R-8 2013

Question 1

What are the elements of forming a general partnership?

Answer 1

The elements of forming a general partnership are: 1. Two or more persons 2. Who agree expressly or impliedly 3. To carry on as co-owners a business for profit.

Question 2

Is a writing generally necessary to create a general partnership? What if the partnership is to own real property?

Answer 2

A general partnership can be formed whenever two or more persons agree to enter into a business for profit as co-owners. The agreement need not be in writing; indeed it need not even be oral. It can be implied from conduct. The fact that the partnership will own property does not change this.

Question 3

If the partnership agreement is silent, how are profits and losses divided ina partnership?

Answer 3

If the partnership agreement is silent, profits and losses are dividend equally, regardless of the contribution of each partner.

Question 4

For what services is a partner entitled to compensation if the partnership agreement is silent on the issue?

Answer 4

If the agreement is silent on the issue, a partner generally is not entitled to any compensation. There is an exception for the last surviving partner for services rendered to wind up the partnership’s affairs.

Question 5

A partner’s interst in partnership property is subject to attachment to satisfy the partner’s alimony obligation. True or false?

Answer 5

False. A partner has no right to possess partnership property other than for partnership purposes, and a partner’s creditors cannot get any greater rights than the partner’s in such property.

Question 6

What is the liability of each partner for the partnership obligations?

Answer 6

Partners are personally liable for all contracts entered into and all torts committed by other partners within the scope of the partnership business or which are otherwise authorized.

Question 7

Can a limited partnership be formed with limited liability for all partners?

Answer 7

No. A limited partnership must have at least one general partner who will be personally liable for all partnership debts.

Question 8

Is a limited partner personally liable for the debts of the partnership?

Answer 8

No. A limited partner is not personally liable for the debts of the partnership unless the limited partner is also a general partner, or, under the revised Uniform Limited Partnership Act, allows his name to be used in the partnership agreement, or takes control of the partnership and a creditor reasonably believes the limited partner is a general partner.

Question 9

A limited partner has apparent authority to bind his limited partnership on contracts apparently within the scope of the partnership business. True or false?

Answer 9

False. Limited partners are like shareholders of a corporation and have no apparent authority to bind their partnership in contract.

Question 10

Can a limited liability company be formed with limited liability for all members?

Answer 10

Yes. Members of a limited liability company are not personally liable for obligations of the company.

Question 11

A member of a limited liability company has apparent authority to bind the company on contracts apparently within the scope of the company’s business unless the company’s articles of organization provide otherwise. True or false?

Answer 11

True. Generally, unless the articles of organization provide otherwise, limited liability companies are member-managed, and the members have apparent authority to bind the company on contracts apparently within the scope of the company’s business.

Question 12

Under the Uniform Limited Liability Company Act (ULLCA), if the articles of organization and operating agreement are silent, how are profits and losses divided in a limited liability company?

Answer 12

Under the Uniform Limited Liability Company Act (ULLCA), profits are shared equally, regardless of capital contributions.

Question 13

When does a member of an LLC have a right to a distribution?

Answer 13

A member of an LLC has a right to a distribution when the articles of organization, an operating agreement, or an agreement of the members so provides.

Question 14

Is a member of an LLC personally liable for the debts of the LLC? What if the member is also a manager of the LLC?

Answer 14

No. A member of an LLC is like a limited partner or shareholder and is not personally liable for the LLC’s obligations. If the member is also a manager, the member is treated as an officer or director of a corporation rather than as a general partner of a limited partnership and is not personally liable for the obligatons of the LLC.

Question 15

A promoter, like a shareholder, officer, or director, is not liable on contracts the promoter makes onh behalf of the corporations. True or false?

Answer 15

False. Generally, promoters are personally liable on contracts that they enter into on behalf of the corporation to be formed.

Question 16

What must be included in the articles of incorporation of a corporation?

Answer 16

Name of the corporation; Names and addresses of the corporation’s registered agent (on whom process may be served if the corporation is sued); Names and addresses of each of the incorporators; Number of shares authorized to be issued; A clause entitling one or more classes of stock to voting rights.

Question 17

For what reasons do courts typically disregard the corporate entity (i.e., “pierce the corporate veil”)? Who is held liable?

Answer 17

Shareholders, officers, or directors commingle personal funds with corporate funds or otherwise ignore most corporate formalities (“alter ego” theory). The corporation is inadequately capitalized at the time of formation. The corporation was formed to defraud creditors. If the corporate entity is disregarded (i.e., the corporate veil is “pierced”), courts can reach the responsible shareholders, officers, and/or directors.

Question 18

What is the minimum number of directors for a corporation?

Answer 18

Under RMBCA, a corporation needs only one director, but the articles of incorporation or bylaws may require as many directors as desired, without limitation.

Question 19

What is the minimum number of officers for a corporation?

Answer 19

The minimum number of officers for a corporation is one. The duty of the officer is to record the minutes of directors’ and shareholders’ meetings and to authenticate corporate records. However, corporations are free to provide for more officers in the bylaws.

Question 20

What is the procedures for a fundamental change?

Answer 20

Fundamental changes procedures: 1. Board resolution (majority) 2. Notice to shareholders 3. Shareholder approval (majority) 4. Filing of amendments to the articles.

Question 21

What are the fundamental corporate changes that require shareholder approval? (DAMS)

Answer 21

The fundamental corporate changes that require shareholder approval are the following: Dissolution; Amendments to the articles of incorporation; Mergers, consolidations, and compulsory share exchanges; Sale of substantially all the corporation’s assets outside the regular course of business.

Question 22

When does a shareholder of common and/or preferred stock have a right to a dividend?

Answer 22

Generally, shareholders do not have a right to a dividend unless and until a dividend is declared by the board of directors.

Question 23

Once a dividend is declared, shareholders have the status of secured creditors. True or false?

Answer 23

False. Once a dividend is declared, shareholders have the status of unsecured creditors.

Question 24

What is the advantage of cumulative preferred stock?

Answer 24

The advantage of cumulative preferred stock isthat even if a dividend is not declared in a particular year, the right to receive that dividend (if dividends are ever declared) accumulates and that accumulated, but unpaid divident, must be paid before common shareholders can receive any dividend (although there is no right to the dividend until it is declared).

Question 25

What is the main point regarding the inspection rights of shareholders?

Answer 25

Shareholders (or their agents, attorneys, accountants, etc.) may inspect for any proper purpose (a purpose related to the shareholder’s interest in the corporation; e.g., to start a derivative suit or to solicit shareholders to vote for certain directors), but shareholders also may be denied inspection for improper purposes (a purpose personal to the shareholder; e.g., to get names for a retail mailing list).

Question 26

Which of the followig business can be formed without filing a formation document with the state: partnership, limited partnership, limited liability company, or corporation?

Answer 26

A partnership can be formed without filing a formation document with the state. All of the other businesses require a filing to be formed.

Question 27

How is a limited partnership similar to a corporation?

Answer 27

A limited partnership is similar to a corporation in that both can be formed only by compliance with statute and filing with the secretary of state, and both limited partnerships and corporations provide limited liability for investors (except general partners).

Question 28

Which of the following businesses offer flow-through taxation for their owners: partnership limited partnership, limited liability company, or corporation?

Answer 28

A partnership, limited partnership, limited liability company (although the owners of a limited liability company may opt to be taxed as a C corporation), and corporations that elect S-corporation status offer flow-through taxation for their owners. C corporations do not offer flow-through taxation.

Question 29

What will bar an employee from recovery under a workers’ compensation statute?

Answer 29

Fighting, intoxication, and self-inflicted wounds will bar recovery. An employee’s negligence or assumption of the risk does not bar recovery.

Question 30

What income is subject to FICA?

Answer 30

An employee’s gross wages, and a self-employed person’s net profits are subject to FICA.

Question 31

What benefits are provided by FICA?

Answer 31

FICA, Federal Old-Age, Survivors, and Disability insurance: Medicare benefits; Old age benefits; Disability benefits; Survivor’s benefits.

Question 32

To whom does FUTA apply?

Answer 32

All employers who: Employ at least one employee for at least one day in each of 20 weeks in a year; or Have a payroll equal to or greater than $1,500 in one calendar quarter.

Question 33

The Fair Labor Standards Act requires that overtime be paid for employees working more than eight hours in one day. True or false?

Answer 33

False. Overtime must be paid if the nonexempt employee works more than 40 hours in one week.

Question 34

What is Title VII?

Answer 34

Title VII is a federal statute that prohibits discrimination in employment.

Question 35

What are the general requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)?

Answer 35

When employment terminates, the employer msut allow the employee and other covered persons to continue to particpate in the employer’s group insurance plan at the employee’s own expense for 18 months.

Question 36

What is the threshold dollar amount that triggers the need to file a currency transaction report (CTR) under the Bank Secrecy Act?

Answer 36

More than $10,000. Financial institutions must file a CTR for transactions exceeding $10,000. The CTR must be filed within 15 dys of the transaction (25 days if filed electronically).

Question 37

Under the Bank Secrecy Act, as amended, what must a bank do if its customer engages in a transaction that is not the type of transaction that the customer normally would be expected to engage in?

Answer 37

File a suspicious activity reprot (SAR) within 30 days of the transaction (60 days if filed electronically). Notify its board of directors that a SAR was filed. Not notify the customer that a SAR was filed.

Question 38

In general, how long must a financial institution keep records required to be kept under the Bank Secrecy Act, as amended?

Answer 38

Five years.

Question 39

What are the dollar threshold and limit for triggering the monetary instrument sales records requirements under the Bank Secrecy Act?

Answer 39

$3,000-$10,000, inclusive. Financial institutions must keep records of the identity of persons purchasing monetary instruments for $3,000-$10,000, inclusive. The records are not filed with the government.

Question 40

Under the antitrust laws, what does the term “illegal per se” connote?

Answer 40

Under the antitrust laws, the term “illegal per se” connotes anticompetitive conduct or agreements that are inherently illegal and without legal justification.

Question 41

What was the major impetus for enacting the Clayton Act?

Answer 41

To proscribe anticompetitive conduct in its incipiency.

Question 42

Under the antitrust laws, what does the term “rule of raeson” connote?

Answer 42

Under the antitrust laws, the rule of reason is the balancing test used to determine whether contracts, combinations, attempts to monopolize, etc., unreasonably restrain trade and so violate the antitrust laws. Courts will consider factors such as (i) the nature of the business involved, (ii) the defendant’s position in the industry (e.g., minor or major player), (iii) how the restraint will affect the industry, and (iv) the purported goal of the restraint (e.g., to achieve economies of scale vs. to stifle competition).

Question 43

Under the antitrust laws, what are “horizontal restraints”?

Answer 43

Horizontal restraints involve agreements between industyr players that are on the same marketing level (e.g., agreements between two competing manufacturers or between two competing retailers). Horizontal restraints are generally illegal per se.

Question 44

Under the antitrust laws, what does the term “vertical restraint” mean?

Answer 44

Under the antitrust laws, vertical restraints are agreements between industry players that are on different marketing levels (e.g., an agreement between a manufacture and a retailer). They are generally judged under the rule of reason.

Question 45

What are the primary tasks of the Financial Stability Oversight Council?

Answer 45

1. Identifying risks to US financial stability; 2. Eliminating expectations that the government will shield entities from losses; and, 3. Responding to threats to the stability of the US financial system.

Question 46

Under the Secretary of the Treasury’s Orderly Liquidation Authority granted under Title II of Dodd-Frank, what types of institutions may the Secretary place into receivership?

Answer 46

Financial companies not previously covered by the FDIC or SIPC, including insurance companies and nonbank financial institutions.

Question 47

What type of securities offerings are regulated by the Private Fund Investment Advisers Registration Act of 2010?

Answer 47

The Private Fund Investment Advisors Registration Act of 2010 regulates hedge funds and other similar investment intermediaries and requires such intermediaries to make reports to federal agencies.

Question 48

What investments are limited under the Volker Rule of Title VI of the Dodd-Frank Act?

Answer 48

The Volker Rule limits trading or investing by any banking entity in a hedge fund or private equity fund if the trading results in more than 3% ownership of the fund. The aim of this rule is to limit the amount of speculative investments on large banks’ balance sheets.

Question 49

Under Title IX of Dodd-Frank, the Investor Protection and Securities Reform Act of 2010, what standard must broker-dealers meet when dispensing investment advise to clients?

Answer 49

Under Title IX of Dodd-Frannk, the Investor Protection and Securities Reform Act of 2010, SEC-registered broker-dealers and investment advisors must make recommendations suitable to the needs of their customer and in their customer’s best interest.

Question 50

What three attributes must be shown in order to obtain a patent for an invention?

Answer 50

The invention is: Noval; Useful; Not obvious to someone working the field.

Question 51

What is the basic requiremen to obtain a copyright in an original work?

Answer 51

It must be in a tangible medium of expression.

Question 52

What is a holder of a duly negotiated document of title?

Answer 52

A person who: Gives present value; Takes in good faith without notice of defenses or adverse claims; Takes the document in the regular course of business or financing. Such a person is like a holder in due course of commercial paper–subject to few defenses.

Question 53

How are documents of titlenegotiated?

Answer 53

Like commercial paper, the procedure for negotiating a document of title depends on whether the document is a bearer or order document: A bearer document is negotiated by delivery alone; An order document requires delivery plus a valid signature.

Question 54

What are the three transfer warranties made by a transferor of a document of title?

Answer 54

The document is genuine. The transferor has no knowledge of any fact that would impair the document’s validity or value. The negotiation or transfer is rightful and effective.

Question 55

What is the duty of care of a common carrier?

Answer 55

At common law, a common carrier has a high standard of care. It is treated as an insurer of the goods and is liable for all damages to the goods that occur during shipment, regardless of cuase.