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90 Cards in this Set

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What is watered stock?
Stock issued for fictitious values

Blue Sky Laws - state securities laws hold issuers liable
What is a Deriviave suit?
-action brought by s/h in name of coproation against directors
-for wrongs done to the corporation with possible substantial loss
-any recovery goes to corporation, not to s/h
What are stocholders rights?
DAVIP (democrats always vote in paris)

Derivative action
Asset share on dissolution
Voting rights
Inspect books and records
Preemptive right
What is treasury stock?
-reacquired by corporations
-no voting rights
-no preemptive rights
-no dividend rights
Whats a foreign corporation?
Does business in a state other whener incorporated

-not interstate commerce
What is a promoter, and what is his liability?
A promoter undertakes to form the corporation. He's liable on contracts made unless released through a novation.
What is a domestic corporation?
Does business in the state its incorporated in
Whats the difference between a merger and a consolidation?
Merger - two corps merge and one continues
(A+B=A OR A+B=B)

Consolidation - two corps become a third
(A+B=C)
What happens if you are a dissenting shareholder?
-not happy with merger or consolidation
-right to have shares appraised
-recieve fair market value if court orders
What does a Certificate of Incorporation contain?
Corporate Name
Purpose
Duration (usually perpetual)
Capital structure
Registered office and agent
Incorporators
What is a preemtpive right?
What does it not apply to?
Right to subscribe to newly authorized stock in proportion to existing holdings
-does not apply to treasury stock
-does not apply to unissued stock under a previous authorization
What is the order of pmt priority upon dissolution?
Creditors
Loans to Partners
Capital Contributions
Split profits and losses equally
Is a partner in an LLP personally liable for negligent acts of partners?
NO

But liable for own negligent act, contracts of the Pship, subordinates
How are partners in LLP liable for contracts and torts?
jointly and severally liable
What is a joint venture?
single partnership for a limited purpose
Does a partnership agreement have to be in writing according to the statute of frauds?
only if its for more than one year
Is a partnership a legal or taxable entity?
not a legal entity nor a taxable entity
How much is a limited partner liable for?
Generally only liable for amount of capital contribution
-investor only
What should a limited partner *not* do?
-should not be active in mgmt of business
-should not allow name to be used

(otherwise becomes liable as general partner)
What happens when a partner assigns his interest in a partnership?
-partner assigns share of profits
-transferee not a partner
-existing partner does not stop being partner
-not grounds for dissolution
Can a partner assign his interest in partnership property?
no, no partner owns any specific piece of the property party - all partners own it together
-tenancy in partnership, cant attach it

interest-> share in profits and surplus, can assign that
When is a partnership dissolved?
-change in partners
-partner goes bankrupt
-death of partner
When a partner dies, who gets his interest in the property?
NOT HIS HEIRS - goes to surviving partners
Whose consent does a prospective partner need to come into partnership?
-needs consent of all partners
Is a new partner personally liable to debts prior to their admission?
no
Does retiring partner stay liable to creditors?
Remains liable to existing partnership creditors unless novation with creditors.

Novation-> substitution of debtors with consent of creditors
Does retiring partner stay liable to creditors?
Remains liable to existing partnership creditors unless novation with creditors.

Novation-> substitution of debtors with consent of creditors
Who are the three parties in agency law?
Principal
Third Party
Agent
When does an agency relationship have to be in writing?
If more than one year, must be in writing. If less, is not required to be in writing under the statute of frauds.
Whats the difference between an agent and an independent contractor?
Agent -> controlled by principal, who is resp. for agent's actions
Ind. Con.-> not controlled by principal, solely responsible for their own actions
When can you terminate an agency?
You can terminate an agency at will, but breach of contract may result in lawshit for damagers.

-Have the power but not the right to end the agency relationship.

-Also, death or bankruptcy of the principal or agent
Will bankruptcy of an agent termination of relationship?
not necessarily
What is an Agency with Interest?
-Principal owes debt to agent
-Principal turns property over to agent
-Agent sells property and reimburses himself
-cannot be terminated by principal in lifetime or by death
What is actual and constructive notice of termination?
Active notice-> given to creditors with actual dealings

Constructive notice-> given to creditors with knowledge but no dealings
What are the 3 types of authority of an agent?
Express
Implied
Apparent
What is express authority?
-principal says "do it" and the agent does it

-principal responsible for acts of agent
What is implied authority?
-flows from express authority
-everything that is reasonable, necessary and proper to carry out express authority

Ex: manager in supermarket can make purchases, take care of emergencies, make repairs
What is apparent authority?
-not real authority
-not express or implied
-principal, by conduct or actions leads 3rd person to believe agent has authority
-whenever someone says don't do it and the agent does it, this will always be apparent authority
What is apparent authority?
-not real authority
-not express or implied
-principal, by conduct or actions leads 3rd person to believe agent has authority
-whenever someone says don't do it and the agent does it, this will always be apparent authority
What is the principal liable for?
-authorized acts
-not liable for unauthorized acts unless principal ratifies contract
What is ratification?
-principal agress to an unauthorized act performed in principal's name
-agent acts in the name of principal
-if principal does not ratify, only agent is liable - has to expressly or impliedly ratify (takes benefits of contract)
-only binding if principal is aware of all material facts
What is agent liable for?
-unauthorized acts
-not liable for unauthorized acts unless acting for an undisclosed principal
What is an undisclosed pricipal?a
-agent doesnt disclose the identity of principal
-not illegal
-makes contract on behalf of undisclosed principal
What happens when a 3rd party discovers there is an undisclosed principal?
-3rd party has option to sue either agent or undisclosed principal but not both
What is the difference between a tort and a crime and a tort?
crime-> wrong against society

tort-> private wrong, one person sues another for injuries to himself or his property

-act can be both
What is the Respondeat Superior?
-let superior respond for tort of agent
-agent commits tort when acting in scope of agency authority, principal will be liable

Ex: accident involving driving a company car while drinking, principal responsible
Is a principal responsible for crimes of an agent?
No, but if the principal participates in the crime, then yes.
Why is partnership law similar to agency law?
Partners are agents and principals of each other
What is a trust?
Grantor transfers legal title to a trustee to hold property for the benefit of the beneficiaires
What is an inter vivos trust?
Created during lifetime
What is a testamentary trust?
created by a will
What happens if you die "testate"?
- you die with a will
- will must be in writing
- will must designate executor
- will must be witnessed
What happens if you die "intestate"?
- death without a will
- court will appoint administrator
What is the difference between "per capita" and "per stirpes" in a will?
per capita-> by the "head" or equally between each children (1/5 each)

per stirpes -> by representation
Who creates a trust?
Grantor or settler
Can you revoke a trust?
cannot revoke unless grantor reserves the right to do so
What is the trust property?
Res or corpus

-no trust created until trustee gets legal title to property
What is a trustee?
person who gets legal title to property

-strictly follows trust agreement
-court appoints trustee if none exists
-trustee can resign
Is a trustee liable for negligence?
yes, if they show:
-duty
-harm
-breach
-causality
When does a trust terminate?
-if trustee becomes sole beneficiary
-at end of specified term
-if trust becomes illegal to perform
-if trust becomes impossible to perform
What is an income beneficiary?
receives income during life of trust

Ex: hustband sets up trust for wife to receive income during her lifetime
What is a remainderman?
-Trust (res) is distributed upon death of income beneficiary

Ex: husband sets up trust for wife to receive income during her lifetime, when she dies, property goes to son
What is a remainderman?
-Trust (res) is distributed upon death of income beneficiary

Ex: husband sets up trust for wife to receive income during her lifetime, when she dies, property goes to son
How is principal and income allocated in a trust?
Income beneficiary is charged with ordinary expenses (rent, depreciation, mortgate interest) and credited with ordinary income (cash dividends, royalties)

Remainderman is charged with extraordinary expenses (principal on mortgage) and credited with extraordinary income (insurance proceeds)
Who are annuities and trustee expenses charged to?
Both income beneficiary AND remainderman
What is the only element necessary to create a valid agency relationship?
Mutual consent

-writing is only necessary if the Statute of Frauds applies
What happens upon the death of a limited partner in a Pship?
the executor of a deceased limited partner is provided with all the right of a limited partner for the purpose of settling the partner's estate, although he does not automatically become a substituted limited partner.
When can a shareholder bring an action for dissolution?
if the board of directors has committed fraud, waste, oppression, or misapplication of corporate funds.
What are 4 factors that frequently cause courts to "pierce the corporate veil"?
1. Fraudulently inducing someone into dealing with the corporation rather than the individual.
2. "Thinly capitalized" corporations.
3. Failure to act as a corporation.
4. Commingling personal and corporate assets to the extent that the corporation has no identity of its own.
What is cumulative preferred stock?
stock that entitles its holders to future year dividend carryovers from years in which dividends were not paid.
Who are the initial bylaws of a corporation adopted by?
a corporation's initial bylaws will be adopted by the initial Board of Directors.
Who are a corporation's directors elected by?
its shareholders
Who are a corporation's officers elected by?
directors
Who adops the initial corporation bylaws?
either the BOD or the incorporators
What is a derivative suit?
Stockholders have the right to sue for the benefit of the corporation in an action called a derivative suit. A derivative suit may be filed to recover damages from corporate management for an ultra vires management act; that is, an act that is beyond the express or implied powers of corporate management
What are preemptive rights?
the stockholders the right to purchase a proportionate share of newly-issued stock.
What is appraisal remedy?
allows minority shareholders to dissent and to recover the fair value of their shares if they follow the prescribed procedure for doing so
What are ultra vires acts?
acts by the corporation or its management that are beyond the scope of corporate authority as granted by its charter, bylaws, and state law.

while they are not illegal, they are void or unenforceable under common law
What is cumulative preferred stock?
The holders of cumulative preferred have the right to receive fixed yearly dividends. If the corporation fails in its payment for year one, the stockholder’s rights cumulate to year two. Additionally, preferred shareholders must receive full payment of all arrearages before common shareholders receive their dividends.
What is straight preferred stock?
Shareholders are entitled to be paid a fixed dividend before any dividends are paid to holders of common stock. This class of stock does not include the rights to any other profits.
What is participating preferred stock?
Participating preferred shareholders share ratably with common shareholders in any profit distribution beyond the prescribed preferred rate. Fully participating preferred holders share equally with common holders in excess profit distribution, while partially participating preferred holders share in a more limited manner in such excess.
What is participating preferred stock?
Participating preferred shareholders share ratably with common shareholders in any profit distribution beyond the prescribed preferred rate. Fully participating preferred holders share equally with common holders in excess profit distribution, while partially participating preferred holders share in a more limited manner in such excess.
What are the 5 basic stockholders rights?
1. Derivative action
2. Asset share on dissolution
3. right to Vote
4. Inspect books
5. Preemptive right to subscribe to newly authorized stock in proportion to existing holdings (not to t-stock)
An estate is generally liable for which debts owed by the decedent at the time of death?
All of the decedents debts
What is the rule against perpetuities?
limits the duration of a private trust to a life in being plus 21 years.
An irrevocable trust that contains no provision for change or termination can be changed or terminated only by who?
The courts
What are the 4 elements of a valid trust?
1. Settlor (Grantor)
2. Trustee
3. Trust property
4. Beneficiary
When a trust instrument is silent regarding a trustee’s powers, does a trustee have the power to make
distributions of principal
to income beneficiaries?
no
When a trust instrument is silent regarding a trustee’s powers, does a trustee have the implied power to lease trust property to 3rd parties
yes
- falls within the trustee’s duty to beneficiaries to preserve the trust assets and to make the trust property productive
Can Treasury stock be resold at a price less than par value?
Yes