REG 8

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 partners
2. Who agree expressly or impliedly
3. To carry on as co-owners of 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 in a partnership?

Answer 3

If the partnership agreement is silent, profits and losses are divided 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 this 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 interest 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, 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

If the articles of organization and operating agreement are silent, how are profits and losses divided in a limited liability company?

Answer 12

In an LLC, if the articles of organization and operating agreement are silent, profits and losses are divided in proportion to contributions under most state laws.

Question 13

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

Answer 13

A member of an LLC has a right to distribution when the articles of organization, an operating agreement, or an agreement of the members 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 like an officer or director of a corporation rather than like a general partner of a limited partnership and is not personally liable for the obligations of the LLC.

Question 15

A promoter, like a shareholder, officer, or director, is not liable on contracts the promoter makes on 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)
• Corporation is inadequately capitalized at the time of formation
• 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, 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 or 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 fee to provide for more officers in the bylaws.

Question 20

What is the procedure for a fundamental change?

Answer 20

Fundamental changes procedure:

1. Board resolution (majority)
2. Notice to shareholder
3. Shareholder approval (majority)
4. Filing of articles

Question 21

What are the fundamental corporate changes that require shareholder approval?

Answer 21

The fundamental corporate changes that require shareholder approval are:
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

One 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 is that even if a dividend is not declared in a particular year, it accumulates and 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 stat a derivative suit or to solicit shareholders to vote for certain directors), but shareholders may also 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 following businesses 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 provide limited liability for investors (except general partners).

Question 28

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

Answer 28

A partnership, limited partnership, limited liability company 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 worker’s 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 while 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 twenty 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 must allow the employee and other covered persons to continue to participate 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 days 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 report (SAR) within 30 days of the transaction (60 days if filed electronically)
• Notify the 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

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

Answer 40

The invention is:

• Novel
• Useful
• Not obvious to someone working in the field

Question 41

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

Answer 41

It must be in a tangible medium of expression.

Question 42

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

Answer 42

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 43

How are documents of title negotiated?

Answer 43

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 44

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

Answer 44

• 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 45

What is the duty of care of a common carrier?

Answer 45

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 cause.