Term
| How does the Restatement (Second) of Contracts define contracts? |
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Definition
| If defines a contract as “a promise or set of promises for breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.” |
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Term
| Identify the three general sources of contract law |
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Definition
| common law, the uniform commercial code, and the new sources of law evolving in response to e-commerce. |
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Term
| What is the first law of contracts? |
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Definition
| Common Law: consists today of traditional notions of law developed by judicial decisions and often codified by states. |
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Term
| To what type of contracts do common law principles apply? |
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Definition
| Apply to contracts that have land or serviced as their subject matter. |
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Term
| • Which type of agreements may be covered by specific statutes in addition to common law? |
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Definition
| A rental agreement for an apartment may be covered by specific landlord- tenant statutes in addition to common law. |
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Term
| • Where can a general treatment of the common law for contracts be found? |
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Definition
| It can be found in the Restatement (Second) of Contracts. |
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Term
| What is one of the problems with the common law for contracts? |
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Definition
| One problem is its lack of uniformity. |
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Term
| • Describe the differences among the States with regards to any lack of uniformity of contract law. |
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Definition
| States do not follow the same case decisions on contract law and some states do not follow the Restatement. The result is that the different rules apply to contracts in different states. |
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Term
| • What was done to address the need for uniformity? |
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Definition
| The National Conference of Commissioners on Uniform State Laws and the American Law Institute worked to draft a set of commercial laws that all states would find acceptable. |
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Term
| • When did the Uniform Commercial Code (UCC) first appear? |
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Definition
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Term
| • How many States have adopted at least parts of the UCC? |
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Definition
| All the states adopted it. |
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Term
| • What does Article 2 of the UCC govern? |
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Definition
| Contracts for the sale of goods and has been adopted in all states except Louisiana. |
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Term
| • Has this particular part of the UCC been adopted in every State? |
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Definition
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Term
| • Describe three things about contracts formed under Article 2. |
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Definition
| Under article 2, contracts can be formed more easily, the standards for performance are more readily defined, and the remedies are more easily determined. |
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Term
| Which article of the UCC covers leases of goods? |
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Definition
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Term
| • How might long-term auto leases be viewed? |
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Definition
| Appears to be more of a sale then a lease. |
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Term
| • What article governs these types of leases as well? |
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Definition
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Term
| What specific issues does Article 2A cover? |
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Definition
| Article 2A covers such issues as the statute of frauds (leases in which payments exceed $1000, for example, must be in writing), contract formation, and warranties in leases. Article 2A has been adopted in most states. |
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Term
| What do the initials UETA and UCITA stand for? |
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Definition
| Uniform Electronic Transactions Act: is a uniform law drafted in 1999, was promulgated in response to contracts being formed over the Internet and includes provisions on issues such as electronic signatures. Uniform Computer Information Transactions Act: allows terms that are not disclosed to the buyer until after payment and delivery to become part of the contract. |
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Term
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Definition
| Electric Signatures in Global and National Commerce Act of 2000: the federal law that requires that electronic signatures be recognized as valid for purposes of forming contracts. Under the ESIGN, states cannot deny legal effect to contracts that are entered into electronically and have electronic signatures. |
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Term
| How many States have adopted UETA? |
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Definition
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Term
| • Are UETAs more or less uniform than State adoptions of the UCC? |
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Definition
| State adoptions of the UETA are not nearly as uniform as those of the UCC. |
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Term
| What Federal law is represented by 15 U.S.C § 7001 and what does it require be recognized? |
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Definition
| ESIGN and requires that electronic signatures be recognized as valid for purposes of forming contracts. |
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Term
| When and where was UCITA adopted? |
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Definition
| 1999 and in Virginia and Maryland. |
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Term
| What is a bilateral contract? |
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Definition
| Is one in which both parties promise to perform certain things. |
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Term
| • How does a bilateral contract result? |
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Definition
| It results from two parties exchanging promises to perform or form one party exchanging a promise for the other party’s actions. |
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Term
| • Of what two promises do these contracts consist (bilateral contract)? |
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Definition
| Your promise to buy and the sellers promise to sell. |
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Term
| • What is a unilateral contract and how are they formed? |
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Definition
| Contract that have one party issuing a promise and the other party simply performing. They arise when radio listener rely on offers and promises from radio stations such as concert tickets in exchange for helping at a food kitchen on Thanksgiving. |
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Term
| What is an express contract? |
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Definition
| A contract that is writing or orally agreed to. The parties do not discuss the terms of the contract but nonetheless understand that they have some form of contractual relationships. |
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Term
| • How does an implied contract arise? |
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Definition
| An implied contract arises from circumstances and not from the express agreement of the parties. |
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Term
| • Describe an implied-in-fact contract. |
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Definition
| A contract deemed to exist because of the way the parties have interacted (eg: accepting treatment at a doctors office). |
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Term
| • What is an implied-in- law contract or a quasi contract? |
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Definition
| A theory used to prevent unjust enrichment when no contract is formed; the court acts as if a contract had been formed and awards damages accordingly. |
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Term
| • What does the (Latin) term quasi mean and what action of a court does it describe? |
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Definition
| Quasi means “as if” and describes the action of a court when it treats parties who do not have a contract “as if” they did. |
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Term
| • Describe the circumstances under which a court will enforce a quasi contract. |
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Definition
| The courts enforce a quasi contract right if one party has conferred a benefit on another, both are aware of the benefit, and the retention of the benefit would be an enrichment of one party at the unjust expense of the other. |
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Term
| • Will quasi contracts help someone who performs unrequested work or services and then requests payment? How is such a person described? |
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Definition
| The quasi contracts theory is not used to help “the officious meddler.” The officious meddler is someone who performs unrequested work or services and then, based on a quasi contract theory, seeks recovery. |
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Term
| • Would quasi contract hold the beneficiary of an unrequested task liable if the beneficiary knew the work was being done but did nothing to stop it? |
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Definition
| If painters were painting your house without your consent but you knew they were doing it, you would be held liable in quasi contract. |
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Term
| What three types of agreements constitute a void contract? |
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Definition
A void is an agreement to do something that is illegal or against public policy, or one that lacks legal elements.
1) a contract to sell weapons to a country under weapons ban is a void contract. |
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Term
| • By contrast, what is a voidable contract? |
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Definition
| A voidable contract is a contract that can be unenforceable at the election of one of the parties. |
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Term
| • What option is present in a voidable contract? |
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Definition
| A minor who signs a contract can choose to be bound by the agreement or can choose to disaffirm the contract. |
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Term
| • For example, what can a minor to a contract choose? |
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Definition
| Voidable contract give one party the option disaffirming the contract. |
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Term
| What is an unenforceable contract? |
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Definition
| An unenforceable contract is a contract that cannot be honored judicially because of some procedural problem. |
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Term
| • Is a contract that should have been in writing because of a statutory requirement but is not an unenforceable contract? |
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Definition
| A contract that should be in writing or have a record to comply with the statute of frauds but does not is unenforceable. |
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Term
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Definition
| A contract is formed when two parties with intent to enter into a contract agree to do certain lawful acts in a mutual exchange of detriment. |
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Term
| What part of a contract is represented by the offer? |
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Definition
| The offer is the first part of the contract. |
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Term
| Who are the offeror and who is the offeree? |
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Definition
| The person who makes the offer is called the offeror and the person whom the offer is made is called the offeree |
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Term
| i. What does the intent-to-contract requirement distinguish? |
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Definition
| The intent-to-contract requirement distinguishes offers from negotiations. |
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Term
| What “present intent” must be expressed to demonstrate that a party has passed the negotiation stage and is making an offer? |
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Definition
| “I have decided to invest in one of your franchises. Enclosed are the necessary documents, signatures, and a deposit check.” |
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Term
| What three things does a court look at in order to determine the intent of the parties to contract? |
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Definition
| Courts look at how a reasonable person would perceive the language, the surrounding circumstances, and the actions of the parties in determining whether a contract was formed. |
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Term
| ii. What must an offer contain (and cover) in order to establish the second requirement for a valid offer? |
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Definition
The offer must contain certain and definite language and cover all the terms necessary for a valid contract, which include:
a. Parties, subject matter of the contract, price, payment terms, delivery terms, performance times. |
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Term
| How do the requirements for an offer vary between the UCC and common law? What section of the UCC governs this issue? What is required under the UCC and what details can the UCC cover? |
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Definition
| Under the UCC, the requirements for an offer are not as stringent as the requirements under the common law. So long as the offer identifies the parties and the subject matter, the code sections can cover the details of price, payment, delivery and performance.(UCC 2-204) |
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Term
| Is an offer valid before it is communicated to an offeree? |
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Definition
| An offer must be communicated to the offeree before it is valid. |
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Term
| When does a revocation of the offer occur? Why and under what circumstances can an offer be revoked “anytime?” |
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Definition
| Because an offer is one sided, it can be revoked anytime before acceptance by the offeree. Revocation occurs when the offeror notifies the offeree that the offer is no longer good. |
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Term
What limitations are placed on revocation? What cuts off the offeror’s right to revoke?
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Definition
| Acceptance by the offeree cuts off the right to revoke. |
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Term
| What are options and can they be revoked? |
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Definition
| An option is a contract in which the offeree pats the offeror for the time needed to consider the offer. Under common law and option cannot be revoked. |
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Term
| What is a merchant’s firm offer and what section of the UCC governs it? |
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Definition
| Under a merchant’s firm offer (UCC sec 2-205) the offer must be made by a merchant, put in some form of record, and signed by the merchant. |
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Term
| Identify any time limits associated with merchant’s firm offers. |
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Definition
| A definite period but no longer than three months. |
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Term
| How would you describe a “rain check?” |
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Definition
| a rain check for sale merchandise from a store is an example of this type of offer. (The firm offer cannot be revoked if the requirements are met, and the money or consideration is not one of those requirements. |
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Term
| Does and offer carry any obligation for the offeree? What is the offeree free to do? What happens once an offeree rejects an offer? |
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Definition
| An offer carries no legally binding obligations for the offeree who is free to accept or reject the offer. Once the offeree rejects the offer, the offer is ended and cannot later be accepted unless the offeror renews the offer. |
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Term
| What are counteroffers considered under common law and what is the effect a counteroffer? |
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Definition
| Counteroffers are changes or rejections when the offeree does not fully reject the offer but rejects some portion of the offer or modifies it before acceptance. |
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Term
| Following a counteroffer, who becomes the offeror (and, thus, who becomes the offeree) and what does the counteroffer become? |
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Definition
| The offeree now becomes the offeror as the counteroffer becomes the new offer. |
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Term
| What two separate rules apply to counteroffers under the UCC? |
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Definition
One governs merchants and the other governs nonmerchant transactions.
What happens to addition of contract terms for nonmerchant |
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Term
| What happens to addition of contract terms for nonmerchants? |
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Definition
| The addition of terms in the counteroffer does not result in a rejection; there will still be a contract if there is a clear intent to contract, but the additional terms will not be a part of the contract. |
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Term
| How is the rule different where both parties are merchants? |
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Definition
| For merchants the section has more complicated rules and details on additional terms in acceptance. Sometimes called the battle of the forms. |
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Term
| Describe the battle of the forms. |
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Definition
| This covers situations in which offerors and offerees send purchase orders and invoices back and forth with the understanding they have a contract. |
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Term
| Identify and describe the three questions that determine whether added terms become part of the contract between merchants. |
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Definition
1) Are the terms material?
2) Was the offer limited?
3)Does one side object? |
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Term
| How do offers terminate by expiration? |
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Definition
| An offer can end by expiring and, once expired, can no longer be accepted by the offeree. |
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Term
| Are definite dates required for an offer to expire? When would an offer expire after a time limit? |
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Definition
| Not necessarily. Offers without time limits expire after a reasonable amount of time has passed. Ie: an offer to buy a home is probably only good for one of two weeks because the offeror needs to know whether to try for another house. The offeror’s offer terminates naturally if the offeree fails to timely accept. |
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Term
| What is an acceptance? What controls the effective time of acceptance? |
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Definition
| An acceptance is the offeree’s positive response to the offeror’s proposed contract and only persons to whom the offer is made have the power of acceptance. That acceptance must be communicated to the offeror using the proper method of communication, which can be controlled by the offeror or left to the offeree. In either case, the method of communication controls the effective time of the acceptance. |
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Term
| Can acceptance be effective sooner that the offeror has received it? How? |
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Definition
| Some offerors give a required means of acceptance called a specified stipulated means. If the offeree used the stipulated means of acceptance, the acceptance is effective sooner that the offeror’s receipt; the acceptance is effective when it is properly sent. |
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Term
| What is the mailbox rule? |
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Definition
| The acceptance is effective once it is sent. This timing rule for acceptance is called the mailbox rule. |
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Term
| What does consideration distinguish; what is consideration sometimes called and what does it represent for each party? |
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Definition
| Consideration is what distinguishes gifts from contracts and is what each party- offeror and offeree- gives up under the contract. Is it sometimes called bargained for exchange. |
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Term
| Are courts concerned about the amount or nature of consideration? |
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Definition
| The courts are not concerned with the amount or nature of consideration as long as it is actually passed from one party to the other. |
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Term
| Is a contract unenforceable if a court feels too little is paid under the contract terms.? |
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Definition
| a contract is not unenforceable because a court feels you paid too little under the contract terms. |
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Term
| Ordinarily, can one party to a contract demand more consideration once the contract is finalized? |
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Definition
| The amount of consideration is left to the discretion of the parties, but one party cannot demand greater consideration once the contract is finalized. |
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Term
What are charitable subscriptions? Are they enforceable despite a lack of consideration?
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Definition
| Charitable subscription is a promise to make payment to a charitable organization; a pledge; it is enforceable even though the charity gives nothing in exchange. |
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Term
| Define the doctrine of promissory estoppel. Under this doctrine, what substitutes for consideration? |
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Definition
| A promise that causes another to act in reliance upon it; if the reliance is substantial, the promise is enforceable. |
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Term
| When and where did the term statute of frauds originate and what was this statute called? |
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Definition
| The statute of frauds originated in 1677 when Englland passed the first rule dealing with written contracts: the statute for prevention of frauds and perjuries |
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Term
| What was the purpose of this original statute(statute of frauds)? |
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Definition
| The purpose of this original statute and others like it is to have written agreements for the types of contracts that folks are most likely to commit perjury about. |
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Term
Identify and describe three types of contracts the statute required to be in writing(statute of frauds).
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Definition
| 1) Contracts for the sale of real property. This requirement includes sales, certain leases, liens, mortgages, and easements. 2) Contacts that cannot be performed within one year. These contracts run for long periods and require the benefit or written terms. |
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Term
| Is a sole proprietorship a true business “entity?” According to the U.S. Small Business Association, in what form do most small businesses operate? |
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Definition
-a sole proprietorship is not a true business entity because it consists only of an individual operating business
-according to the US Small Business Association, most small businesses operate as sole proprietorships |
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Term
| What percentage of these small businesses are home based? What do the initials “d/b/a” mean and why are they important? |
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Definition
- 50% operate from home
- d/b/a is and acronym for “doing business as.” – d/b/a must be filed or filled out in some states as a fictitious name for doing business |
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Term
Briefly describe the sources of funding for sole proprietorships.
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Definition
| - can come from loans (from banks or through government agencies), or from individuals who are investing in the sole proprietor |
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Term
In a sole proprietorship, who is liable for any business loans? What can happen if there is a default on such loans?
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Definition
-the proprietor is personally liable for any business loans.
- his or her assets are subject to attachment should a default occur |
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Term
What is the positive side of a sole proprietorship with regards to taxes? Who owes all the taxes and who gets all of the deductions?
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Definition
- the positive side of a sole proprietor’s unlimited personal liability is the right to claim all tax losses associated with the business
- sole proprietors owe all the taxes and also get all deductions |
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Term
In many sole proprietorships, who is both manager and employee? Who makes all the decisions?
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Definition
| - In many sole proprietorships, the sole proprietor is both manager and employee |
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Term
When can a sole proprietorships be transferred?
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Definition
| - a sole proprietorship can be transferred only if the owner allows it |
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Term
What is transferred with a sole proprietor‟s business?
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Definition
| - when transferred, the transfer consists of the property, inventory, and goodwill of the business |
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Term
What happens with a business if a sole proprietor dies?
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Definition
| - if a sole proprietor dies, the heirs and devisees of the owner inherit the business property |
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Term
| What has been adopted by 49 States to govern partnerships? |
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Definition
| 49 states have adopted some version of the Uniform Partnership Act to govern partnerships |
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Term
| What do the initials UPA and RUPA stand for? |
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Definition
| - UPA stands for Uniform Partnership Act and RUPA stands for Revised Uniform Partnership Act |
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Term
| How does the RUPA define a partnership? |
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Definition
| - RUPA defines a partnership as “the association of two or more persons to carry on as co-owners a business for profit forms a partnership, whether or not the persons intend to form a partnership” |
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Term
| For the purposes of “two or more persons to carry on as co-owners [of] a business for profit…” how is the word “persons” defined? Do you think that the word “persons” in this context could also include sole proprietorships and other partnerships? |
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Definition
| - “persons” can include corporations as well as natural persons.. probably could include sole proprietorships |
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Term
| a. How are partnerships formed? What is a partnership by implication? |
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Definition
| - partnerships can be formed voluntarily by direct action of the parties, such as through a partnership agreement or articles of partnership or its formation can be implied by conduct |
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Term
| Can a partnership exist even if persons involved in a business declare that they are not partners? |
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Definition
| - a partnership exists even if those involved say they are not partners |
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Term
| Does simply owning property together necessarily result in a partnership? |
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Definition
| - a partnership exists even if those involved say they are not partners |
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Term
| What section of the RUPA provides a definition of partnership by implication and how is it defined? |
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Definition
| - Section 7 of the RUPA provides that if two or more parties share the profits of a business, it is prima facie evidence that a partnership exists |
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Term
| Describe four reasons by which the implications of “partnership by profit sharing” can be overcome. |
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Definition
- 4 reasons the implications of “partnership by profit sharing”
- Profits paid to repay debts
- Profits paid as wages or rent
- Profits paid to a widow or estate representative
- Profit paid for the sale of a business goodwill |
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Term
| How does a partnership by estoppel arise? |
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Definition
| -Partnership by estoppels arise when others are led to believe there is a partnership, such as when two people act as partners |
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Term
| Where does the funding for a partnership come from? |
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Definition
| - Funding for partnerships come from partners who contribute property, cash, or services to the proprietorship |
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Term
| Are partners‟ contributions to the business at risk? What about their personal assets? |
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Definition
| - Partner’s contributions to the business are at risk, as well as the personal assets |
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Term
| To what extent is each partner (individually) liable for a partnership‟s obligations? Is this in excess of a particular partner‟s contributions? |
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Definition
| - Partners are personally liable for the full amount of the partnership’s obligations, even beyond their capital contributions |
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Term
| what is each partner in a partnership to the other partners and what is the extent of liability for the others? How |
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Definition
| Each partner is both a principal and an agent to the other partners and is liable both for the acts of others and to the others for individual acts |
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Term
| How is partnership liability described under the RUPA? |
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Definition
| - Under the RUPA, partners are jointly and severally liable for all obligations |
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Term
| How can creditors satisfy their claims if the assets of a partnership are exhausted? |
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Definition
| - Creditors can satisfy their claims by looking to the assets of the individual partners after the partnership assets are exhausted |
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Term
| Detail the process(es) involved with regards to the tax consequences for partnerships. |
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Definition
- partnerships file an informational return
- partners however must report their share of partnership income (or losses) and deductions on their individual tax returns and must pay taxes on the reported share |
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Term
| Is each partner obliged to contribute time to manage the partnership? |
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Definition
| - each partner has a duty to contribute time to manage the partnership |
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Term
Does one partner have more “say” in the management of the partnership over the others?
Does each partner have a right to use partnership property? |
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Definition
| - Each partner has an equal say in management, and each has a right to use partnership property |
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Term
| When are partners entitled to compensation for their efforts for the partnership? |
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Definition
| - Partners are entitled to compensation for their efforts for their partnership unless they agree to do so |
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Term
| Describe partnership matters that might require unanimous consent among the partners. |
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Definition
| - Confessing a judgement (settling a lawsuit), transferring all the partnership’s assets, or selling its goodwill require unanimous consent among the partners |
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Term
| What is tenancy in partnership? |
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Definition
| - tenancy in partnership is the form of ownership where partners are co-owners of partnership property |
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Term
| What is a “partner interest?” |
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Definition
| - a partner interest is a personal property interest that belongs to the partner |
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Term
| Can this interest be transferred? |
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Definition
| - This interest can be sold (transferred) or pledged as collateral to a creditor |
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Term
| Does a transfer of “partner interest” result in the partnership gaining a new partner? |
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Definition
| - a transfer of “partner interest” does not result in the transferee becoming a new partner because no person can become a partner without the consent of all the existing partners |
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Term
| Does the transfer of “partner interest” eliminate the partner‟s liability to existing creditors? |
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Definition
| - transfer does not relieve the transferring partner of personal liability or liability to existing creditors |
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Term
| When can a partner transfer „partnership status?” |
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Definition
| - A partner can transfer partnership status with unanimous consent of the other partners |
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Term
| Do outgoing partners remain liable to existing creditors? How or how not? |
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Definition
| - outgoing partners remain personally liable for all partnership debts up to the time they leave.. i.e. future contracts and obligations end once they leave |
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Term
| When are incoming partners liable to creditors and are there any limitations on their liability? |
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Definition
| - incoming partners are liable for all contracts after the date they come into the firm |
|
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Term
| How does the UPA define dissolution? |
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Definition
| - the UPA defines dissolution as one partner’s ceasing to be associated with carrying on the business |
|
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Term
| How does the RUPA refer to this process(dissolution)? |
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Definition
| - RUPA refers to “dissociation” of partners, which may or may not lead to dissolution |
|
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Term
| Does dissolution (or dissociation) also mean that the partnership is terminated? |
|
Definition
| - dissolution does not mean partnership is terminated but it can lead to termination |
|
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Term
| What does it mean when a partnership is terminated? |
|
Definition
| - termination means all business stops, the assets of the firm are liquidated, and the proceeds are distributed to creditors and partners to repay capital contributions and distribute profits (if any |
|
|
Term
| How does a limited partnership vary from a[n] [ordinary] partnership? |
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Definition
| - A limited partnership is a partnership with a slight variation in the liability of those involved |
|
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Term
| What must a limited partnership have at least one of? |
|
Definition
| - A limited partnership must have at least one general partner and one limited partner |
|
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Term
| What is a general partner and what is a limited partner and what are the differences between their obligations and liabilities? |
|
Definition
- A general partners have the same obligations as partners in general partnerships- full liability and full responsibility for the management of the business
- Limited partners have liability up to the amount of their contribution to the partnership, provided they are not involved in the management of the firm |
|
|
Term
| What do the initials RULPA stand for? |
|
Definition
| -RULPA stands for Revised Uniform Limited Partnership Act |
|
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Term
| a. What governs limited partnerships and what must they do in order to exist? |
|
Definition
| A limited partnership is a statutory creature and requires compliance with certain procedures in order to exist |
|
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Term
| What is possible if the procedures for limited partnerships is not followed? |
|
Definition
| - If these procedures are not followed, it is possible that the limited partners could lose their limited liability protection |
|
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Term
| Identify five items of information required by the RULPA when filing a public disclosure for a limited partnership |
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Definition
- 1. Name of the limited partnership (cannot deceptively be similar to another
’s or partnership’s name and must contain the words “limited partnership” no abbreviations permitted)
- 2. Address of its principal office
- 3. Name and address of the statutory agent
- 4. Business address of the general partner
- 5. Latest date for dissolution of the partnership |
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Term
| What does a limited partnership agreement or the articles of limited partnership address? |
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Definition
| - a limited partnership agreement or the articles of limited partnership addresses the relationships and rights of then |
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Term
| How are limited partnerships funded and who makes such contributions? |
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Definition
| - Capital contributions supply the initial funding for a limited partnership. Both the general and limited partners make contributions upon entering the partnership |
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Term
| . What is the principle advantage of a limited partnership? |
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Definition
| - the principal advantage of a limited partnership is the limited personal liability |
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Term
| Identify three requirements that must be met to ensure personal limited liability for limited partners. |
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Definition
- to ensure personal limited liability for limited partners, these must be met
- 1. A certificate of limited partnership must be filed, indicating the limited liability status of the limited partners
- 2. At least one general partner is required. The general partner can be a corporation
- 3. The limited partners must be careful about their activity with and appearances with operations of the partnership |
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Term
What happens under the RULPA if a limited partner participates in the management of the business the same way as a general partner?
To whom might limited partners become liable if others believed they were general partners |
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Definition
| Under the RULPA,a limited partner who participates in the management of the firm in the same way the general partner does is liable only to those persons who are led to believe by the limited partner’s conduct that the limited partner is a general partner |
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Term
| Identify four activities limited partners can do under the RULPA without losing their limited liability. |
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Definition
- Identify four activities limited partners can do under the RULPA without losing their limited liability.
- 1. Being employed by the general partnership as an employee or a contractor
- 2. Consulting with or advising the general partner
-3. Acting as a surety or guarantor for the limited partnership
- 4. Voting on amendments, dissolution, sale of property, or assumption of debt |
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Term
| So long as limited partners comply with these requirements, what is the limit of their liability? |
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Definition
| - If limited partners comply with the rules for limited liability, their liability is limited to the amount of their capital contribution |
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Term
| If limited partners pledge to pay capital over a period of time, is their level of liability changed? If so, how? |
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Definition
| - If they have pledged to pay a certain amount as capital over a period of time, they are liable for the full amount. |
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Term
| Detail the process(es) involved with regards to the tax consequences for limited partnerships. |
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Definition
| - Limited partnerships are taxed the same way as general partnerships. The general and limited partners report the income and losses on their individual returns and pay the appropriate taxes. A limited partnership files an information return but does not itself pay any taxes |
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Term
| What three factors does the IRS closely scrutinize regarding limited partnerships and why? |
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Definition
- Three factors the IRS closely scrutinize regarding limited partnerships and why
- 1. The transferability of the interests
-2. The assets of the general partners
- 3. The net worth of the general partners
- they are closely scrutinized by the IRS to determine whether they are, in reality, corporations as opposed to true limited partnerships |
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Term
Who decides when funds are distributed to limited partners?
How are profits and losses distributed in a limited partnership |
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Definition
| - The general partner decides when to distribute funds to limited partners and profits and losses are allocated on the basis of capital contributions |
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Term
| What must any agreement for sharing of profits and losses be? |
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Definition
| Under the RULPA, the agreement for sharing of profits and losses must be evidenced by a record |
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Term
| Describe the authority of general partners in limited partnerships. |
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Definition
| - the authority of the general partner in a limited partnership is the same as the authority of the partners in a general partnership |
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Term
| Identify three general activities can a general partner not perform without the consent of the limited partners. What can limited partners monitor and inspect? |
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Definition
- three general activities can a general partner not perform without the consent of the limited partners.
- 1. Admitting a new general partner
- 2. Admitting a new limited partner unless the partnership agreement allows it
- 3. Extraordinary transactions, such as selling all the partnership assets |
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Term
| What can limited partners monitor and inspect? |
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Definition
| - Limited partners can monitor the general partner’s activity with the same rights provided to partners in general partnerships: the right to inspect the books and records and the right to an accounting |
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Term
| What, if anything, may restrict the assignment of interests in a limited partnership? |
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Definition
| - a limited partnership agreement may provide for restrictions on assignment |
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Term
| Identify four ways a limited partnership can be dissolved |
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Definition
- 1. Expiration of the time period designated in the agreement or the occurrence of an event causing dissolution, as specified in the general agreement
- 2. Unanimous written consent of all partners
- 3. Withdrawal of a general partner
- 4. Court order after application by one of the partners |
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Term
| Can the limited partnership continue adter dissolution? |
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Definition
| - Upon dissolution, a partnership can continue; but the partnership can also be terminated after dissolution |
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Term
| If the limited partnership is terminated, what happens to the assets and what, if any, impact does the RULPA have on this process? |
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Definition
- If termination occurs, all assets of the partnership are liquidated. The RULPA specifies an order of distribution
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Term
| What are corporations? How are they treated under the law? |
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Definition
| - Corporations are legal entities in and of themselves… they are treated as persons under the law |
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Term
| Out of all business profits, how much is earned by corporations? |
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Definition
| - Corporations earn 90% of business profits |
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Term
| How are close corporations different from publicly held corporations? |
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Definition
| - Close corporations are the opposite of publicly held corporations; that is the former are corporations with few shareholders |
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Term
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Definition
| - S Corporation is a form of corporation that benefits from having shareholders’ income and losses treated like those of partners yet the shareholders enjoy the protection of limited liability behind a corporate veil |
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Term
| What are they sometimes called (S corporation)? How are they formed? Whose requirements must be met in order to be treated as a S corporation? What is the special benefit of a S corporation? |
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Definition
| - S Corporations are sometimes called Subchapter S or Sub S corporation… they are formed no differently than any other corporation, but it must meet the IRS requirements for an S corporation and must file a special election form with the IRS indicating it wishes to be treated as an S Corporation |
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Term
| What do the initials MBCA stand for, what is it, and what does it follow? |
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Definition
- MBCA stands for Model Business Corporation Act, which is the uniform law on corporations
The MBCA tends to follow the principles of corporate law long established in Delaware, a state where many of the country’s major companies are incorporated. |
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Term
| How does the MBCA compare to the UPA and the UCC? |
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Definition
| - MBCA not adopted as wisely as the UPA and UCC |
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Term
| With regards to the MBCA, what can be said about each State‟s law on corporations? |
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Definition
| - Each state’s laws on corporations is quite different |
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Term
| a. Identify and list the four factors that should be considered when determining the State in which to incorporate. |
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Definition
Where to incorporate?
- 1. The status of the state’s corporation laws
- 2. State Tax Laws
- 3. The ability to attract employees to the state
- 4. The incentives states offer to attract the business |
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Term
| What are articles of incorporation? Identify and list the four items of information required by the MBCA in articles of incorporation. |
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Definition
- All state require articles of incorporation to be filed in order to create a corporation.
- Under MBCA the articles of incorporation must include the following:
- 1. The names of the corporation
- 2. The names and addresses of all incorporators
- 3. The share structure of the corporation: a. the common and preferred classes, b. which shares vote, c. the rights of shareholders, or preemptive rights
- 4. The statutory agent ( the party who will be served with any lawsuits against the corporation) |
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Term
| Who can incorporators be? Under the MBCA, how man incorporators are required? |
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Definition
| incorporators can be a natural person, a corporation, a partnership, a limited partnership and a corporation… Under the MBCA only one incorporator is required |
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Term
| ? Who is liable for contracts or actions taken during the “pre-incorporation stage?” |
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Definition
| - incorporators are personally liable for any contracts entered into or actions taken during the pre-incorporation stage. After incorporation, the corporation could agree to assume liability through a novation of the incorporator’s acts. |
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Term
| Define novation and what it does. |
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Definition
| - a novation is the process of reworking a contract to substitute parties on terms so that the old contract is abandoned and the new contract becomes the only valid contract.. these substitute the corporation instead of the liable person |
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Term
| Define ratification and what is does. |
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Definition
| - ratification- the corporation assumes primary liability for payment, but the incorporator still remains liable |
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Term
What happens after incorporating is complete?
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Definition
| - after paperwork of incorporation is complete, a corporation must begin the day-to-day operations with an initial meeting. At this meeting , the officers of the corporation are elected and bylaws are adopted to govern corporate procedures |
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Term
| What is an initial meeting? What happens at this meeting? |
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Definition
| - after paperwork of incorporation is complete, a corporation must begin the day-to-day operations with an initial meeting. At this meeting , the officers of the corporation are elected and bylaws are adopted to govern corporate procedures |
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Term
| What is the difference, if any, between the articles of incorporation and the bylaws? |
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Definition
| - articles of incorporation give an overview of a corporate entity; the bylaws constitute the operational rules |
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Term
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Definition
| … watered shares are what a shareholder who has not paid at least par value holds, liable to the amount not paid |
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Term
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Definition
| - Common Stock- is the typical stock in a corporation and it generally carries voting rights so that common shareholders have a voice in the election of directors, the amendment of articles and bylaws, and other major corporate matters. Dividends depend on both profitability and decisions of the board of directors |
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Term
| What is preferred stock and what is cumulative preferred stock? |
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Definition
| - Preferred Stock- appropriately named because its owners enjoy preferred status over holders of a corporations common stock… cumulative preferred stock- guarantees the payment of a dividend so that if a dividend is not paid one year, the holder’s right to be paid carries over until funds are refundable |
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Term
Describe shareholder liability.
What are the limits of a shareholder‟s liability? Are shareholders‟ personal assets subject to the claims of corporate creditors? If so, when and under what circumstances? What does it mean when a creditor “pierces the corporate veil” and when can it happen? |
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Definition
| Shareholder Liability is limited to the amount of their investment in the corporation. Personal assets of shareholders are not subject to the claims of corporate creditors. A creditor who successfully pierces the corporate veil can collect from the personal assets of shareholders… |
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Term
| What is the alter ego theory? |
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Definition
| the alter ego theory means that the owners and managers of the corporation have not treated the corporation as a separate entity but have used the structure more as a personal resource |
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Term
| - Debt Financing: The bond market- |
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Definition
| Debt Financing: The bond market- long term debt financing is available to corporations when they issue bonds. Corporation pays the holders interest on the bonds until the maturity date, which is when the bonds are due or must be paid |
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Term
| Equity Financing: Shareholders- |
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Definition
| Equity Financing: Shareholders- comes through the sale of stock in a corporation. Shareholders are given shares of stock in exchange for their money… watered shares are what a shareholder who has not paid at least par value holds, liable to the amount not paid |
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Term
| What are the tax consequences for corporations? What is meant by “double taxation?” |
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Definition
| - Corporations have the detriment of double taxation- not only does the corporation pay taxes on its earnings, but shareholders must also report their dividend income on their separate returns and pay individual taxes on their individual income. |
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Term
| Are there any corporate forms that can resolve the problem of “double taxation?” |
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Definition
| - One way to resolve the problem of the cost of double taxation is the S Corporation |
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Term
| Who controls the operation of a corporation? |
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Definition
| the board of directors controls the company |
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Term
| How is a board of directors elected? |
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Definition
| - board of directors is elected by the shareholders |
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Term
| What are audit committees, what types of persons are they made up of, and what are they responsible for? |
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Definition
| - an audit committee is made up of independent outside directors and at least one financial expert… they are responsible for assuring that the financial reports that management issues are accurate |
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Term
| . Who are the fiduciaries of a corporation and what does it mean to be one? |
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Definition
| - officers and directors are the fiduciaries of a corporation, which means they are to act in the best interests of the corporation and not profit at the corporation’s expense |
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Term
| What is the business judgment rule? |
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Definition
| - Business Judgment Rule- a standard of corporate behavior under which it is understood that officers and directors can make mistakes, but they are required to show that their decisions were made after careful study and discussion |
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Term
| What is the corporate opportunity doctrine? |
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Definition
| - Corporate Opportunity Doctrine- officers and directors may not take an opportunity for themselves that the corporation might be interested in taking |
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Term
| Identify and list five significant shareholder rights. What is a proxy? |
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Definition
| - Voting.. shareholders may vote their own shares or delegate their votes in a variety of ways… The proxy is the most common method of delegating voting authority, with which shareholders can transfer their right to vote to someone else.. |
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Term
| What is a pooling agreement? |
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Definition
| pooling agreements- a contract among shareholders to vote their shares a certain way or for a certain director… |
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Term
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Definition
| voting trust is a form of group voting.. shareholders actually turn their shares over to a trustee and then are issued a certificate |
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Term
| . Identify and list five significant shareholder rights- Shareholder Rights in Combinations |
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Definition
| - businesses cannot merge without shareholder input |
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Term
| Identify who are dissenting shareholders, what they are “dissenting” from, and, under the MCBA, describe their appraisal rights. |
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Definition
| Dissenting shareholders are entitled to appraisal rights. They dissent from an opposition to a merger… Appraisal rights allow shareholders to demand the value of their shares |
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Term
| Identify and list five significant shareholder rights- Shareholder Rights: Inspection of Books and Records: |
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Definition
| shareholders have absolute right to examine shareholder lists… |
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Term
| What shareholder right does the requirement for proper purpose affect, and how does it affect it? |
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Definition
| proper purpose- shareholder has a legit interest in reviewing corporate progress, financial status, and fiduciary responsibilities |
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Term
| Identify and list five significant shareholder rights. Shareholder Rights: Annual Meetings: |
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Definition
| shareholders have the opportunity to express their views at the annual meeting by electing directors who represent their interests |
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Term
| Identify and list five significant shareholder rights. Shareholder Rights: Transfer of Shares: |
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Definition
| Stock shares can have transfer restrictions, which are valid as long as requirements are met |
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Term
| What are transfer restrictions and what three requirements must they meet? |
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Definition
- 1. The restrictions must be necessary. Ex. Family owned corporations, employee-owned corporations, corporations that need restrictions to comply with SEC registration exemptions
- 2. The restrictions must be reasonable. Requiring that the shares must first be offered to the board before they can be sold is reasonable; requiring that the shares be offered to all the other shareholders first may be unreasonable if there are more than 5 to 10 shareholders
- 3. The restrictions and/or their existence must be conspicuously noted on the stock shares |
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Term
| How long can a corporation continue to operate? |
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Definition
| - A corporation can continue to operate unless its articles of incorporation limit its duration. |
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Term
| Describe voluntary and involuntary dissolution of corporations. |
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Definition
- voluntary dissolution occurs when the shareholders agree to dissolve the corporation
- involuntary dissolution is one that is forced by some state agency, usually the state-level’s attorney office |
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Term
| identify the initials LLC and LLP and describe the formation, funding, liability, tax consequences, management and control, transferability, and dissolution and termination of each. |
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Definition
- LLC is the Limited Liability Company.
- Formation- LLC is formed through the filing of a document called the articles of organization, which is filled with a centralized state agency. The name of the business must contain L.L.C. LLC or limited liability company in the name
- Sources of Funding- members of LLC make capital contributions in much the same way as partners make capital contributions
- Liability- Members of LLC have limited liability. Most they can lose is their capital contributions
- Tax Consequenced- LLC enjoys follow-thru treatment.. dosnt pay taxes, income and losses are passed thru to the members to be reported on their individual returns
- Management and Control- adopt operating agreement that specifies the voting rights and issues, responsibilities of members and how the LLC is to be managed
- Transferability of Interest- member’s LLC interest is personal property and transferrable… however transferee not a member of LLC til voted on
- Dissolution and Termination- Most LLC statutes provide that the LLC dissolves upon the withdrawal, death, or expulsion of a member. Judicial and voluntary dissolution. |
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Term
| LLP- Limited Liability Partnership |
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Definition
- Formation- strict requirements, 1) name of LLp, 2) name of the registered agent, 3) the address, 4) the number of partners and 5) a description of the business
- Funding- LLP make capital contributions
- Liability- partners shielded from liability of partners
- Tax Consequences- ALL LLP income is a flow-through or pass-through to partners
- Management and Control- partners can manage without risking personal liability exposure because the LLP is identified as such and registered with the state
- Transferability- restricted
- Dissolution and Termination- notification of state |
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Term
| What is an agency relationship |
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Definition
| - An agency relationship is one in which one party acts on behalf of another |
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Term
| what is the “common thread of all of these relationships?” |
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Definition
| - The common thread in all of these relationships is that one party acts on behalf of another. |
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Term
| Who are the principles in the employer-employee relationship? |
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Definition
| - Principals are the employer in the employer-employee relationship |
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Term
| Why is the word principle used in describing agency relationships rather than just the word employer? |
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Definition
| - Principal is used rather than employer because some agents are not truly employees |
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Term
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Definition
| - Agents are people hired by a principal to do a task on behalf of the principal |
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Term
| Describe the relationship between a corporation and the corporation’s president? |
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Definition
| - In the relationship between a corporation and a corporation’s president, the president is the agent of the corporation |
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Term
| If the president of a corporation negotiates a contract, who is bound to perform it? |
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Definition
| - When the president negotiates a contract, the corporation, not the president, is bound to perform that contract |
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Term
| Are all employees agents of their principal-employer? Are all agents always “employees?” |
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Definition
| - All employees are agents of their principal employers, but not all agents are employees |
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Term
| Describe the master-servant relationship. Within the relationship, who is the principal and how would the agent be described? |
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Definition
| - The master-servant relationship is one in which the principal (master) exercises a great deal of control over the agent (servant) |
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Term
| Identify and list five factors used to determine whether the master-servant relationship exists. |
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Definition
- 5 factors to determine if master-servant relationship exists
a. 1. Level of supervision of the agent
b. 2. Level of control of the agent
c. Nature of the agent’s work
d. Regularity of hours and pay
e. Length of employment |
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Term
| What is an independent contractor? |
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Definition
| - An independent contractor is a person who is hired by another to perform a task but is not under the direct control of the hiring party |
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Term
| How do independent contractors compare to employees under the master-servant relationship? |
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Definition
| - Independent contractors have nobody governing over them |
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Term
| Do principals have the same level of responsibility for an independent contractor? Why or why not? |
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Definition
| - Principals have less responsibility for independent contractors than for servants because they have little control over a contractor’s conduct |
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Term
| Is the source of agency law statutory or common law? Where is the law regarding agency found? |
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Definition
| - Agency law is not statutory; rather, its source is common law. Common law regarding agency is found in the Restatement of Agency, which is a summary of the majority view of agency law in the United States that is followed by many courts in handing agency cases |
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Term
| What is the Restatement of Agency? Identify and describe the three different components involved in the study of agency law. |
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Definition
| - Studying agency law actually involves examining three different components: creation of the agency relationship, the relationship between principals and agents, and the relationship of the agents and principals to third parties |
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Term
| . What is express authority? How is express authority given to an agent/employee? |
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Definition
| - An employee who is hired by agreement (oral or written) is an agent and has been given express authority to act on behalf of the business |
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Term
| Must an agency relationship be evidenced by a (written) record? Are written records between employer and employees desirable? |
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Definition
| - An agency relationship is created by agreement, which need not be evidenced by a record, although it is best for both employer and employee to have on record |
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Term
| What capacity must principals have in order to enter into a relationship with an agent? |
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Definition
| - Principals must have the capacity to contract in order to enter into a relationship with an agent |
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Term
| What is implied authority? |
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Definition
| - Implied authority is the extension of express authority by custom |
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Term
| What is apparent authority or agency by estoppel and how does it arise? |
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Definition
| - Apparent authority or agency by estoppel holds a principal liable if the principal makes someone else think he has an agent… arises because of the way a principal presents himself to third parties… exists by appearance |
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Term
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Definition
| - Ratification occurs when the principal reviews a contract and voluntarily decides that, even though the agent did not have proper authority, the contract will be honored as if the agent had full authority |
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Term
| Identify and list the four things that describe the fiduciary relationship between principals and agents. Describe an agent’s duty of loyalty in two different aspects: general and postemployment. Describe an agent’s duty of obedience and duty of care. |
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Definition
- Fiduciary relationship is one of loyalty, trust, care, and obedience
a. Duty of Loyalty: General: An agent is required only for the benefit of the principal, and an agent cannot represent both parties in a transaction unless each knows and consents
b. Duty of Loyalty: Post-Employment: many companies have their employees sign contracts that include covenants not to compete or covenants not to disclose information about their former employers should they leave their jobs or be terminated from their employment
c. Duty of Obedience: an agent has the duty to obey reasonable instructions from the principal. The agent is not required to do anything criminally wrong or commit torts, of course, but is required to operate according to the principal’s standards and instructions
d. Duty of Care: Agents have a duty to use as much care and to act as prudently as they would if managing their own affairs. Agents must take the time and effort to perform their principal’s assigned tasks |
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Term
| What is the first obligation of a principal? |
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Definition
| - The first obligation of a principal is that of compensation, which can take various forms. Some for a fee |
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Term
| What obligation do principals also have? |
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Definition
| - The obligations of principals is to indemnify agents for expenses the agents incur in carrying out the principal’s orders |
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Term
| Describe the three forms of contract liability principals have for agents’ conduct with third parties for a disclosed principal, a partially disclosed principal, and an undisclosed principal. |
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Definition
- Contract Liability- 3 types
a. The Disclosed Principal- in a situation in which a third party is aware a principal is involvedand also knows who the principal is, the principal is liable to the third party, but the agent is not, regardless of whether the agent has express, implied, or apparent authority. If the agent has no authority however, then the agent, not the principal, is liable
b. The Partially Disclosed Principal- in this situation, the third party knows that the agent is acting for someone else, but the identity of the principal is not disclosed
c. The Undisclosed Principal- an agent acts without disclosing either the existence of a principal or the principal’s identity |
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