Business Law Exam 1
Learn
Practice Test
Spaced Repetition
Match
Flashcards1/117
Earn XP
Description and Tags
BADM 351 at BHSU ----Chapters 2,4,5,9,10 from textbook: Business Law: Text & Cases - Commercial Law for Accountants.
Name | Mastery | Learn | Test | Matching | Spaced |
|---|
No study sessions yet.
118 Terms
There are three main types of businesses…
Sole Proprietorship, Partnerships and Corporations
The simplest form of business…
Sole Proprietorship
In a sole proprietorship there is no ____ that has to be filed with the state
official paperwork
Sole Proprietorships make up….
a majority of businesses
D.B.A stands for (in sole proprietorship)
Doing business as
In a sole proprietorship, there is no….
continuity of life
In a sole proprietorship, taxes are filed…
under the name of the person running it. Not a separate tax form.
All of sole proprietorship and most partnerships have…
Unlimited liability.
Example of a Tradename (a name set by owner for a business)
Abby’s Jewels
(1) Kim, Erin and Ben form a partnership to operate a bakery that makes $100,000/ year. Capital contributions to the partnership are as follows:
Kim: $100,000 (50%)
Erin: $50,000 (25%)
Ben: $50,000 (25%)
The partners share profits and losses and will be allocated according to capital contribution. How much will each partner receive?
Kim: $50,000
Erin: $25,000
Ben: $25,000
(2) Kim, Erin and Ben form a partnership to operate a bakery that makes $100,000/ year. Capital contributions to the partnership are as follows:
Kim: $100,000 (50%)
Erin: $50,000 (25%)
Ben: $50,000 (25%)
Assume the partners have an agreement but the agreement does not address how they will share profits and losses. How much will each partner receive?
Kim: $33,333.33
Erin: $33,333.33
Ben: $33,333.33
1/3 of profits for each, split evenly
(3) Kim, Erin and Ben form a partnership to operate a bakery that makes $100,000/ year. Capital contributions to the partnership are as follows:
Kim: $100,000 (50%)
Erin: $50,000 (25%)
Ben: $50,000 (25%)
Assume there is a LOSS of $40,000. The partnership agreement stated that the profits would be allocated according to capital contributions but did NOT address losses. How much will each partner be responsible for?
Kim: -$20,000
Erin: -$10,000
Ben: -$10,000
What are the pros of a franchise?
free national ads, training programs, the food/ furniture is usually supplied.
The state-level protects ______ but not at the federal level
Partnerships
What is UPA?
Uniform Partnership Act
Why was the UPA created?
All states had different rules about partnerships and there was no uniformity which caused problems across state boarders.
What is the one state that did not pass the UPA into their state laws?
Louisiana
Why did Louisiana not adopt UPA into state law?
They have a French-based law system instead of an English one like the rest of America.
What is RUPA?
Revised Uniform Partnership Act
Did all states adopt RUPA?
No.
Define Partnerships…
An association of two or more persons to carry on as co-owners, a business for profit.
What are the 3 requirements for partnerships?
Must be voluntary/consensual, must have two or more people, and must be a business for profit.
People can be _____, Other partners can be ___ and even corporations can be ____.
Partners
Partnerships must have sharing of profits, joint ownership in a business AND…?
Sharing the management of the business
What is the default for courts when trying to find if two or more parties are partners?
If they are sharing profits AND losses.
What the most inexpensive form of business?
A sole proprietorship
A sole proprietorship is a NOT a…
tax paying entity.
Define UPA…
governs the operation of partnerships in the absence of express agreement and has done much to reduce controversies in the law relating to partnerships.
What’s an LLP?
is a hybrid form of business designed mostly for professionals who normally do business as partners in a partner.
EX of an LLP?
Lawyer firm or doctor’s office.
What is judicial dissolution of a partnership?
When a judge forces a partnership to end
Some examples of why a judge may order a judicial dissolution of a partnership:
the relationship is bad and will not improve or if one partner wants to end it but the other doesn’t.
Step 1 in Traditional Method for Liquidating a Partnership:
They pay their outside creditors
Step 2 in Traditional Method for Liquidating a Partnership:
They pay inside creditors aka partners
Step 3 in Traditional Method for Liquidating a Partnership:
If there’s money left— then they return the capital contributions.
Step 4 in Traditional Method for Liquidating a Partnership:
If there is money left— they the partners will split it as profits.
The three ways of creating a partnership:
Express (verbal or written), Implied or Estoppel
What is Partnership by Estoppel?
when a person behaves or speaks in a manner that leads others to believe that they are a partner in a business when they are not (as it causes harm)
EX of Implied Partnership
A married couple owned a business together and split the profits. Ex-wife tried to sue ex-husband for child support in full profits- arguing he ran as a sole proprietorship. The court ruled that the married couple had an implied partnership in running their business.
What is not a Tax paying entity (that isn’t a sole proprietorship)
A partnership
Are new partners liable to take on debt? (like a loan)
No they are not.
What are the Articles of Partnership?
A written contract that forms an agreement to share a business including profits and losses.
What is highly recommended you file personally (not with the state) when forming a partnership?
Articles of Partnership
Corporations are created…
pursuant to state law
What does pursuant mean?
To follow out/after or carry out by reason of something.
Characteristics of a Sole Proprietorship:
Creation- Default
Legal Status- Not a separate entity
Owners- One entrepreneur
Liability- Unlimited
Taxation-Not a tax-paying entity (extension of owner)
Continuity of Life- No— dissolution
Characteristics of a Partnership:
Creation- Articles of Partnership
Legal Status-Separate entity
Owners-Two or more
Liability- unlimited
Taxation- nto a tax paying entity (like a sole proprietorship) but must file a “information” report (??)
Continuity of Life- States a split. Some states make it end at death.
Characteristics of a Corporation:
Creation- Articles of Incorporation
Legal Status- Separate legal entity
Owners- One or more shareholders
Liability- limited
Taxation- tax paying entity (double taxation)
Continuity of Life- Yes.
Partnerships can…
sue or be sued
Partnerships pay taxes called the
conduct approach (?? professor didn’t explain sorry)
Step 1 of Incorporation Process:
File Articles of Incorporation with Secretary of State plus fling fee
Step 2 of Incorporation Process:
The Secretary of State will send the Certificate of Incorporation OR Corporate Charter.
Step 3 of Incorporation Process:
Organizational Meeting (shareholders elect a board) Bylaws Adopted- not filed to state. Governs the corporation
Step 4 of Incorporation Process:
File annual report and filing fee with Secretary of State.
What are Bylaws?
A process of managing, where to meet, etc.
Where are the Bylaws kept?
In house. Not filed with the state.
An advantage of having a corporation:
Limited Liability
What is it called when a judge gives an exception to limited liablity?
Piercing the Corporate Veil
Examples of why a judge may Pierce the Corporate Veil:
Disregarding corporate formalities (etc. hold meetings), Commingling assets (using corp. $ to pay personal debt) and Fraud/ Asset stripping (parent owns 100% of subsidiary and elects’ directors— therefore controlling subsidiary).
What is the name of the form: Determination of Worker Status for Purposes of Federal Employment taxes and Income Tax Withholding.
SS-8.
There are two type of voting methods for shareholders:
Straight and Cumulative
Equation for Cumlaive Shareholder Voting:
The # of shareholders times (x) the # positions to be filled. (EX: 7000 shares x 3 = 21000 shares)
Most but not all recognize ____ shareholder voting
Cumulative
Nature of a Corporation:
- Corps are the most dominant form of business organization
- 80% revenue generated
- 72% sole proprietors
- 20% corporations
- 8% partners
Most states impose a state…
corporation income tax
South Dakota does not…
have double taxation
Corps used to be taxed 35%m then Trump lowered it to _____ and then Biden raised it a little bit more since then.
21%
With double taxation dividends…
paid shareholders
The Board of Directiors…
make policy decisions going forward for the corporation. They will hire the officers of the corporation
Examples of the officers of the corporation:
CFO, CEO, COO, etc.
(Only in California) The Regulation of Board Members requires…
publicly held companies to require a certain number of board members represent underrepresented communities or face heavy fines.
The two different classifications for Corps:
Closely held and Publicly held
Closely held Corps….
Owner might also serve on the board of directors and even as a officer. The company is held closely and employees wear multiple hats. Family members may be shareholders.
Publicly held Corps…
Some shares are held by the general public. Public market for shares, like securities exchange or the American stock exchange or electronically held like Robinhood. A shareholder can get out of it pretty easy and simple.
In a NFP (Non For Profit)….
do not expect to take a profit. Are called memebrs not shareholders. They do not exchange stocks. Owner's are protected as being classified as a coportion with limited liability.
Avoidance of Double Taxation EXs (usually only works for smaller Corps)
Pay salaries, interests bearing loans from shareholders and accumulate earnings (aka don’t pay out dividends).
Restatement of Agency:
is the fiduciary relation which someone (the agent) agrees to preform a task for and under the control of, someone else (the principal)
An agency thereby causes a….
fiduciary relationship (hold trust)
The two parties of agency:
the agent and the principle
The agent…
agrees to represent the principle
The principle…
employs/appoints another party to act on his/her behalf
Agency relationships have to have the following:
-Principle and agent.
-The agent will act on behalf of the principle
-Must put the principal interest above the agent
-Be subject to the principles of control
4 Aspects of Agency Law:
-Formation/creation of the Agency
-Liabilities of principal and agent on contracts made by the agent
-Tort Liability of the agent and principle (EX: Negligence)
-Duties that the principal and agent owe to each other
When determining agency: If the principle is not getting a benefit…
there is NO agency.
EX of Agency and HOW it’s an agency: Nanny used family car because she doesn't have one. Nanny has a bunch of instructions of when she can use the car and how to use the car
Was there an agreement? Yes.
2. Is there a benefit from the principle? Yes. —-The parents don't have to drive their kids around while they're at work.
3. Were there instructions? Yes.
If someone does something negligent while in an agency…
the injured party can sue the principle.
Four types of Agency:
Express, Implied, Ratification and Estoppel.
EX of Implied Agency:
can a manager sign a packet on behalf of the business -- Probably YES because they are acting on behalf of benefitting the principle
EX of Agency by Ratification:
Sally hires a man to find and buy old collectable bicycles. He has a cap of $500. He finds a really good one that he thinks Sally will like for $600. He cant get ahold of Sally and decides to buy the bike anyway. They can ratify their agreement because Sally is really glad that the man had bought it for her
EX of Agency by Estoppel:
Give a man a new position titled "Purchasing Manager". However the company does not give him the authority to actually purchase something for the company. The man is led to believe that he was hired to purchase things because he is the purchasing manager but isn't allowed to. The court will not allow it. The company is bound by the agency/contract because the appearance of the title makes it seem like the man would have the responsibilities that his title implies.
The 5 Duties owed by the agent to principle:
duty of performance, notification, loyalty, obedience, and accounting
Duty of Performance:
a duty that each party has to undertake or refrain from undertaking a activity under contract. The action of completing the performance.
Duty of Notification:
The agent has to tell the principle important things.
EX of Dity of Notification:
If the agent (in this case a travel agent) knows the principle needs to pay a certain tax to move to another country and therefore has to tell the principle as its their duty.
Duty of Loyalty:
Must act solely for the principal’s benefit.
Why can’t an agent work for two similar principles (who operate similarly)?
How can an agent act in the duty of one principle over another one when they're supposed to be loyal to both?
EX of BREACH Duty of Loyalty:
Agent searches for property for Target because they want to make a new store. The agent finds a good piece of land but instead of going to tell Target about it-- instead the agent goes and buys the property for himself.
Duty of Obedience:
Must follow rules/instructions. The agent has a duty to ask for clarification if they do not understand the rules set up the principle and abide by those rules.