bind business.
In manager-managed LLC, named manager (or managers) generally has day-to-day operational responsibilities, while nonmanaging members typically are investors with little input on course
of business taken by entity except for major decisions (such as merger).

31
Q

What is the general rule regarding LLC members’ personal liability for any business debt
or liability if the business venture of the LLC fails?

A

not personaly liable

32
Q

What is the tax treatment of an LLC

A

taxed either as a corporation, partnership, or as part of the owner’s tax return (a disregarded entity)

33
Q

What is dissociation from an LLC

A

Dissociation occurs when individual member
decides to exercise right to withdraw from LLC

34
Q

What is dissolution of an LLC

A

LLC laws define dissolution of LLC as liquidation process triggered by event that is specified in operating agreement or by decision of majority of members (or percentage called for in operating
agreement) to dissolve company

35
Q

How did the Chancery Court of Delaware rule in AK-Feel, LLC v. NHAOCG, LLC (2012)
on the claim of breach of fiduciary duty

A

The Court determined that the LLC Agreement did not modify the application of default fiduciary duties, but, rather it assumed they exist.

36
Q

What is a corporation?

A

Corporation is fictitious legal entity that exists as independent individual separate from its principals

37
Q

What is a business corporation law

A

State statutes vary in their corporate formation and governance rules, but each state has specific law, often called business corporation law or something similar, that covers such matters as structure of
corporation, oversight of activity of corporation’s managers, rights of principals in case of sale of assets or ownership interests, annual reporting requirements, and other issues that affect internal
rules of business venture

38
Q

What document is filed with a state authority to form a corporation

A

articles of incorporation

39
Q

What is the difference between a privately held corporation and a publicly held
corporation

A

Two major categories of corporations are privately held corporations, which are owned exclusively by a group of private individuals, and publicly held corporations, which sell their ownership interest via public stock exchanges.

40
Q

What is the general rule regarding a promoter’s personal liability for a contract the promoter makes on behalf of a not-yet-formed corporation, and when does a promoter’s personal liability cease

A

a promoter’s personal liability typically ceases only when the corporation is formed and formally adopts the contract

41
Q

What is the difference in tax treatment of a C corporation versus an S corporation

A

Every C corporation is considered legal, taxable entity that is separate from
owners for income tax purposes.
Corporations that qualify for and elect Subchapter S treatment offer pass-through
tax treatment.

42
Q

What are bylaws

A

Bylaws typically specify date, time, and place for annual shareholders meetings, number of officers and directors of corporation, process for electing board of directors, and listing of each officer along with a description of that officer’s duties.

43
Q

What are the four factors most courts have used to consider whether to pierce a
corporation’s protective veil

A

inadequate capitalization
nature of the claim
evidence of fraud or wrongdoing
failing to follow corporate formalities

44
Q

What is the difference between a corporation’s shareholders, directors, and officers

A

Shareholders are owners of corporation and act principally through electing and removing directors and approving or withholding approval of major corporate decisions.
Directors are responsible for oversight and
management of corporation’s course of
direction.
Officers carry out directors’ set course of
direction through management of day-to-day operations of business.

45
Q

Which two fiduciary duties do officers and directors owe a corporation’s shareholders

A

duty of care
duty of loyalty

46
Q

How did the Delaware Supreme Court rule in Smith v. Van Gorkom (1985)

A

the court reversed the Delaware Court of Chancery and found the di- rectors of Trans Union Corporation personally liable to the corpo- -ration’s shareholders for breaching the duty of reasonable care.

47
Q

What is the difference between a merger and an acquisition

A

a merger creates a new company, while an acquisition does not

48
Q

What is the difference between a stock purchase and an asset purchase

A

An asset purchase involves the purchase of the selling company’s assets. This includes facilities, vehicles, equipment, and stock or inventory. A stock purchase consists of purchasing the selling company’s stock only.

49
Q

What is a reverse merger

A

A reverse merger is a transaction where a private company buys control of a public company, allowing the private company to become publicly traded

50
Q

What is the general rule regarding whether a company that acquires a seller’s assets is
responsible for the seller’s liabilities simply due to the ownership of those assets, and what are the four well-recognized exceptions to this rule

A

general doctrine of notability

51
Q

What is a hostile takeover

A

when a company, the acquirer, takes control of another company, the target company, without the target company’s board of directors’ consent.

52
Q

What is a letter of intent

A

a non-binding document that outlines the mutual intentions of two or more parties before a final agreement is made

53
Q

What is due diligence

A

reasonable steps taken by a person in order to satisfy a legal requirement, especially in buying or selling something.

54
Q

How did the Delaware Supreme Court rule in Paramount v. QVC Network, Inc. (1994)

A

Delaware Supreme Court ruled that the merger between Paramount and Viacom was invalid and that the merger should be enjoined

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