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REG > R7 & R8 - Biz Law > Flashcards

R7 & R8 - Biz Law Flashcards

1
Q

What is required to form an agency relationship?

A

All you need to form an agency relationship is a principle with consent and capacity.

The agent need not have capacity (could be a minor)

A writing is generally not necessary, unless the agency cannot be performed within one year, or has to do with land (MYLEGS)

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2
Q

What is a power of attorney?

A

A written authorization of agency (normally limited to specific transactions)

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3
Q

Who is required to sign a POA for it to be enforceable?

A

Only the principal (agent generally not required to sign)

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4
Q

What are the duties that an agent has to a principal?

A

LORA

  1. ) Loyalty (no self-dealing/competing)
  2. ) Obedience (must obey)
  3. ) Reasonable Care (don’t be negligent)
  4. ) Account (don’t commingle principal property with agent property)
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5
Q

What is a tort?

A

Wrongful act (could be intentional or unintentional)

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6
Q

What is the difference between the “power” to terminate an agency relationship and the “right” to terminate?

A

Power = technically, everyone has free will and can always walk away

Right = contract in place may not allow you to walk away without breaching

*possible to have the power, but not the right

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7
Q

Is there ever a situation when the principal does not have the right to terminate an agency relationship?

A

If the agency is coupled with an interest, the principal does not have the power or the right to terminate.

For example, if a principal promises something to an agent, they can’t turn around later and take away the promise.

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8
Q

An agent has the power to contractually bind a principal to 3rd parties. What are the ways an agent can bind a principle?

A
  1. ) Actual authority (power & right)
  2. ) Apparent authority (power only)
  3. ) Ratification (power only)
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9
Q

What is the difference between implied and expressed authority?

A

Expressed is in either oral or written form.

Implied usually comes from the nature of the agency relationship. If someone is hired as a business manager (fancy title), they have implied authority of doing everything to run that business

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10
Q

What happens if a principal losses capacity?

A

The agency relationship is automatically terminated by operation of law

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11
Q

What is apparent authority? Please explain how it differs from actual authority.

A

Apparent authority is based on the third party’s reasonable belief that the agent has the power to bind the principal.

Actual authority is based on the agents reasonable belief that the agent has the power to bind the principal.

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12
Q

How should a principal protect themselves from a parent using apparent authority to bind them to 3rd parties?

A

Give notice to 3rd parties of the limitations of the agency relationship

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13
Q

Let’s say a principal fires an agent, what steps does the agent need to take to eliminate apparent authority of the old agent?

A
  1. ) Direct notice to old 3rd parties

2. ) Constructive notice to any potential new 3rd parties (newspaper ad, etc)

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14
Q

The third way a principal can be bound to 3rd parties by an agent is called ratification, what is that?

A

Ratification is when the agent had apparent authority but not actual authority, but the principal is actually fond of the bind to the 3rd party, so they grant actual authority and therefore ratify the apparent authority.

Essentially, it allows a principal to choose to be bound by a previously unauthorized act of his agent.

*in order to ratify, agent must have had apparent authority (not actual)

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15
Q

Can a principal ratify one piece of a bind and not the entire deal?

A

No, principal must ratify entire transaction

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16
Q

When is a principal liable to 3rd parties?

A

Only if the agent had actual authority, or if the principal ratifies successfully.

*if agent only had apparent authority, principle would need to ratify in order to be liable

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17
Q

When is an agent liable to 3rd parties?

A

Only if the agent has an undisclosed principal (partially disclosed or fully undisclosed).

*if the agent had actual authority, does not matter if the principal was disclosed or not - principal is liable

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18
Q

Who is the 3rd party liable to?

A

Generally, only liable to principal. (even if undisclosed)

Exception for when a principal’s identity was fraudulently concealed, then 3rd party isn’t liable to anyone

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19
Q

Are principal’s generally liable for torts committed by their agents?

A

In general no.

However, there is an exception for employer/employee relationships. An employer CAN be held liable for torts committed by their employee as long as the tort occurred during the scope of the employment.

This does not relieve the agent from their liability. The damaged person may sue both the employer and employee (agent)

  • employers usually not liable for torts committed by independent contractors
  • employer is ONLY LIABLE FOR NEGLIGENCE, not responsible for intentional torts committed by agents
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20
Q

If an employer has a signed agreement with an employee (agent) to not commit a particular tort, and then the agent commits, is the employer off the hook?

A

No, an agreement between employer & agent DOES NOT prevent a 3rd party from holding the employer liable

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21
Q

What is the difference between a unilateral contract and a bilateral contract?

A

Unilateral = 1 promise, 1 performance to fulfill the agreement. A contract is not complete until performance is completed (John will pay Dan $10 if Dan will wash John’s car)

Bilateral = 2 promises (agreement before performance) (John promises to pay Dan $10 if Dan promises to wash John’s car - two way promise)

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22
Q

What are the two different sources of contract law and how are they applied?

A
  1. ) Common Law = RISE (real estate, insurance, services, employment)
  2. ) UCC (uniform commercial code) = Goods (movable things)
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23
Q

What are the elements of a legally enforceable contract?

A
  1. ) Agreement
  2. ) Exchange of consideration (legal value, doesn’t have to be dollars)
  3. ) No defenses

*does not have to be in writing (MYLEGS)

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24
Q

Does an advertisement meet the definition of an offer?

A

No, just an invitation seeking an offer.

*an ad does qualify as an offer if a reward is offered (first 30 pple get a free soda)

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25
Q

Can an offer be revoked once it has been extended?

A

Yes as long as it was revoked before acceptance.

An offer can be revoked even if the offeror promises to keep the deal on the table.

The only time an offer can not be revoked is if consideration is paid to keep the offer open (option = “buy” time).

Consideration not paid = revoke anyime

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26
Q

What are the three ways to effectively terminate a contract?

A
  1. ) Revoke
  2. ) Reject
  3. ) Termination by operation of law
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27
Q

What is the difference between common law and UCC regarding acceptance of an offer?

A

Common law = mirror image rule. Acceptance must be exactly what was offered (no deviation allowed). Any deviation is treated as a counter offer

UCC = as long as substantially same as offer, acceptance is valid. If major pieces like price or quantity change, treated as a counter offer

**UCC more lenient here

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28
Q

What is the “mailbox” rule regarding acceptance under common law?

A

Once an acceptance is mailed, it is valid.

Acceptance is valid when dispatched, unless specifically stated in the offer that the acceptance must be received to be valid.

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29
Q

Will contract law generally enforce gratuitous promises? (no consideration exchange - just a favor)

A

No because in order for a contract to be valid must have:

  1. ) Agreement
  2. ) Exchange of consideration (legal value, doesn’t have to be dollars)
  3. ) No defenses
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30
Q

If someone promises to give money to a charity and then backs out, is this a breach of contract?

A

Promises to make gifts are generally NOT enforceable since consideration is not being given to the giver.

Exception for this when charity can prove something called “detrimental reliance” on the promised donation.

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31
Q

When is a rejection deemed to be valid?

A

When received

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32
Q

When is a revocation deemed to be valid?

A

When received (either by conduct or expressly)

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33
Q

When is a rejection deemed to be valid?

A

When received

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34
Q

When is an acceptance deemed to be valid?

A

When dispatched (mailbox rule)

EXCEPTION = unless specifically stated that acceptance must be received to be valid

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35
Q

What is the difference from a contract being void and voidable?

A

VOID = unenforceable by either party

VOIDABLE = may be avoided by option of party adversely effected

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36
Q

What needs to be present to establish a defense of fraud regarding a contract?

A

MAIDS

  1. ) Misrepresentation of material fact
  2. ) Actual reasonable reliance
  3. ) Intent to induce reliance
  4. ) Damages (compensatory & punitive)
  5. ) Sceinter

*all 5 must be present

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37
Q

If someone signs something not knowing it is a contract (Fraud in execution), is the contract void or voidable?

A

Void

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38
Q

If someone signs a contract and there is a material misrepresentation of facts (intentional), but they know its a contract, is the contract void or voidable? (Fraud in inducement)

A

Voidable by hurt party

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39
Q

If someone is threatened with physical force to sign a contract, is the contract void or voidable?

A

Void

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40
Q

If someone is threatened with economic or social force to sign a contract, is the contract void or voidable?

A

Voidable

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41
Q

If both parties make a mutual mistake when entering into a contract, is it void or voidable?

A

Void

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42
Q

If only one party makes a mistake when entering into a contract, is the contract void or voidable?

A

Voidable by the party that made the mistake if the other party should’ve known it was a mistake

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43
Q

If a contract subsequently become illegal, is the contract void or voidable?

A

Void

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44
Q

What is unique about contracts regarding minors?

A

Minors may dis-affirm (cancel) contracts since they technically did not have capacity.

Minors may ratify a contract once they reach the age of majority.

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45
Q

Is intoxication a defense to a contract?

A

Only if the other person was aware that you were intoxicated & prevented you from knowing the nature and significance of the contract

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46
Q

What are the types of contracts that require a writing?

A

MYLEGS:

Marraige
>Year
Land
Executor
Goods ($500 or more)
Surety
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47
Q

What is novation in regards to contracts?

A

Novation = new party, old party is released

*available as a defense to released party

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48
Q

Under common law, if there has been a material or substantial breach in the contract, the non-breaching party has what options?

A

Can be discharged from the contract

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49
Q

Under common law, if there has been a minor breach in the contract, the non-breaching party has what options?

A

Cannot be discharged, but entitled to damages

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50
Q

Under UCC, if there has been a material or substantial breach in the contract, the non-breaching party has what options?

A

Perfect Tender rule: if any deviation at all from contract = breach of contract. Buyer may reject goods if not perfect tender

*Common law more lenient here

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51
Q

Under UCC, if there has been a minor breach in the contract, the non-breaching party has what options?

A

Perfect Tender rule: if any deviation at all from contract = breach of contract. Buyer may reject goods if not perfect tender

*Common law more lenient here

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52
Q

When are punitive damages applied?

A

Only in the case of proven fraud (MAIDS).

Not for ordinary negligence or breach of contract

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53
Q

When is common law applied? When is UCC applied?

A

Common Law = RISE (real estate, insurance, services, employment)

UCC = Goods

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54
Q

What is the difference between common law and UCC regarding acceptance?

A

Common law = Mirror image rule (anything but perfect acceptance = counter offer)

UCC = As long as substantial acceptance = ok, major changes to price/quantity = counter offer)

*UCC more lenient here

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55
Q

What is a firm offer and where is it applied?

A

Applied in UCC (for dealers only), certain offers by merchants are irrevocable even w/o consideration.

  • irrevocable for time stated or for reasonable amount of time, no longer than 3 months
  • Seller must be a merchant, offer must be in writing & signed, offer must give assurances it will be kept open
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56
Q

What are the exceptions to revocability of offers by an offer-or?

A
  1. ) Firm offer (merchants only)

2. ) Option (consideration paid)

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57
Q

What is the mirror image rule? Does it apply for common law? Does it apply for UCC?

A

Mirror image rule = accepted offer has to match original offer EXACTLY

Applies to common law, and invalid acceptance will not be a counter offer.

Does not apply to UCC, if acceptance is a minor change it’s alright, if major change like to price or quantity = counter offer

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58
Q

What is the rule regarding accommodations under the UCC? What is the difference between a valid accommodation and invalid accommodation?

A

Valid accommodation = Acceptance is in form of shipment. (prompt shipment, unilateral contact, i promise to pay for this if you ship it, not i promise to pay for this if you promise to ship it)

Invalid accommodation = Promise to ship. Then subsequently realizing don’t have exactly what offer was requesting, then improvising and shipping something (no valid accommodations in bilateral contracts - i promise to pay if you promise to ship)

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59
Q

Regarding auctions, what is the difference between with reserve and w/o reserve?

A

With reserve = seller doesn’t need to sell unless adequate bid is made

W/o reserve = goods must be sold to highest bidder

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60
Q

What is the difference between common law and UCC regarding modifications to contracts?

A

Common law = modification of a contract is not enforceable unless consideration is given

UCC = as long as agreed to, any modification is valid

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61
Q

The statute of frauds states that sales of goods above $500 must be evidenced in writing. Are there any exceptions to this?

A
  1. ) Specially manufactured goods
  2. ) Lack of objection to confirmation after 10 days
  3. ) Admit in court
  4. ) Performed
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62
Q

When does risk of loss pass to the buyer in non-merchant transactions?

A

When the seller’s tender of delivery is made. Essentially, as soon as purchase is made all risk of loss shifts to buyer (garage sale rule) (non-merchant can’t hold the goods after purchase and have risk of loss)

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63
Q

When does risk of loss pass to the buyer in merchant transactions?

A

Only upon actual delivery (can hold for customer after purchase in the store, and store still has risk of loss)

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64
Q

Regarding sales on approval, like a test drive, explain where risk of loss lies

A

With the seller, until buyer approval

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65
Q

Regarding sales or return, explain where risk of loss lies

A

With the buyer, until returned

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66
Q

If the goods shipped for a carrier case contract are nonconforming, who carries risk of loss?

A

Since UCC rules govern this, perfect tender rule applies. Perfect tender rule states if goods aren’t perfect compared to offer, goods can be rejected. Since this is the case, nonconforming goods are always risk of loss to seller (regardless of FOB shipping terms)

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67
Q

How can an express warranty of goods be disclaimed?

A

Cannot be disclaimed

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68
Q

How can an implied warranty of title of goods be disclaimed?

A

Only disclaimed by specific language or by circumstances that indicate seller does not have title

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69
Q

What is the implied warranty of merchant-ability? How can implied warranty of merchant-ability be disclaimed?

A

Goods are fit for ordinary purposes. Only made by merchants.

Disclaimed with “as is” “with all faults”

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70
Q

How can implied warranty of fitness for particular purpose be disclaimed?

A

Does not need to be made by a merchant.

Disclaimed by written disclaimer only

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71
Q

What is the difference between a surety and a guarantor?

A

Surety = less rights than a guarantor. Liable to creditor after initial default by debtor

Guarantor = Liable to creditor only if the debtor does not perform his duty to creditor, creditor must first exhaust all options within legal right to get money from debtor

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72
Q

A surety has mutliple options of actions they can take against a debtor, they include:

  • Exoneration
  • Subrogation
  • Reimbursement

Explain each of the three.

A

Exoneration = (before surety pays) surety sues debtor to pay

Subrogation = (after surety pays) surety steps into shoes of creditor and sues debtor for amount

Reimbursement = (after surety pays) indemnification, debtor pays back surety after surety pays

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73
Q

Do sureties have any valid defenses to not pay?

A

Much more limited than a guarantor, but still have defenses available.

  1. ) Defrauded by principal
  2. ) Duress upon principal
  3. ) Discharge of principal’s obligation (debtor pays or tries to pay)
  4. ) Surety incapacity or bankruptcy
  5. ) No contract/writing
  6. ) Variation of risk (increase of risk to surety after contract)
  7. ) Repo of collateral w/o notice to surety
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74
Q

What is a mechanics lien?

A

Under common law, a mechanic or artisan who works on property and either improves it or repairs it automatically has a lien on the property for the price of the repairs for as long as the property is in lienor’s possession.

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75
Q

What is the Fair Debt Collection Practices Act (FDCPA)?

A

Curbs abuses by collection agencies. Prohibits:

  1. ) Contacting at inconvenient or unusual times
  2. ) Contacting debtor instead of attorney
  3. ) Abusive language/threats
  4. ) Contacting employer if debtor objects
76
Q

What happens if the creditor notifies the surety that collateral is being taken?

A

Surety might be found for deficiency if collateral doesn’t cover debt. Surety only released if creditor does not notify them

77
Q

What are the requirements of attachment for secured transactions?

A
  1. ) Agreement (between two parties - does not need to be in writing if creditor takes possession of collateral)
  2. ) Value (lend $ / sell on credit)
  3. ) Rights (debtor has rights to collateral)
78
Q

What are the two steps in secured transactions?

A
  1. ) Attachment

2. ) Perfection

79
Q

What are the various ways to perfect a secured transaction?

A
  1. ) Filing a financing statement
  2. ) Taking possession/control of the collateral (attachment happens simultaneously)
  3. ) Automatic perfection (PMSI in consumer goods)
  4. ) Temporary perfection (Trade in situation)
80
Q

What needs to happen before a secured transaction is perfected?

A

Must attach before perfect. Can attach and perfect simultaneously

81
Q

Do you have to file a financing statement for PMSI (purchase money security interest) in consumer goods?

A

No because that is automatic perfection. But should for priority purposes.

82
Q

How does temporary perfection arise?

A

A security interest in proceeds from original collateral is perfected for 20 days from receipt of proceeds.

Ex: Debtor sold old collateral, bank has temporary perfection of new collateral

83
Q

What are the levels of priority for goods related to secured transactions?

A
  1. ) Buyer in ordinary course of business
  2. ) Properly perfected PMSI (first to file wins)
  3. ) Perfected security interest (first to file wins)
  4. ) Unperfected security interest (attach only, first to attach wins)
  5. ) Debtor
84
Q

What is unique about PMSI situations for equipment?

A

20-day grace period to file financing statement which will retroactively apply to date of attachement

85
Q

Do PMSI of the following need to file a financing statement?

a. ) Consumer goods
b. ) Inventory
c. ) Equipment

A

a. ) Consumer goods = automatically perfected (don’t need to file but should for priority)
b. ) Inventory = must file to perfect
c. ) Equipment = must file to perfect, 20-day grace period that dates back to attachment
* keep in mind depends on use in order to classify (refrigerator could be consumer good, inventory, or equipment, depends on use)
* remember, can’t perfect until you attach

86
Q

. What are the different option for bankruptcy for individuals & companies?

A
  1. ) Chapter 7 - Liquidation (Vol. or Invol, I & C)
  2. ) Chapter 13 - Adj. of Debts (Vol. only, I only)
  3. ) Chapter 15 - Cross border (C only)
  4. ) Chapter 11 - Reorganization (Vol. or invol., I & C)
87
Q

Which type of bankruptcy is a trustee NOT required to be appointed?

A

Chapter 11 Reorganization (Vol or Invol, I & C)

*court may appoint one if needed

88
Q

What are the steps to determine whether an individual can be eligible for Chapter 7 bankruptcy for relief of indiv consumer debt?

A

Step 1.) Determine whether income is below state median (if yes, 7 is ok)

IF FAIL MOVE TO STEP 2

Step 2.) Means Test (Avg. month income - Allow exp) * 60

  • if less than $7,700, 7 is ok
  • if more than $12,850, 7 not ok = abuse
  • if between $7,700 & $12,850, compare to 25% of unsecured claims
89
Q

What are the allowable expenses regarding bankruptcy and the means test?

A

Food, shelter, clothing, health insurance, etc

90
Q

Who cannot file for Chapter 7 bankruptcy?

A

Chapter 7 = Liquidation

RIBS

Railroads, Insurance companies, banks, small biz investment companies

91
Q

Who cannot file for Chapter 11 bankruptcy?

A

Chapter 11 = Reorg.

BIBS

Banks, Insurance companies, brokers

*a railroad can be chapter 11

92
Q

What is an automatic stay and in what situations is it applied?

A

Applied to a chapter 7 and chapter 11 bankruptcy case.

Automatic stay is a stop of almost all collection efforts after a petition has been filed for bankruptcy (either voluntary or involuntary)

*doesn’t apply to criminal or family cases (bankruptcy court doesn’t get their hands dirty in alimony)

93
Q

Does an indiv debtor need to be insolvent in order to file for chapter 7 or 11 bankruptcy?

A

Does not need to be insolvent (assets - liab = assets)

In order to file, you need to not be able to pay any debts as they are coming due (its a cash flow problem, not a net worth problem)

94
Q

Can spouses file for bankruptcy jointly?

A

Yes - may file jointly to avoid duplicate fees

95
Q

Who are ineligible debtors for involuntary bankruptcy cases (chapter 7 and chapter 11)? If any at all

A

Farmers and charities may not be petitioned involuntarily into bankruptcy

96
Q

Creditors may petition to involuntarily push debtors into both chapter 7 and chapter 11 bankruptcy. Are there any requirements of the creditors that need to petition in order for the court to continue?

A

Debts must be unsecured and undisputed.

Fewer than 12 Creditors = One or more owed $15,775

More than 12 Creditors = Three or more owed $15,775

97
Q

What is an order for relief and how is it different between voluntary and involuntary cases?

A

An order for relief means the case can proceed.

For voluntary cases, order for relief is granted.

For involuntary cases, no order for relief is granted. There is a gap between the filing and the order of relief (usually 20 days within petition)

*gap creditors are a priority in SAG WEG CTI

98
Q

What is a section 341 meeting?

A

Meeting of the creditors for a bankruptcy case - 20 to 40 days within order for relief

99
Q

What property is included in a bankruptcy estate?

A

Generally includes all debtor real & personal property

Also includes (DII) any consideration paid from Divorce, Inheritance, and Insurance within 180 days of filing of the petition

100
Q

What property is excluded from a bankruptcy estate?

A

Post-petition earnings, necessities to live (house unless specific lien on property)

101
Q

What is a contemporaneous exchange, and how does it relate to bankruptcy?

A

Equal exchange, someone drops off inventory and someone pays for the inventory.

A trustee in a bankruptcy case has the power to dis-affirm preference payments within 90 days of filing, or within 1 year if the paid creditor was an insider.

Contemporaneous exchanges are excluded from this evaluation, it is an new exchange and not considered a preference since it did not relate to pre-existing debts.

102
Q

What is the opposite of a contemporaneous exchange?

A

A payment to antecedent debt (pre-existing debt)

103
Q

How is a preferential payment determined?

A
  1. ) transfer to benefit the creditor
  2. ) on account of antecedent debt (pre-existing)
  3. ) made within 90 days of filing or 1 year if to an insider
  4. ) made while debtor was insolvent
  5. ) creditor receiving more than due
104
Q

What are the priorities of creditors during a bankruptcy case?

A
  1. ) Secured claims (payments made to extent of collateral)
  2. ) Priority claims (SAG WEG CTI)
  3. ) Unsecured and general claims
105
Q

List the priority creditors in order:

A

SAG WEG CTI

  1. ) Support
  2. ) Admin
  3. ) Gap claims (relating to order of relief to involuntary only)
  4. ) Wages (up to $12,850)
  5. ) Employee benefit (up to $12,850)
  6. ) Grain farmers & fisherman
  7. ) Consumer deposits
  8. ) Taxes
  9. ) Intoxicated driving
106
Q

Under chapter 11, a plan is filed by who?

A

By the debtor, exclusive right for first 120 days after order of relief is effective

107
Q

Does the chapter 11 reorg plan need to be accepted by anyone to be effective?

A

Needs to be accepted by 2/3 in amount of creditors.

108
Q

Name the two major securities acts:

A
  1. ) Securities Act of 1933 - regulates original issuance

2. ) Securities Act of 1934 - regulates purchase and sales after issuance

109
Q

Is a CD technically a security?

A

No - any investment contract is a security.

CD’s and general pship interests do not count (limited pship interest = security)

110
Q

What is the SEC’s role in the Securities Act of 1933?

A

To ensure the presence of information necessary for investors to make informed decisions (SEC checks for completeness)

111
Q

Who is required to register according to the Securities Act of 1933?

A
  1. ) Issuer - shares being sold
  2. ) Underwriter - intermediary who sells securities to general public or dealers
  3. ) Dealer - trader
112
Q

Which Security Act requires a registration statement?

A

1933

113
Q

What are the two parts of a registration statement?

A
  1. ) Prospectus

2. ) Detailed information about the securities being issued

114
Q

What is a prospectus?

A

Contains material info about the securities to prospective investors

115
Q

There are securities and transactions that are exempt from registration under the Securities Act of 1933. What are the exempt securities?

A

BRINGS

  1. ) Bank securities (CDs)
  2. ) Railroad securities
  3. ) Insurance policies
  4. ) Not for profit securities
  5. ) Government securities
  6. ) Short term commercial paper
116
Q

There are securities and transactions that are exempt from registration under the Securities Act of 1933. What are the exempt transactions?

A
  1. ) Casual sales (no issuer, underwriter, and dealer)
  2. ) Exchanges with existing holders
  3. ) Intrastate sales (rule 147 & 147A)
117
Q

What are rules 147 & 147A and how are they different?

A

Rules 147 & 147A relate to securities offered and sold only to persons who are residents of the issuer’s state.

They relate to intrastate sales that are exempt from registration under the Securities Act of 1933.

Rule 147= Issuer is state resident

Rule 147A= Issuer is non-resident of the state, internet is ok

*issuer must do at least 80% of business in that state and purchasers cannot resell securities within 6 months of initial purchase

118
Q

What are the private offerings exemptions from the Securities Act of 1933?

A
  1. ) Regulation D (Rules 504 & 506)
  2. ) Regulation Crowdfunding
  3. ) Regulation A simplified filing
119
Q

Are there any minimum requirements for a purchaser of a Regulation D security to hold that security?

A

Yes - must hold for at least one year before resale

120
Q

Does the SEC need to be made aware of the sale of Regulation D securities?

A

Yes - within 15 days after the first sale

121
Q

What are the dollar limits for raising money for Regulation D?

A

Depends:

Rule 504 = $5M limit

Rule 506 = Unlimited dollar amount

122
Q

Are there any limitations with respect to the type of investor you sell to under Regulation D for both Rule 504 & 506?

A

Rule 504 = no limitation on the number or type of purchasers

Rule 506 = unlimited accredited investors and 35 or fewer unaccredited investors

123
Q

Under Rule 506 of Regulation D, do you need to provide audited financial statements to your investors?

A

Depends:

If all accredited investors, no need to provide.

If even ONE non-accredited investor, ALL investors must be provided audited financials

124
Q

Is there a limitation on the types of issuers that are eligible for Regulation Crowdfunding?

A

Must have assets of $25M or less and may not sell more than $1M in securities under Regulation Crowdfunding within a 12-month period

125
Q

Is there a limitation for an individual investor in a Regulation Crowdfunding private offering?

A

No investor can purchase more than $100k

  • if income or net worth is less than $100k, limited to greater of:
    a. ) $2,000
    b. ) 5% of the lesser of annual income or net worth
126
Q

Are audited financial statements required under Regulation Crowdfunding?

A

Generally not required but depends:

  1. ) Offering $100k or less = executive signoff (no audit or review)
  2. ) Offering $100k - $500k = review required
  3. ) Offering >$500k (1st time Crowdfund) = reviewed
  4. ) Offering >$500k (not 1st Crowdfund) = audited
127
Q

Are there any minimum requirements for a purchaser of a Regulation Crowdfunding security to hold that security?

A

Cannot be resold for a period of one year, unless transferred:

a. ) to issuer
b. ) to accredited investor
c. ) to family member

128
Q

Under Regulation A (Simplified Filing), are there any dollar limitations for amounts you can raise?

A

Tier 1 = up to $20mm in a 12-month period

Tier 2 = Up to $50mm in a 12-month period

129
Q

For someone wanting to sue under Section 11 - civil liability for misstatement under the 1933 Act, must prove:

A

LAM

  1. ) Loss was incurred
  2. ) Aquired stock
  3. ) Material misstatement existed in registration stmt

*does not need to prove negligence or reliance or fraud, only the above LAM

130
Q

Who must register with the SEC under the 1934 act?

A

1.) any company traded on a national exchange

OR

  1. ) any company that has $10mm in assets AND 2,000 shareholders
  2. ) any company that has $10mm in assets AND at least 500 shareholders non accredited
131
Q

Under the 1934 act, companies need to report certain things during the year. Outside of the forms needed to report (10-Q, 10-K, 8-K), what else needs to be reported?

A

Must report 5% TIP

  1. ) 5% owners
  2. ) Tender offers (offer to purchase 5% of stock)
  3. ) Insiders (officers/directors 10% or more owned)
  4. ) Proxy (permission to vote)
132
Q

Unlike Section 11 under the 1933 act, under the 1934 act a plaintiff must prove:

A
  1. ) Loss
  2. ) Material misstatement
  3. ) Actual reliance
  4. ) Scienter

*section 11 they needed to prove less

133
Q

What does FICA stand for?

A

Federal Insurance Contribution Act

134
Q

Who funds FICA?

A

Both employee and employer.

Employee must contribute 6.2% of gross wages up to $128k for FICA and 1.45% of all for medicare, and employer has to match.

135
Q

Can an employer deduct FICA?

A

Only can deduct the employer paid portion. If self-employed can deduct 1/2 of what was paid (employer portion)

136
Q

Is FICA imposed for self employed?

A

Yes if net profits exceed $400 (also filing requirement)

Instead of using gross wages like an employee, they would use net profit from business

137
Q

Who pays for unemployment compensation (FUTA)?

A

Employer funded only

138
Q

Who pays for workers’ compensation?

A

Employer funded only

139
Q

Who is required to participate in funding unemployment compensation?

A

Any employer with quarterly payroll of $1,500 or employs one person for 20 weeks of the year

140
Q

What are the amounts needed to fund FICA?

A

Employee must contribute 6.2% of gross wages up to $128k for FICA and 1.45% of all for medicare, and employer has to match.

141
Q

What are the amounts needed to fund unemployment?

A

6% of the first $7,000 per year of compensation for each employee

142
Q

Are amounts paid for unemployment deductible?

A

Funded by employer only and fully deductible as an ordinary business expense

143
Q

If an employee quits a job, are they eligible for unemployment compensation?

A

No. Only eligible after termination that was not the employee’s fault

144
Q

What is the purpose of worker’s compensation?

A

To enable employees to recover for work-related injuries regardless of negligence (workers comp is nontaxable to employee)

145
Q

Can an employer deduct workers’ compensation?

A

Fully deductible as an ordinary business expense

146
Q

Name a situation where a worker got hurt at work within the scope of employment and was not eligible for workers compensation

A

If they were drunk, fighting, or injured themselves on purpose they are ineligible

147
Q

Who funds the affordable healthcare coverage?

A

Both employee and employer (like FICA)

148
Q

Which employers are required to participate in the affordable care act?

A

Only applicable large employers (50 or more employees)

149
Q

Which employees are required to participate in the affordable care act?

A

All - every person must have healthcare coverage regardless of employment status

150
Q

What is the penalty of a person who does not have health insurance?

A

Higher of:

1.) 2.5% of household income

OR

2.) $695 per adult plus $347 per kid

151
Q

What is the penalty of a company with 50 or more employees who does not comply with ACA?

A

Penalty 1 = Did not give a plan - $2,000 for each employee

Penalty 2 = Plan but sucked - $3,000 for each employee

152
Q

Are payments made by an employer to subsidize health care coverage deductible?

A

No - not tax deductible

153
Q

Which entities do you need to file something with the state?

A

LLP, LP, LLC, C-corp, S-corp

154
Q

Which entities provide limited liability to all limited shareholders, members, etc?

A

LLP, LP, LLC, C-corp, S-corp

155
Q

What combination of partners needs to exist to form an LP?

A

At least 1 General Partner and 1 Limited Partner

156
Q

Which entities are considered “flow through”?

A

Pship, LLP, LP, LLC, S-corp, even Sole Proprietorship

157
Q

Only one type of entity is taxed, what type of entity is that?

A

C-corp

158
Q

What type of liability do members in an S-corp have?

A

Limited personal liability (only investment at risk)

159
Q

What type of liability do members in a C-corp have?

A

Limited personal liability (only investment at risk)

160
Q

What type of liability do partners in an LP have?

A

General - unlimited personal liability

Limited - limited personal liability only investment at risk

161
Q

What type of liability do partners in an LLP have?

A

Limited personal liability (only investment at risk)

162
Q

What type of liability does an owner in a soleprop. have?

A

Unlimited personal liability

163
Q

What type of liability do partners have in a general pship and joint venture?

A

Unlimited personal liability

164
Q

What type of business entity can be formed without formation documents?

A

General pship and sole prop.

165
Q

What is necessary to form a partnership?

A

Almost nothing! Could even be implied

  1. ) two or more people
  2. ) in agreement expressly or impliedly
  3. ) to carry on as co-owners a business for profit
166
Q

In a partnership, how is profit splitting determined?

A

Unless specifically stated otherwise, profits and losses are split equally and not based on contributed amount.

167
Q

For decisions made in the ordinary course of business, , what is the required approval in a partnership?

A

Ordinary course of business = majority vote

168
Q

What types of decisions made in a partnership need unanimous decision?

A
  1. ) adding a new partner
  2. ) confessing a judgement for liability
  3. ) making a fundamental change

*for these situations, there is no apparent authority for each partner to act individually since the unanimous decision is required

169
Q

Do partners own the assets of the partnership?

A

No, partners are only entitled to their basis in the partnership, not the actual assets

170
Q

Can a partner assign their ownership interest to someone else?

A

They can assign them profits but cannot make someone a partner

171
Q

What does jointly and severally liable mean and which entities does it apply to?

A

Partnerships only - means each partner is jointly liable to all the debts of the business with their respective partners, and each partner themselves is personally liable to all debts of the business on their own

172
Q

Which entities share profits and losses equally, unless specifically otherwise stated, not according to the amount contributed?

A

GP & LLP

173
Q

Which entities share profits and loses depending on amount contributed into the business?

A

LP, S-corp, C-corp

174
Q

Are limited partners agents of a Limited Partnership?

A

No - they are like shareholders. Passive.

A limited partnership interest is actually considered a security.

175
Q

How are profits and losses allocated in a limited partnership?

A

Based on contributed amounts

176
Q

How is voting strength determined in an LLC?

A

Based on contributed amounts

177
Q

How are profits and losses allocated in an LLC?

A

Based on contributed amounts

178
Q

Name the restrictions of S-corps

A
  1. ) no more than 100 shareholders
  2. ) no corps as shareholders
  3. ) no foreign shareholders
  4. ) one class of stock
  5. ) must be domestic corp
179
Q

What is required to be included in the articles of incorporation for a C-corp?

A
  1. ) name of corp
  2. ) registered agent info
  3. ) name & address of each incorporator
  4. ) # of shares authorized to be issued
180
Q

Are by-laws required to be filed with the state?

A

No - only the articles of incorporation are

181
Q

In which situations can the corporate veil be pierced?

A
  1. ) commingle personal funds with corp funds
  2. ) inadequate capitalization (needs to meet prospective liabilities, can’t just hide behind corporate veil when you know big liabilities are coming)
  3. ) formed to commit fraud on existing creditors

THATS IT

182
Q

Once a dividend is declared, is the corporation liable t pay?

A

Yes, the shareholders are even general unsecured creditors until you do pay it

183
Q

What is the difference between a direct action and derivative action lawsuit?

A

Direct action = shareholders are suing the board and management of the company

Derivative action = shareholders are suing 3rd party on behalf of the corporation

184
Q

If fundamental changes need to be made in a corporation, what is required?

A

Board and shareholder approval.

*unlike a partnership where you need unanimous decision

185
Q

Who’s going to pass?

A

THIS GUY

186
Q

WHO?!

A

THIS GUY!!!!!

REG (6 decks)

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