business law final exam

What must be true about Ben's age for the Age Discrimination in Employment Act of 1967 to apply?

Ben must be forty (40) years of age or older

Cora regularly emails sexually explicit images to Dom via their employer's computer network. Dom finds this offensive. What is this an example of?

Hostile environment harassment

When may The Big Bank of James (BB&J) subject its employees to lie-detector tests?

When investigating losses attributable to theft/conversion

Jimmy John's, Limited grants a franchise to Zach, who is incorporated as Zach, Inc. What is Zach, Inc.?

A franchisee

Jakob manages the partnership and spends most of his time at the business while Cameron takes long vacations. Unless the partnership agreement states otherwise, what is Jakob entitled to?

Jakob is NOT entitled to compensation for his additional effort

What is Brenna's liability for partnership debts incurred before her admission as a new partner in Eastside Physicians?

Limited to her capital contribution to the partnership

Mike told potential employers that David was not a very good worker, had been fired for excessive absences, and that he believed David was on drugs (though not certain). What is the legal outcome in most states?

It was proper for Mike to discuss David's work-related history, but he acted improperly when he stated he thought David was on drugs without being certain

True or False: A corporate officer is not an agent for the corporation.

False — corporate officers, directors, and employees are all agents of the corporation; the corporation is the principal

True or False: An independent contractor always acts in the capacity of an agent.

False — an independent contractor is NOT subject to the control of the employer as to the way they bring about a result, and is therefore not an agent

True or False: An agent can take advantage of an agency relationship to make a "secret" profit.

False — an agent owes a fiduciary duty of loyalty to the principal and cannot make secret profits

True or False: An agency relationship can exist in the absence of a formal agreement.

True — for example, a gratuitous agency relationship requires no contract or consideration

True or False: An employer can be liable for an employee's online harassment.

True

True or False: Employers can require or cause employees, but not job applicants, to take lie-detector tests.

False — employers generally cannot require either employees OR job applicants to take lie-detector tests, except in specific circumstances (e.g., investigating theft)

True or False: A board of directors generally conducts business without holding meetings.

False — a board of directors must generally hold meetings to conduct business

True or False: Shareholders are ultimately personally responsible for corporate debts.

False — a key purpose of a corporation is to limit the personal liability of shareholders

True or False: A sole proprietorship automatically dissolves on the death of the owner.

True

True or False: Shareholders can be personally liable for corporate debts if a court "pierces the corporate veil."

True

True or False: If a principal is disclosed, the agent may be liable to a third party for the principal's nonperformance of a contract.

False — if the principal is disclosed, the agent is generally NOT personally liable for the principal's nonperformance

Concerning liability of partners for debts of the firm, what is the most accurate statement?

A partner is generally liable for the acts of a fellow partner — partners have joint and several liability for all partnership obligations

Which powers are generally conferred upon the board of directors through a company's internal rules?

Management power and the power over share transfers

True or False: A shareholder is an agent of a corporation.

False — shareholders are owners (investors), not agents; officers, directors, and employees are the agents

What is an Agency Relationship?

A relationship where an agent acts on behalf of a principal, with the principal controlling the means and methods of the agent's performance

What are the five elements required to create an agency relationship?

1. A principal; 2. An agent; 3. Mutual consent that the agent will act on behalf of the principal; 4. The agent is under the control of the principal; 5. There is a fiduciary relationship between the agent and principal

What is the most important/determinative factor in establishing an agency relationship?

The Power of Control — the principal's control over the means and methods of performing the work

What is a Gratuitous Agency Relationship?

An agency relationship where the agent receives no compensation/consideration; it is still valid but if the agent fails to perform, there is no breach of contract

What is Respondeat Superior?

A legal doctrine meaning "let the master answer" — a principal/employer is vicariously liable for the acts of their agent/employee committed within the scope of employment

What is the Equal Dignity Rule?

The rule that an agency agreement must be in writing when the agent is authorized to enter into a contract that itself must be in writing (e.g., contracts for the sale of real estate)

What are the duties an agent owes to a principal?

Fiduciary duty of loyalty (most important), duty to obey instructions, duty of care, and duty to provide information

What is the fiduciary duty of an agent?

The agent must act in the principal's best interest, cannot compete against the principal, cannot make secret profits, and must keep confidential information confidential

What are the principal's remedies if an agent breaches a duty?

The principal can: terminate the agency relationship, sue the agent for damages, or demand any profits the agent wrongfully obtained

What are the duties a principal owes to an agent?

Duty to compensate the agent per their agreement, duty to reimburse reasonable expenses, duty to cooperate with the agent, and duty to provide a safe working environment

What is the difference between a Frolic and a Detour?

A frolic (abandonment) is when an employee completely abandons their job duties for personal reasons — the employer is NOT liable. A detour is a minor departure from duties — the employer IS still liable for the employee's negligent acts

How do you distinguish an agent/employee from an independent contractor?

Key factors: Does the principal control the details of the work? Supply tools/workplace? Is the agent full-time? Paid by time (not by job)? Is the work part of the principal's regular business? "Yes" answers indicate an employee/agent relationship. The key is the power to CONTROL

What is the exception to the rule that principals are not liable for independent contractors?

Negligent Hiring — an employer can be liable if they negligently hire an independent contractor (or employee) they knew or should have known had a propensity for harmful conduct

When is a principal liable for an agent's intentional tort?

Generally, employers are NOT liable for employees' intentional torts. However, the employer IS liable if the intentional tort was committed within the course and scope of employment (e.g., a bouncer committing assault while working)

What is the general rule for principal liability for an agent's tort (Respondeat Superior)?

A principal is liable for all damages proximately caused by the negligence of the agent while acting within the scope of the agent's employment

How can an agency relationship be terminated?

By act of the parties (mutual agreement, completion of purpose, revocation by principal, renunciation by agent) or by operation of law (death or incapacity of principal or agent, destruction of subject matter, changed circumstances, bankruptcy)

What are the three types of authority a partner/agent can have?

Actual authority, Implied authority, and Apparent authority

What is a Sole Proprietorship?

A business owned and operated by a single individual; the owner has unlimited personal liability, receives all profits, and the business dissolves automatically upon the owner's death

What are the advantages of a Sole Proprietorship?

Easy and inexpensive to form, owner receives all profits, complete control, minimal government regulation

What are the disadvantages of a Sole Proprietorship?

Unlimited personal liability, business dissolves on owner's death, limited ability to raise capital

What are the three main groups in a corporation's structure?

Directors (oversee affairs, protect shareholders, have management and stock transfer powers), Officers (handle day-to-day operations, appointed by directors), and Shareholders (ownership interest, looking for return on investment)

What is typically included in the Articles of Incorporation?

Name of the corporation's registered agent, name of each incorporator/promoter, and number of authorized shares (NOT quorum requirements)

What right does a corporate stockholder have?

The right to receive dividends (when declared), vote for directors, and approve dissolution — they do NOT elect officers or prevent corporate borrowing

What is a De Jure corporation?

A corporation that has fully complied with all legal requirements for incorporation

What is a De Facto corporation?

A corporation that has not fully complied with incorporation requirements but has made a good-faith effort to comply and has been acting as a corporation

What is Corporation by Estoppel?

When a third party has dealt with a business as if it were a corporation, that party may be estopped (prevented) from later denying the corporation's existence

What are the key advantages of a Corporation over a Partnership?

Ownership (shares) is easily transferable, corporations have perpetual existence, and it is easier to raise funds

What are the two key advantages of a Partnership over a Corporation?

Partnerships do NOT pay taxes (pass-through taxation), and they are easy to form

What law governs Partnerships?

Common Law and the Uniform Partnership Act (UPA); the UPA acts as default rules when there is no partnership agreement or the agreement fails to address an issue

What must a partnership be formed for?

PROFIT — a partnership cannot be a charitable organization

What are the factors in determining if a partnership exists?

Sharing profits, sharing losses, management of the business, and an agreement (oral or written)

Under the UPA, how are partnership profits shared?

Equally among all partners, regardless of time, effort, or money contributed — unless the Partnership Agreement states otherwise

Under the UPA, how are partnership losses shared?

According to each partner's share of profits, unless the Partnership Agreement states otherwise

Can a partner transfer their partnership interest to another person?

No — a partner cannot sell or transfer their full partnership interest without unanimous consent of all other partners. They can only transfer their right to receive profits and losses

What vote is required to admit a new partner to a partnership?

Unanimous consent of all existing partners

What is a partner's duty of loyalty to the partnership?

Each partner must turn over to the partnership all earnings from any activity related to the partnership's business, even if earned while on vacation

Under the UPA, what are partners liable for?

Gross negligence, reckless conduct, intentional misconduct, or knowing violation of the law — but NOT ordinary negligence

What is the information rule under the UPA?

Whatever one partner knows, the entire partnership is deemed to know — partners have a duty to pass on all relevant information

Under the UPA, can partners change the rules governing liability to outsiders?

No — those rules are MANDATORY and cannot be changed by the partners. Rules governing the relationship AMONG partners are flexible and can be altered by a partnership agreement

What is joint and several liability in a partnership?

Each partner is personally liable for ALL debts of the partnership — a creditor can sue any one partner or all partners together for the full amount

What is the liability of an incoming (new) partner for pre-existing partnership debts?

Limited to their capital contribution — they are NOT personally liable for debts incurred before they joined the partnership

What is Dissociation in a partnership?

When a partner leaves/quits the partnership. It does not necessarily end the partnership — the remaining partners can buy out the departing partner and continue, or wind up and terminate

What is the difference between rightful and wrongful dissociation?

Rightful: partner withdraws in a partnership at will, death/incompetency, or expulsion. Wrongful: violating the partnership agreement, withdrawing early from a term partnership, or court expulsion for harmful behavior

What are the three steps to terminating a partnership?

1. Dissolution; 2. Winding up (paying all debts, distributing remaining proceeds to partners); 3. Termination (happens automatically when winding up is complete)

What is a Limited Partnership?

A partnership with both general partners (active management, personally liable) and limited partners (money-only investors, NOT personally liable). Requires a filed certificate of limited partnership

What is a Franchise?

A business entity that is a compromise between starting one's own business as an entrepreneur and working for someone else as an employee

What is an Employee at Will?

An employee who can be fired at any time, for any reason, or for no reason at all — as long as the reason is not illegal (e.g., discrimination)

What is the NLRA (National Labor Relations Act)?

A federal law that protects employees' rights to organize, join unions, and engage in collective bargaining with their employers

What does the Family and Medical Leave Act (FMLA) apply to?

Employers with 50 or more employees — eligible employees can take up to 12 weeks of unpaid, job-protected leave for qualifying family or medical reasons

What is an Ethical Dilemma?

A situation in which a person must choose between two or more morally conflicting options, where there is no clear right or wrong answer

What are the two schools/theories of Business Ethics?

1. Shareholder theory (Milton Friedman): a corporation's primary obligation is to maximize profits for its shareholders; 2. Stakeholder theory: a corporation has obligations to all stakeholders — employees, customers, community, and shareholders

What is the Shareholder Model of corporate purpose (Milton Friedman)?

A corporation's obligation is to follow the law and make money for its owners (shareholders) — profit maximization is the primary goal

What is the Stakeholder Model of corporate purpose?

A corporation has responsibilities to all stakeholders — including employees, customers, the community, and the environment — not just shareholders

What is Ethics?

The study of what constitutes right or wrong behavior

Can an illegal act be ethical? Can a legal act be unethical?

Yes to both — legality and ethics are not the same thing. Some illegal acts may be considered ethical by some, and some legal acts may be considered unethical

Why do businesses bother with ethics if it doesn't always increase profits?

Because unethical behavior can be extremely costly to a business and cause significant public outrage, even if it is not always immediately reflected in profits

What is the difference between Agency Law and Employment Law in terms of legal basis?

Agency law is based in Common Law; Employment law is based primarily in Statutory Law

What is the Equal Dignity Rule?

A legal doctrine requiring that an agent's authority to enter into a contract on behalf of a principal must be in writing if the contract itself must be in writing under the Statute of Frauds (e.g., real estate contracts)

What are the specific duties of loyalty an agent owes to a principal?

Must act for the benefit of the principal; cannot receive outside benefits without approval; cannot disclose or use confidential information; cannot compete with principal; cannot act for two conflicting principals; cannot become a party to a transaction without permission; cannot engage in behavior that reflects badly on the principal

Can an agent act for two principals whose interests conflict?

No — unless both principals agree to the agent representing both of them

What standard is an agent with special skills held to?

A higher standard — they are expected to use those skills on behalf of the principal

What happens to confidential information after an agency relationship ends?

It remains confidential and cannot be used or disclosed, even after the agency ends

What are the 5 ways to terminate an agency relationship by act of the parties?

1. Completion of agreed term; 2. Completion of agreed purpose; 3. Mutual agreement; 4. Either party can terminate in an agency at will; 5. Wrongful termination (terminating party may owe damages)

What are the other causes that can terminate an agency relationship by operation of law?

Loss of qualification, bankruptcy, death or incapacity of principal or agent, disloyalty of agent, change of circumstances (loss/destruction of subject matter, change of law)

What are the three ways a principal is bound by an agent's contract?

1. The agent had authority; 2. The principal is estopped from denying the agent had authority; 3. The principal ratified the agent's acts

What is Ratification in agency law?

When a principal accepts the benefit of an unauthorized transaction or fails to repudiate it, they are bound by the act as if they had originally authorized it

What is a Fully Disclosed Principal and what is the agent's liability?

The third party knows who the principal is (e.g., "I represent M&M's") — the agent is NOT liable for the contract; only the principal is

What is a Partially Disclosed (Unidentified) Principal and what is the liability?

The third party knows an agent represents SOMEONE but not who (e.g., "I represent a principal but cannot disclose the name") — BOTH the agent and principal are liable

What is an Undisclosed Principal and what is the liability?

The third party doesn't even know a principal exists (e.g., "I don't represent anyone") — BOTH the agent and principal are liable

What is an Unauthorized Agent and what is the liability?

An agent who acts without authority — the PRINCIPAL is NOT liable; the AGENT is personally liable

What is a "Straw Man" in agency law?

A fake buyer or agent used to conceal the identity of the true principal in a transaction

When is a third party NOT bound to a contract with an undisclosed principal?

1. When the contract specifically says the third party is only bound to the agent; or 2. When the agent lied about the principal because they knew the third party would refuse to deal with the principal

What does Joint and Several liability mean in agency tort law?

The injured party may sue either the agent, the principal, or both — but may not recover twice the full amount; they can recover partially from both

What is Double Taxation in a corporation?

A corporation pays income tax on its profits, AND shareholders must also pay personal income tax on any dividends received from the corporation

What are the advantages of an S Corporation?

Limited liability of a corporation PLUS pass-through tax status of a partnership (profits and losses pass directly to shareholders, avoiding double taxation)

What are the disadvantages of an S Corporation?

Can only have one class of stock; no more than 100 shareholders; shareholders cannot be partnerships or other corporations; shareholders must be U.S. citizens or residents; all shareholders must agree to S corp status

What is a Closed Corporation?

A corporation whose stock is NOT publicly traded on a stock exchange; common provisions include protection of minority shareholders, transfer restrictions, and dispute resolution mechanisms

What is an LLC (Limited Liability Company)?

A business entity that combines the limited liability of a corporation with the pass-through tax status of a partnership, without the disadvantages of an S corp; offers flexibility in management and perpetual duration

What are the steps to properly form a corporation in Virginia?

1. Pick an available name ending in Corporation, Incorporated, Company, or Limited; 2. File Articles of Incorporation with the Virginia State Corporation Commission; 3. Nominate a registered agent; 4. Draft bylaws; 5. Prepare and offer stock; 6. Hold organizational meeting and record minutes; 7. Obtain Employer Identification Number; 8. Hold annual shareholder and director meetings and file annual report