BLE Quiz 3 2.0

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·      Agency Relationship – has the right to act on behalf of the principal.

·      Authority – actual,(expressed or implied) told or implied. Apparent, the act was reasonably authorized.

·      Fiduciary Duty – an agent has duty to act loyally for the principal’s benefit.

·      Duty of Loyalty – has to avoid conflicts of interest with the principal, cannot disclose confidential information.

·      Conflicts of Interest – agent may not require a material benefit from a third party, may not engage in self dealing.

·      Confidentiality – agent may not use or communicate confidential information.

·      Agents Duties – obey instructions, act with care and skill, provide information, record-keeping, and accounting.

·      Principal Duties – they must compensate, reimburse, and indemnify the agent for losses.

·      Termination by Act of the Parties – at a time or event, when a result is accomplished, by mutual agreement, or at the option of either party. (revocation when by principal) (renunciation when by agent)

·      Termination by Operation of Law – the death of an individual principal, death of agent, principals permanent loss of capacity, cessation of existence or suspension of power, occurrence of a circumstance.

·      Power of Sale – A secured loan agreement authorizing a lender (agent) to sell property used as security if the borrower (principal) defaults.

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·      Sole Proprietorship – has only one owner is an extension of its owner. Not a legal entity cannot be sued. They must sue the owner directly. Good: no formalities, taxes flow to owner, he takes all profit and control. Bad: owner bears all risk of loss and potential higher tax liabilities.

·      Partnership – has two or more owners managing the business and takes several forms. General, limited, limited liability, limited liability limited, or professional. It is a legal entity but does not have to pay federal income tax. All income or loss flows to individual partners federal income tax return whether or not distributed or allocated to partners. Good: relatively easy to crate, has a legal entity but individual taxation, partners control the businesses and assume all gain or loss, flexible structure. Bad: Partners bear all risk of loss jointly and severally, different levels of liability to partners depending on sub-form, may be created as a general partnership by default. (Revised Uniform Partnership Act of 1994 is a model partnership model)

·      Partnership capital – when a partner or limited liability partnership is formed, partners contribute cash or other property to the partnership.

·      Limited Liability Partnership – a partnership whose partners have elected limited liability status. LLP is identical to a partnership except an LLP partner has no liability for most of their obligations. But an LLP partner retains unlimited liability for their own wrongful acts (malpractice or liability to a client) It is created by a filing with a states secretary of state. Offers the same limited liability advantages to general partners in a limited partnership. It is identical to a limited partnership in its management, right and duties of its partners.

·      Corporation – owned by shareholders who elect a board of directors to manage the business, thus ownership and management of a corporation may be separate. Shareholders have limited liability for obligations of the corporation. Corp. is a legal and tax-paying entity for federal income tax purposes.(exception S corporations) Good: Shareholders enjoy limited liability for corporate obligations, perpetual existence, ability to raise large amounts of capital. Bad: greater formality required for formation and operation, double-taxation, complexity of structure, added regulatory costs.

·      Benefit Corporations – one of the newest business forms like traditional S or corporation. But, purpose considers not only shareholder value or “bottom line” but the business’s general public benefit. It has adopted by over half of states. Third-party certifications are widely available and allow benefit corporations to demonstrate commitment to the public good.

·      Professional Corporation P.C. – identical to a business corporation in most respects, is formed by a filing with a states secretary of state, and managed by a board of directors, unless a statue permits it be managed as a partnership. Riigid management structure makes professional corporation inappropriate for some smaller professional practices.

·      Limited Liability Company – combines nontax advantages of corporations with favorable tax treatment of partnerships. Owned by members who may manage themselves or have a manager to run a business.  

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·      Shareholders own a corporation but elect a board of directors to manage the firm and typically, the board delegates most management duties to officers, who in turn hire managed and employees.

·      Traditional objective of the corporation has been to maximize shareholder value.

·      Model Business Corporation Act MBCA – states a corporation has power to do anything an individual may do.

·      Ultra Vires – “beyond the powers” MBCA and MNCA state ultra vires may be asserted by three types of persons. 1. A share =holder seeking to enjoin a corporation from executing a proposed ultra vires action. 2.corporation suing its management for damages caused by exceeding corporate powers. 3. States attorney general.

·      Board of Directors – supervises actions of its committees, chairman, and officers to ensure the board’s policies are being carried our and corporation us managed wisely.

·      Executive Committee - that has the authority to act for board on most matters when the board is not in session.

·      Audit Committees - are directly responsible for appointment, compensation, and oversight of independent public accountants.

·      Sarbanes-Oxley Act – requires all publicly held firms to have audit committees of independent directors, chaired by director with background in accounting or finance.

·      Nominating Committee – chooses a slate of directors to be submitted to shareholders at the annual election of directors.

·      Compensation Committee – reviews and approves salaries, stock options, and other benefits of high level corporate executives.

·      Litigation Committee – decides policy on corporation filed lawsuits and defense when firm is sued.

·      Corporate governance committee – monitors firm’s compliance with ethics codes, bylaws and AOI.

·      Election of Directors – they are elected at an annual shareholders meeting.

·      Straight Voting – shareholder may cast as many votes for each nominee as the shareholder has shares and top vote-getters are elected as directors.

·      Class voting – may give certain shareholder classes right to elect a specified number of directors.

·      Cumulative Voting – permits shareholders to multiply their shares by number of directors to be elected and cast resulting total for one or more directors.

·      Once public ownership of shares exceeds 50% management must solicit proxies from passive shareholders to have a quorum and achieve a valid shareholder vote.

·      Proxy – is a person designated to vote for the shareholder.

·      Wall Street Rule – either support management or sell the shares. Passive shareholders follow.

·      Quorum – generally a majority, quorum of directors must be present, and each director has one vote.

·      Officers – agents of a corporation, thus express authority conferred through the bylaws or board of directors and implies authority duties.

·      Statutory Close Corporation Supplement to MBCA – permits a close corporation to dispense with a board of directs and managed by shareholders. Grants unlimited power to shareholders to restrict boards discretion.

·      Raider – when an outsider attempts to gain control of a publicly held corporation (the target the outsider makes a tender offer for shares of corporation. Asks above the current market price.

·      Intrinsic Fairness Standard – a transaction is fair if reasonable persons in an arm’s length bargain wpo0uld have bound the corporation.

·      A person is always liable for their own torts, even if committed on behalf of principal.

·      Tort – an act or omission that causes legally cognizable arm to persons or property.

·      Corporations may be liable for crimes when the criminal act is requested, authorized, corporation ahs knowledge of it, or performed by: a board od directors, an officer, another person with responsibility for formulating company policy,

·      Federal Trade Commission Act 1914 – enabled creation of the Federal Trade Commission as an independent agency.

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·      FTC’s principal missions are to keep the US economy both free and fair.

·      Enforcement Devices – issuing trade regulation rules, facilitating voluntary compliance, and adjudicative proceedings.

·      FTC trade regulation – rules have force of law and FTC can proceed directly against those who engage on prohibited practices. Adjudicative proceeding. Civil penalty up to %10,000 for each knowing violation of a rule.

·      Advisory Opinion – commission’s response to a private party’s inquiry about legality of a proposed business action.

·      Industry Guides – FTC interpretations of laws it administers.

·      FTC Adjudicative Proceeding – a formal complaint and case is heard in a public administrative hearing. Most common penalty resulting from a final decision against respondent is an FTC cease-and-desist orde3r up to $10,000 per violation.

·      Consent Order – and order approving a negotiated settlement in which respondent promises to cease certain activities and/or pay certain fees.

·       Abusive Practice – Telemarketer threatens or intimidates a customer or call repeatedly.

·      Do-Not-Call Registry – prohibits telemarketers from placing calls to listed numbers.

·      Written Warranty – product costing over $15 requires simple, clear, and conspicuous presentation pf certain information.

·      Open-End Credit – covers repeated transactions and a finance charge computed on an unpaid balance.

·      Close-Ended Credit – covers consumer loans from a finance company for a specific time period.

·      Consumer Reporting Agencies – regularly compile credit-related information on individuals for the purpose of furnishing consumer credit reports to users.

·      Equal Credit Opportunity Act 1974 – Prohibits credit discrimination on the bases of sex, marital status, age, race, color, national origin, religion, and obtaining public assistance. Applies to all entities that regularly arrange extend, renew, or continue credit.