BUSINESS LAW EXAM 2 – STUDY GUIDE Chapters 17; 19-21

Who authorizes another party to act on their behalf?

Principal.

Can an independent contractor be an agent?

Yes.

How do you differentiate between an employee and an independent contractor?

By how they are paid, control of the Employer, and the owner of the tools used.

Do agency contracts have to be in writing?

Only if they are for a period longer than one year.

A written formal appointment of an agent is __________.

Power of Attorney.

What duty requires the agent to act in the principal’s affairs only as authorized?

Duty of Obedience.

What duty requires the agent to maintain and provide a true account of money or property received for the principal?

Duty to Account.

Name the two tort duties owed by a Principal.

Duty to provide reasonably safe work conditions and the duty to warn of any unreasonable risk.

What is the principal's obligation to pay the agent for losses incurred while acting as directed?

Indemnification.

Name ways the parties can terminate an agency.

Lapse of time, fulfillment of purpose, mutual agreement, revocation of authority, renunciation by the agent.

When is an agency relationship irrevocable?

When it is coupled with an interest.

Name ways an agency can be terminated by operation of law.

Bankruptcy, death, incapacity, change in circumstance, loss/destruction of subject matter, disloyalty of the agent, change in law, outbreak of war.

What is a partially disclosed principal?

A principal whose existence is known but whose identity is not.

What is apparent authority?

Power conferred upon the agent by acts or conduct of the principal leading a third party to believe the agent has such power.

What is ratification in agency law?

Affirmation by one person of a prior unauthorized act by another as her agent.

Is a principal liable for tortious acts of the agent?

Only if the principal authorizes them.

What doctrine holds an employer liable for unauthorized torts committed by an employee in the course of employment?

Respondeat Superior.

Is a principal liable for unauthorized torts of an independent contractor?

No.

When can the agent enforce the contract against a third party?

When the principal is undisclosed or partially disclosed.

Conflict of Interest, Self-Dealing, and Confidentiality are examples of what kind of duties?

Fiduciary Duties.

Can a partnership use only one partner's name?

Yes.

What do partners risk in a general partnership?

Their entire personal estate.

When can a partner withdraw capital from the partnership?

Only upon dissolution after paying creditors.

What constitutes partnership property?

All partnership assets including property acquired by the partnership.

Is a sole proprietorship incorporated?

No.

What is required for a new partner to join a partnership?

Consent of all partners.

If a partnership becomes insolvent, who is liable for the debts?

All partners jointly and severally.

What is an unincorporated business association of two or more persons?

A joint venture.

In a lawsuit against a partnership, who is named as defendants?

All partners individually.

Name considerations when determining a business entity.

Taxation, ease of formation, external liability, management and control, transferability, and continuity.

What are types of business entities?

Sole Proprietorship, General Partnership, Joint Venture, Limited Partnership, LLC, LLP, LLLP, Corporation, and Business Trust.

When is a written Partnership Agreement required?

When it will exist for longer than one year due to Statute of Frauds.

What duties are owed among partners?

Fiduciary Duties, Duty of Loyalty, Duty of Obedience, and Duty of Care.

What remedy does the court impose for nonpartners misrepresenting themselves?

Partnership by Estoppel.

What is a rightful dissociation example?

Death or withdrawal.

What are the causes of dissolution?

Act of Parties, Operation of Law, Court Order.

What are the steps of dissolution?

Liquidation, Complete unfinished business, Distribution of assets.

Is a limited partnership more or less formal than a general partnership?

More formal.

When a limited partner dies, does the partnership terminate?

No.

How can a limited partner terminate a limited partnership?

Only by decree of court.

What must a Limited Liability Company name have?

'LLC' at the end.

What is the basic contract governing a limited liability company?

Operating Agreement.

Does a Limited Liability Company require state approval?

Yes.

Which state department governs LPs and LLCs?

Secretary of State.

What is a foreign LLC?

One formed in a state other than where it was originally established.

What are the two types of management of LLCs?

Member managed and manager managed.

How long does a corporation exist?

Perpetual.

What is an example of a public corporation?

A city incorporated as a corporation.

What are the benefits of a corporation?

Limited liability.

What is a negative point of a corporation?

Taxation.

In a nonprofit corporation, how must profits be used?

For charitable, educational, or scientific purposes.

Who solicits capital for a corporation?

Promoter.

To whom does the promoter owe fiduciary duties?

Other promoters and initial shareholders.

What do incorporators do?

Sign the Articles of Incorporation.

Under what principle can the corporate structure be disregarded?

Piercing the corporate veil.

What are preemptive rights?

The right to purchase enough shares to maintain ownership percentage when new shares are issued.

How many votes does each shareholder typically get?

One vote per share.

How many shareholder meetings are required per year?

One annual meeting.

What information must be included in the notice of a shareholder meeting?

Date, place, and time.

What is required for transacting business at a meeting?

A Quorum.

Who are subscribers in a corporation?

People who agree to purchase stock before the corporation is formed.

Who can remove a board member?

Shareholders can remove with or without cause.

What is the authorization to vote another’s shares at a meeting called?

A Proxy.

What are the corporate attributes?

Legal entity, limited liability, free transferability of shares, perpetual existence, centralized management, person, citizen.

What is a direct suit?

A lawsuit brought by a shareholder against the corporation.

What is a derivative suit?

A lawsuit brought by a shareholder on behalf of a corporation.

What are three functions of the board of directors?

Selecting and removing officers, determining capital structure, and declaring dividends.

What are the requirements for action to be taken without a meeting?

Must be written and unanimous.

Who handles day-to-day functions of a corporation?

Officers.

What duties do directors and officers have in a corporation?

Fiduciary duties, duty of diligence, duty of obedience, duty of loyalty.

What precludes liability for honest mistakes in judgment?

Business Judgment Rule.

What are fundamental changes in a corporation?

Amendment to Articles of Incorporation, sale/purchase of assets, merger, consolidation, dissolution.

What is a merger?

The combination of assets of two or more corporations into one.

What is consolidation?

The combination of two or more corporations into a new corporation.

What is the most common debt security?

Bond.

Who can involuntarily dissolve a corporation?

Shareholders, creditors, Attorney General.

What is a convertible bond?

A bond that can be exchanged for other securities of the corporation.

What is equity?

The source of capital creating an ownership interest in the corporation.

What determines how many shares a corporation can issue?

Only issue shares authorized in the articles of incorporation.

What is par value?

The price set by the Board of Directors or shareholders for one share of stock.

What is treasury stock?

Shares a corporation buys back after issuing them.

What are preferred stock?

Special contract rights superior to common stock.

Who declares dividends of a corporation?

Board of Directors.