LST 240 study guide for Exam 4
LST 240 study guide for Exam 4 LST 240
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This 10 page Study Guide was uploaded by Sydney Hunt on Tuesday May 17, 2016. The Study Guide belongs to LST 240 at Murray State University taught by Dr. Alkhatib in Spring 2016. Since its upload, it has received 17 views. For similar materials see Business Law/Legal Environment in Business at Murray State University.
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Date Created: 05/17/16
LST 240 Chapter 29 1. What is agency? An agency is a consensual relationship authorizing one party (agent) to act on behalf of the other party (principal) subject to the principal’s control. 2. What is power of attorney? Durable power of attorney? A power of attorney is written, formal appointment of an agent who is known as an attorney in fact. A durable power of attorney is written expression of principal’s intention. In a durable power of attorney if the principal is disabled and will continue if they become disable unlike in a power of attorney. 3. Name four possible legal statuses of a person involved with a partnership? Employee Independent contractor Investor Partner 4. How is an employee different from an independent contractor? How can we tell if a person is an employee or an independent contractor? The difference between an independent contractor and an employee is who is subject to control over the manner and means of the conduction of their work. 5. How can we tell if a person is an employee or a partner? Partners share both profit and control in unlimited liability. 6. What is conflict of interest? Self dealing? In a conflict of interest an agent has a duty not to deal with the principal as or on behalf of, an adverse part in a transaction connected with the agency relationship. In selfdealing an agent has a duty not to deal with the principal as an adverse party in a transaction connected with the agency relationship. 7. How does agency terminate? Lapse of time Change in circumstances Renunciation by the agent Revocation of authority Death Mutual agreement Incapacity Chapter 31 1. What is the most common form of business association in the US? A sole proprietorship is the most common form of business association in the U.S. 2. Which form of business association is responsible for most of the wealth creation in the country? Corporations is a form of business association responsible for most of the wealth creation in the country. 3. Name three factors to be considered in choosing a business association form? Choose a name state o Not taken o Google it File articles of incorporation state o Secretary of state Tax ID federal Bank account state Chapter 34 Corporations 1. Are shareholders personally responsible for the debts and obligations of the corporations? Why? Shareholders are not personally responsible for the debts and obligations of the corporations. The shareholders have limited liability. A corporation is a legal entity separate from its shareholders. 2. What is the difference between a for profit and a not for profit corporation? Forprofit corporations are founded for the purpose of operating a business for profit. Not for profit corporations must use profits exclusively for the charitable, educational, or scientific purpose for which it was formed. Not looking for the benefit of those running the company. 3. A is a publicly held corporation. The biggest shareholders are not happy about all the requirements for publicly held corporations such as the mandates of Sarbanes Oxley (SOX). What can they do to avoid having to incur the expenses to comply with SOX requirements? To avoid expenses for compliance with SOX requirements A can convert from a publicly held corporation to a closely held corporation by buying back all stocks. 4. John is one of the promoters of company A. He wants to have the company sign a contract with another company owned by Jane, john’s wife. Which duty does this transaction activate as to company A? This transaction activates the fiduciary duty. The agent owes a duty of utmost loyalty and good faith to the principal. The agent has the duty to avoid conflict of interest and self dealing. In this case the principal has to avoid a conflict of interest. 5. A forms a corporation and leaves it with no assets. He signs contracts in the corporation’s name with a number of customers. A decides it’s easier just to keep the money from the customers and not do the work agreed on. Is A personally liable to the customers? What do the customers need to allege to get a judge to hold A personally liable to the customers? What do we call the court’s disregarding of the corporate entity? A is personally liable to the customers. The customers need to allege fraud or some other fraudulent activity to get the judge to hold A personally liable to the customers. The court will pierce the corporate veil to disregard the corporate entity. Chapter 36 1 What risk do the shareholders of a closely held corporation take when they ignore corporate formalities? The shareholders of a closely held corporation risk losing limited liability acting as if the individual and the corporation are the same (alter ego) when they ignore corporate formalities. 2 How is the management structure of a closely held corporation different from that of a publicly held one? Shareholders approve of fundamental changes and elect and remove the board of directors. The board of directors choose the CEO and set the CEOs compensation. The CEO hires officers to run day to day operations. 3 What is a quorum? A quorum is the minimum number necessary to be present at a meeting to transact business. 4 When are directors elected? Directors are elected at the annual shareholder voting. 5 What is a proxy? A proxy is the authorization to vote another’s shares at shareholder meeting. 6 What is the right to inspect books and records? The right to inspect books and records is a demand made for proper purpose and in good faith. 7 What is a direct suit? How is it different from a derivative suit? A direct suite is brought by a shareholder or a class of shareholders against the corporation based upon the ownership of shares. A derivative suite is brought by a shareholder on behalf of the corporation to enforce a right belonging to the corporation. 8 What should one do before agreeing to serve on a corporate board? Before agreeing to serve on a corporate board you must have sufficient time and energy to meet the requirements of the position. 9 What is the difference between inside and outside directors? Inside directors are connected to the business. Outside directors aren’t connect to the business. 10 What is the business judgment rule? How does it protect directors? The business judgement rule precludes imposing liability on directors and officers for honest mistakes in judgement if they act with due care, in good faith and in a manner reasonably believed to be in the best interest of the corporation. Chapter 39 Bankruptcy 1. John wants to file for bankruptcy. What options does he have? What is the difference between these options? John can file for either Chapter 7 or Chapter 13 Bankruptcy. Chapter 7 is liquidation. Chapter 13 is payment plans. 2. Jane files for bankruptcy. John is owed $50 by Jane. Jane tells John that she has filed for bankruptcy two days ago but John insists that he gets his $50 back. Is John’s behavior in violation of the law? Why? John is in violation of the law due to automatic stay being in place. Automatic stay prevents creditors from recovering claims against the debtor. He must pursue the claim through the bankruptcy court. 3. Laura files for bankruptcy. After the petition is filed when will Laura’s creditors have a chance to see her examination of her financial situation? Who will ask Laura about her financial situation? What happens if Laura does not answer truthfully the questions asked by the trustee? At the meeting of creditors, Creditors will have a chance to see her examination of her financial situation. Laura will ask the trustee about her financial situation. If Laura doesn’t answer the questions the trustee ask truthfully the petition is dismissed and she could be charged with a felony of lying. 4. Which obligations have top priority in being satisfied from the estate of the debtor? 825 Domestic support obligations have top priority in being satisfied from the estate of the debtor. 5. Does a debtor who files for chapter 7 lose all their personal and real property? Why? A debtor that files for Chapter 7 will not lose their personal and real property due to exemptions. 6. Becky filed for chapter 7. One of her creditors offers to let her keep her credit card with low interest if she agrees not to discharge the debt. Can Becky agree to that? What does she have to do for the debt not to be discharged? Becky can agree to lower interest if she doesn’t discharge the debt. For the debt not to be discharged Becky has to sign a reaffirmation agreement. 7. Are student loans dischargeable? Student loans are not dischargeable unless they cause undue hardship. 8. Paul owes a debt of $250,000 arising from a judgment resulting from a drunken driving accident that disabled a mother of four. Is this debt dischargeable in bankruptcy? Why? The debt from a judgement is not dischargeable due to legal liability for willful and malicious injuries to the person or property of another. 9. A wants to file for bankruptcy. He owns a house in the Hamptons worth $400,000. To make sure the creditors don’t take it, a year before filing he put the house in his mother’s name. What kind of transfer is this? What is the actual intent of this transfer? What can the trustee do? This is a fraudulent transfer. The intent of this transfer is to hinder, delay or defraud creditors. The trustee may avoid transfers if the transfer is voidable under state law. The trustee may avoid fraudulent transfers made on or within 2 years before the date of bankruptcy. 10. What is the principle purpose of the Bankruptcy Code? What kind debtor is the Code intended to help? The bankruptcy code is designed to help the “honest debtor” have a “fresh start.” 11. In a bankruptcy, which creditors are in the best position to recover from the distribution of the estate? Secured creditors are in the best position to recover from the distribution of the estate. 12. What is the means test? Why is it important? The means test is if they can file for Chapter 7 or Chapter 13. 13. What can a business that is facing financial trouble file for? A business facing financial trouble can file for Chapter 11. 14. What is reorganization? What is the main objective of the reorganization proceeding? Reorganization is a payment plan. The main objective of the reorganization proceeding is to preserve a distressed entity and its value as a going concern. 15. Do customers of a company in Chapter 11 get affected by the filing of bankruptcy? Customers of a company filing in Chapter 11 are not affected by the bankruptcy. 16. What are the requirements for the bankruptcy court to confirm the reorganization plan? Good faith Feasibility Cash payment to concern priority creditors Usually accepted by creditors 17. Which bankruptcy filing allows individuals to adjust their debts? What happens if the debtor fails to make the payments under the repayment plan? Chapter 13 allows individuals to adjust their debts. If the debtor fails to meet the plan requirements case may be converted to Chapter 7. Chapter 40 1. What is the primary purpose of federal securities regulation? The primary purposes of federal securities regulation is to protect the public. 2. What is the SEC and what is its mandate? The Security and Exchange Commission mandates seek civil injunctions in federal district court against violation of the statutes. 3. What is a Security? Security includes any note, stock, bond, preorganization subscription, and investment contract. Stock and bond are most common. 4. How does federal law treat intrastate issues of securities? Federal law treats intrastate issues of securities as a state issue. 5. What is the FCPA? What does it prohibit? The Foreign Corrupt Practices Act prohibits bribing foreign officials. 6. What is insider trading? “Insiders” are liable under Rule 10B5 for failing to disclose material, nonpublic information before trading on the information. Nonpublic material used to trade. 7. Who is an insider? An insider are director, officers, employees and agents of the issuer, as well as those with whom the issuer has entrusted information solely for corporate purposes. 8. What is a tippee? A tippee is the person who receives the inside information. 9. What is a grease payment? Is it a bribe? A grease payment is legal under the foreign country’s law. No, a bribe is giving something of value to influence officials.
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