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

Chapter 17:  Agency

1.   Who authorizes another party to act on their behalf? 

o   Principal.

2.   Can an independent contractor be an agent? 

o   Yes.

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

o   How they are paid, control of the Employer and the owner of the tools used

4.   Do agency contracts have to be in writing?

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

5.   A written formal appointment of an agent is ______? 

o   Power of Attorney.

6.   An agent must act in the principal’s affairs only as authorized by the principal and must obey all reasonable instructions and directions? 

o   Duty of Obedience

7.   An agent must maintain and provide the principal with a true and complete account of money or other property that the agent has received or expended on behalf of principal. 

o   Duty to Account

8.   Name the 2 tort duties owed by a Principal. 

o   Duty to provide reasonably safe work conditions and

o   the duty to warn the employee on any unreasonable risk.

9.   The principal must pay the agent for losses the agent incurred while acting as directed by the principal. 

o   Indemnification

10.                Name ways the parties can terminate an agency? 

o   Lapse of time,

o   Fulfillment of purpose,

o   mutual agreement of the parties,

o   revocation of authority or

o   renunciation by the agent.

11.                When is an agency relationship irrevocable? 

o   When it is coupled with an interest.

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

o   Bankruptcy,

o   death, incapacity,

o   change in circumstance,

o   loss or destruction of the subject matter,

o   disloyalty of the agent,

o   change in law and

o   outbreak of war

13.                Principal whose existence is known by whose identity is not known. 

o   Partially Disclosed Principal.

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

o   Apparent Authority

15.                Affirmation by one person of a prior unauthorized act that another has done as her agent or as her purported agent. 

o   Ratification

16.                Is a principal liable for tortious acts of the agent? 

o   Only if the principal authorizes them

17.                An employer is liable for unauthorized torts committed by an employee in the course of his employment is the doctrine of ________?

o    Respondeat Superior

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

o   No

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

o   When the principal in undisclosed or partially disclosed.

20.                Conflict of Interest, Self-Dealing, Duty not to compete, Confidentiality and duty to account for financial benefits are all what kind of duties? 

o   Fiduciary Duties

Chapter 19 Business Entities

21.                Can the name of the partnership only have the name of one of the partners? 

o   Yes.

22.                In a general partnership, what do the partners risk? 

o   Their entire personal estate

23.                When can a partner withdraw his capital placed into the partnership? 

o   Only upon dissolution after the outside and inside creditors have been paid out.

24.                What is partnership property? 

o   All partnership assets including property acquired by the partnership.

25.                Is a sole proprietorship incorporated? 

o   No.

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

o   Consent of all partners

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

o   All partners jointly and severally.

28.                What is an unincorporated business association of 2 or more persons to carry out a particular business enterprise for profit? 

o   A joint venture

29.                If A, B and C are partners of X Partnership and Z corporation is suing X Partnership, who is named in the law suit? 

o   A, B and C individually

30.                Name the items of consideration when determining a business entity. 

o   Taxation,

o   Ease of Formation,

o   External Liability,

o   Management and Control,

o   Transferability and Continuity

31.                Name types of business entities. 

o   Sole Proprietorship,

o   General Partnership,

o   Joint Venture,

o   Limited Partnership,

o   Limited Liability Company,

o   Limited Liability Partnership,

o   Limited Liability Limited Partnership,

o   Corporation and Business Trust

32.                When is a written Partnership Agreement required? 

o   When it will be in existence for longer than one year – Statute of Frauds

33.                Name the Duties owed among Partners. 

o   Fiduciary Duties /

o   Duty of Loyalty,

o   Duty of Obedience and

o   Duty of Care

34.                What remedy does the court impose when a nonpartner misrepresents himself? 

o   Partnership by Estoppel

35.                What is an example of a Rightful Dissociation? 

o   Death or withdrawal

36.                 What are the 3 causes of Dissolution? 

o   Act of Parties,

o   Operation of Law and

o   Court Order

37.                What are the 3 steps of Dissolution? 

o   Liquidation,

o   Complete any unfinished business and

o   distribution of assets.

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

o   More formal

39.                When a limited partner dies, does the partnership terminate? 

o   No

40.                How can a limited partner terminate a limited partnership? 

o   Only by decree of court

41.                What is required for the name of an Limited Liability company? 

o   LLC on the end

42.                What is the basic contract governing the affairs of a limited liability company? 

o   Operating Agreement

43.                Does a limited liability company require approval from the State?

o   Yes

44.                What state department governs the affairs or LPs and LLCs? 

o   Secretary of State

45.                What is a foreign LLC?

o   One in any state other than which it was formed

46.                What are the 2 types of management of LLCs? 

o   Member managed and manager managed

Chapters 20 & 21 Corporations / Corporate Governance

47.                How long is a corporation in existence? 

o   Perpetual

48.                A city in which is incorporated is an example of what kind of corporation? 

o   Public

49.                Name the benefits of a corporation? 

o   Limited liability etc

50.                Name one negative point of a corporation. 

o   Taxation

51.                In a nonprofit corporation, what must the profits be used for? 

o   Charitable,

o   educational,

o   or scientific purposes for which it was formed.

52.                The name of the person who solicits capital. 

o   Promoter

53.                The promoter owes fiduciary duties to whom? 

o   Other promoters and initial shareholders

54.                What does the incorporators do? 

o   Sign the Articles of Incorporation

55.                A court can disregard the corporate structure and hold an officer directly liable under what principal? 

o   Piercing the corporate veil

56.                What are preemptive rights? 

o   When new shares are issues, you have the right to purchase the amount of shares required to keep your same % as before.

57.                Typically, how many votes do each shareholder get? 

o   One vote per share

58.                How many meetings per year are required for shareholders? 

o   One annual meeting

59.                What is required on the notice of shareholder meeting? 

o   Date place and time

60.                What is the minimum number necessary to be present at a meeting in order to transact business called? 

o   A Quorum

61.                The name of the people who agree to purchase stock in the corporation before it is formed. 

o   Subscribers

62.                Who removes a member of the board of directors? 

o   Shareholders can remove with or without cause

63.                The authorization to vote another’s shares at a meeting – generally must be in writing is called a ______________? 

o   Proxy

64.                Name the corporate attributes. 

o   Legal entity,

o   limited liability,

o   free transferability of corporate shares,

o   perpetual existence,

o   Centralized management,

o   a person,

o   a citizen

65.                A lawsuit brought by the shareholder against the corporation is called ________. 

o   A direct suit.

66.                A lawsuit brought by a shareholder on behalf of a corporation is called ________. 

o   A derivative suit.

67.                Name 3 functions of the board of directors. 

o   Selecting and removing officers,

o    Determining the corporation’s capital structure,

o   Initiating fundamental changes,

o   Declaring dividends and

o   Setting management compensation

68.                What are the 2 requirements to action to be taken without a meeting? 

o   Must be written and unanimous.

69.                Who are responsible for the day to day functions of a corporation? 

o   Officers.

70.                What duties do the directors and officers have in a corporation? 

o   Fiduciary duties,

o   duty of diligence,

o   duty of obedience and

o   duty of loyalty

71.                What precludes imposing liability on directors and officers for honest mistakes in judgment if they act with due care, in good faith and reasonably believed to be in the best interest of the corporation? 

o   Business Judgment Rule

72.                Name Fundamental changes in a corporation? 

o   Amendment to Articles of Incorporation (Charter),

o   purchase or sale of substantially all of its assets,

o   Merger, Consolidation,

o   Dissolution

73.                What is the combination of assets of 2 or more corporations into one corporation?

o   Merger

74.                What is the combination of 2 or more corporations into a new corporation? 

o   Consolidation

75.                What is the most common debt security? 

o   Bond

76.                Who can involuntarily dissolve a corporation? 

o   Shareholder,

o   Creditors and

o   the Attorney General

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

o   Convertible Bond

78.                The Source of capital creating an ownership interest in the corporation is called ____? 

o   Equity

79.                How many shares can be issued by a corporation?

o   only issue shares authorized in the articles of incorporation

80.                The amount set by the Board of Directors or shareholders for the price of one share of stock is called ______________?

o    Par Value

81.                Shares a corporation buys back after issuing them is called _______? 

o   Treasury Stock

82.                Special contract rights superior to common stock are _______? 

o   Preferred Stock

83.                Who declares Dividends of a Corporation? 

o   Board of Directors

Essay Questions: 

Select what type of corporation : for example closely held, nonprofit, publicly traded, public (like city of Springfield), domestic, foreign, etc.

Know how to pay out partnership (including limited partnerships and LLC’s taxed as a partnership) upon dissolution.  Outside creditors, inside creditors, repay capital contributions then profits.