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223 Cards in this Set
- Front
- Back
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Hometown Realtors, Inc sells a franchise to Group Sales Company. Group Sales is a:
A. a franchisee B. a franchisor C. an agent D. a principal |
A. a franchisee
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Sylvester buys a franchise from Resistance Athletic Shoes Inc. This relationship, like ALL other franchise relationships, is governed by:
A. contrat law B. no law C. the Franchise Disclosure Document, or FDD D. the Uniform Commerical Code |
A. Contract law
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Nicole is interested in buying a franchise from Oz Inc. For Nicole to make an informed decision concerning this purchase, Oz must disclose in writing or online:
A. general estimates of costs and sales, but not the basis for them B. material facts such as the basis of projected earnings figures C. no information D. start-up requirements, but not renewal conditions |
B. Material facts such as the basis of projected earnings figures
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Rafe is interested in buying a franchise from Sportz Warez Company. In this transaction, the Federal Trade Commission's Franchise Rule:
A. Does not apply B. Enables Rafe to weigh the deal's risks and benefits C. Enables Sportz Warez to weigh the deal's risks and benefits D. Prohibits certain types of anticompetitive agreements |
B. Enables Rafe to weigh the deal's risks and benefits
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Footy Drinx, Inc and Erwin have a manufacturing franchise arrangement. This involves the transfer of:
A. A license B. A trade name C. The formula to make a certain product D. The ownership of the business |
C. The formula to make a certain product
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A Fitness Corporation uses a Website to provide downloadable information to prospective franchises. This online information is the equivalent of an offer than must comply with:
A. no law B. The Uniform Commercial Code C. The Federal Trade Commission's Franchise Rule D. The State Franchise Disclosure Document (FDD) |
C. The Federal Trade Commission's Franchise Rule
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Fern contracts to buy a franchise from Greene Grocery Inc. The contract is silent on the issue of territorial rights. Greene allows a competing franchise to be established near Fern's store, which suffers a significant loss in profits. This is most likely a violation of:
A. no law B. The ban on certain types of anticompetitive agreements C. The Federal Trade Commission's Franchise Rule D. The implied covenant of good faith and fair dealing |
D. The implied covenant of good faith and fair dealing
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Gage buys from Finishing Guide Corporation the exclusive right to sell Fishing Guide rods and reels in a cerain area. Their franchise agreement requires Gage to pay certain administrative expenses. Their agreement may also require Gage to pay a percentage of the franchisor's:
A. Advertising Costs B. Personal Expenses C. Retirement income D. None of the choices |
A. Advertising Costs
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Pronto Tacos LLC grants a franchise to Omar to open and operate a Pronto Tacos restaurant. Pronto will likely charge Omar:
A. An initla fee or lump sum price of the franchise license B. A percentage of Omar's weekly payroll expense C. An amount of Omar's monthly overhead savings, if any D. None of the choices |
A. An initial fee or lump sum price for the franchise license.
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A franchise agreement between Software Company and Games Inc. is silent on a time for termination of the franchise. Software Company may:
A. Never terminate B. Terminate at any time C. Terminate on reasonable notice D. Terminate on 3 days notice |
C. Terminate on reasonable notice.
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When choosing a business entity, entrepreneurs should consider:
A. Ease of Creation B. Owners' Liability C. Tax Considerations D. Need for capital E. All of the above |
E. All of the above
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What is the simplest form of business?
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A sole proprietorship
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In a sole proprietorship, the __________ is the business
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Owner
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What is the major disadvantage of a Sole Proprietorship?
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The owner is personally liable for all losses or liabilities incurred by the business enterprise
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A ________ is an arrangement in which the owner of a trademark, a trade name, or a copyright licenses others to use the trademark, trade name or copyright in the selling of goods or services.
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Franchise
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What is a franchisee?
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A purchaser of a franchise
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A _____________ is generally legally independent of the ________.
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A FRANCHISEE is generally legally independent of the FRANCHISOR
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What is a franchisor?
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The seller of the franchise.
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What are the three types of franchises?
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1. Distributorship
2. Chain-Style Business Operation 3. Manufacturing arrangement |
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In a ________________, a manufacturer (the franchisor) licenses a dealer (the franchisee) to sell its product. Often covers an exclusive territory
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Distributorship
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In a __________________, a franchise operates under a franchisor's trade name and is identified as a member of a select group of dealers that engage in the franchisor's business.
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Chain-Style business operation
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What is an example of a distributorship?
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An automobile dealership or a beer distributorship such as a distributor of Anheuser-Busch products
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What is an example of a Chain-style business operation?
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Most fast-food chains, tax preparation services such as H&R block, and many real estate brokerage firms
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In a ________________ the franchisor transmits to the franchisee the essential ingredients or formula to make a particular product.
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Manufacturing Arrangement
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What is an example of a manufacturing arrangement?
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Coca-Cola and other soft drink bottling companies
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Franchise law is primarily governed by which type of law?
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Contract Law
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What does the FTC's Franchise Rule require of franchisors?
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That they disclose certain material facts that a prospective franchisee needs in order to make an informed decision concerning the purchase of a franchise. Examples: Disclose average sales, overall store performances, etc. Can't inflate numbers for potential buyers
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Does the FTC's Franchise Rule require franchisors to provide potential earnings figures?
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No
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What are the 6 elements commonly seen in a franchise contract
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1. Payment for the franchise
2. Business premises 3. Location of the franchise 4. Business Organization 5. Quality Control 6. Pricing Arrangements |
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Generally the termination provisions of contracts are more favorable to the _________________ than the ______________.
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Franchisor than the franchisee.
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Denise and Elke do business as Final Curtain Decorators. In most states, for purposes of holding title to property, this partnership would be treated as:
A. An aggregate of the individual partners B. A natural person C. An entity D. A non-existent party |
C. An entity
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Ben, who runs a livestock breeding business, owes the Circle C Ranch $40,000. Ben agrees to pay the Circle C a percentage of his profits each month until the debt is paid. Because of this agreement, the Circle C is:
A. Ben's creditor and partner B. Ben's creditor only C. Ben's partner only D. neither Ben's creditor or his partner |
B. Ben's Creditor Only
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Bo and Clancy decide to do business as Deck & Patio Awnings. To be a partnership, this association can result from an agreement that is:
A. Express, but not from an agreement that is implied B. Implied, but not from an agreement that is express C. Oral, written or implied by conduct D. Written, but not from an agreement that is oral or implied |
C. Oral, written or implied by conduct
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Hollister and Gladys do business as partners in Frothy Confections. For federal income tax purposes, Frothy Confections would be treated as:
A. A pass-through entity B. A natural person C. A tax-paying entity D. A partnership by estoppel |
A. A pass-through entity
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Parker and Oscar sign a partnership agreement to do business as "Parker's Plumbing" without specifying a duration. This partnership is terminable:
A. At any time by either partner B. Only after a reasonable term C. Only if Parker dissociates from the firm D. Only if Oscar dissociates from the firm |
A. At any time by either partner
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Cody is a partner in Derivative Investment Services (DIS). Cody can inspect:
A. All of DIS's books and records B. DIS's books and records only as the firm's management permits C. DIS's books and records only for a reasonable purpose D. DIS's books and records relating to Cody's capital contribution only |
A. All of DIS's books and records
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Brad, Carlos and Dora are general partners in Eastside Physicians, a medical clinic. Their agreement states it is a breach of the agreement for any partner to assign his or her interest to a creditor without the consent of the other partners.
The partners decide to dissolve Eastside. Dora collects and distributes the firm's assets. This results in: A. Nothing with respect to the firm's existence B. The continuation of the firm's business C. The termination of the firm's legal existence D. The temporary suspension of the firm's business |
C. The termination of the firm's legal existence
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Genetic Innovations, LP is a limited partnership. The partners sign an agreement purporting to state how the firm's profits and losses are to be divided. The profits and losses of the firm will be divided:
A. According to the agreement B. Equally, despite the agreement C. In proportion to capital contributions, despite the agreement D. In proportion to each partner's participation in the firm's management, despite the agreement |
A. According to the agreement
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Connie, Drew, and Ellen are the general partners of Foreign Auto Repair, a limited partnership. Connie dies. The partnership can:
A. Continue only after a distribution of its assets B. Continue only as a general partnership C. Continue only if Drew and Ellen consent D. Not continue because Connie's death dissolves the firm |
C. Continue only if Drew and Ellen consent
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Bret is a general partner in Capitol Realty, LLLP, a Limited Liability limited partnership, which cannot pay its debts. Bret is personally liable for the debts:
A. In proportion to the number or partners in the firm B. To no extent C. To the extent of his capital contribution D. To the full extent |
C. To the extent of his capital contribution
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What laws govern Partnerships?
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Common and Statutory law
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A _____________ is created when two or more persons (including corporations) agree to carry on business for profit as co-owners with equal right to manage and share profits
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Partnership
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In the absence of express agreement, what act governs the operation of partnerships?
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The Uniform Partnership Act
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Under the UPA, there is a presumption of a partnership if: (3 elements)
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1. A sharing of profits or losses
2. A joint ownership of the business 3. An equal right to be involved in the management of the business |
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No presumption of partnership exists if profits received are payment for: (5 things)
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1. A debt by installments or interest on a loan
2. Wages of an employee or for the services of an independent contractor 3. Rent to a landlord 4. An annuity to a surviving spouse or representative of a deceased partner 5. A sale of the goodwill (the valuable reputation of a business viewed as an intangible asset) of a business or property |
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Does joint ownership of a property create a partnership?
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No
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If a partnership is treated as an aggregate of individuals and not as a separate legal entity, what happens?
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A lawsuit could never be brought by or against the firm in its own name; each individual partner has to be sued
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Today, most states treat partnerships as an ___________.
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Entity
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As an entity, partnerships may,
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hold the title to real or personal property in its name, rather than the names of the individual partners.
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When is the one situation that partnerships are treated as an aggregate of the individual partners instead of a separate legal entity?
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For tax purposes
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What is a pass-through entity?
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A business entity that has no tax liability; the entity's income is passed through to the owners of the entity, who pay taxes on it.
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What would be a time that a partnership agreement must be in writing to be legally enforceable under the Statute of Frauds?
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A partnership agreement that authorizes the partners to deal in transfers of real property
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What is a another term for a partnership agreement?
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Articles of partnership
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What is it called when a person who is not a partner holds himself out to third parties and the third party relies to their detriment>
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Partnership by Estoppel
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When is a partnership classified as a "Partnership at will"?
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If there is no fixed duration specified. Any partner can dissolve this type of partnership at any time without violating the agreement and without incurring liability for losses to other partners that result from the termination.
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In a general partnership, all partners have equal rights in managing the partnership. Unless they agree otherwise, each partner has one vote in management matters, regardless of what?
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The proportional size of his or her interest in the firm.
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If a partnership agreement does not specify how profits or losses will be shared, the UPA Provides that they will be:
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Shared equally
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Do partners in a partnership have a right to compensation? why or why not?
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No - they are not entitled to salary or compensation under the UPA. Their income comes from the partnership's success and profits
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What rights to property do partners have?
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Property acquired by a partnership is the property of the partnership and not of the individuals
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Creditors can petition a court for a Charging Order to attach the individual partner's interest in the partnership to what?
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Their proportionate share of the profits and losses and right to receive distributions to satisfy the partner's obligations.
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What are the Fiduciary Duties that a partner owes to the partnership ad the other partners?
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The duty of care and the duty of loyalty.
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True or False: A partner may pursue their own interests without automatically violating their fiduciary duties.
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True. The key is whether the partner has disclosed the interest to the other partners. However, a partner cannot make secret profits or put self-interest before his or her duty to the interest of the partnership.
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Jessica's Jumpin' Jelly Beans, LLC is a limited Liability company. Unless indicated otherwise on Jessica's federal tax form, the firm will be taxed as;
A. A cooperative B. A corporation C. A Joint Venture D. A partnership |
D. A partnership
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High Pointe LLC's members include Irvin. For purposes of holding title to property, High Pointe is;
A. An aggregate of Irvin and the other members B. A natural person in the member's family C. A legal entity apart from the owners D. A non-participating third party |
C. A legal entity apart from the owners
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Might-E Mart LLC was formed in New Jersey. Might-E Mart's members are Oscar, who is a citizen of New Jersey, and Peri, who is a citizen of New York. For federal diversity jurisdictional purposes, Might-E is a citizen of
A. All states B. New Jersey and New York C. New Jersey only D. No State |
B. New Jersey and New York
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Kris is a member of Laboratory Services, LLC, a limited liability company. Kris can participate in the firm's management;
A. Only to the extent that she assumes liability for the firm's debts B. Only to the extent of her investment in the firm C. To any extent D. To no extent |
C. To any extent
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Peyton, Qiana, and River form a syndicate to buy a professional basketball franchise. This syndicate could be set up as a;
A. Joint venture B. Corporation C. Sole proprietorship D. A LLC |
B. A corporation
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Exotic Stuff Company and First Pier, Inc., form a business organization to engage in importing and exporting. Its property is held in the names of the members and its shareholders have personal liability. This business organization is;
A. A business trust B. a joint stock company c. a joint venture d. a syndicate |
B. A joint stock company
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Loni, Michael, and Nita are investors in the Oceanic Exploration, a business trust. A business trust is managed by its;
A. Directors and officers B. General partners C. Managing members D. Trustees |
D. Trustees
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As the trustee of a business trust, Dwight is required to;
A. Distribute the trust's profits B. Assume responsibility for the trust's debts C. Draft a written trust agreement D. None of the choices |
A. Distribute the trust's profits
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Jin, Karlo and other consumers form Metro Purchasing Cooperative. This form of business organization makes it possible for these individuals to;
A. Avoid personal liability for the acts of the cooperative B. Obtain an exemption from state laws governing corporations C. Pay no taxes on their business income D. Pool their resources to gain an advantage in the marketplace |
D. Pool their resources to gain an advantage in the marketplace
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Consumers in Bayside City form a business organization to provide, without profit, an economic service to its members. This is;
A. a business trust B. a cooperative C. a corporation D. A joint stock company |
B. A cooperative
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Finn and Glenda want to form and do business as Hobby Crafts Corporation. A corporation is a legal entity created and recognized by;
A. a central federal administrative agency B. a city or county clerk's office C. an artificial legal person D. state law |
D. State Law
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Felicity and Gideon want to form and do business as Home Healthcare Corporation. A corporation is;
A. a natural being B. a tangible thing C. an artificial person D. a visible radiance |
C. An artificial person
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The shares of Capital corporation are publicly traded in securities markets. Capital Corporation is;
A. a private corporation B. a privately held corporation C. a public corporation D. a publicly held corporation |
D. a publicly held corporation
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Ruby Red corporation has six shareholders, four of whom are members of the same family. All of Ruby's shareholders agree in writing to operate without shareholders' meetings. Under the Revised Model Business Corporation Act, this most likely warrants;
A. no penalties or sanctions B. the imposition of a fine on Ruby C. the imprisonment of Ruby's shareholders D. the piercing of Ruby's corporate veil |
A. No penalties or sanctions
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Miracle Vacuum, Inc., is a private, for-profit corporation that (1) was formed for the purpose of manufacturing and distributing a newly patented appliance, (2) is owned by 5 shareholders, (3) is subject to double taxation, and (4) has made no public offering of its shares. Miracle is;
A. an S corporation B. a closely held corporation C. a nonprofit corporation D. a professional corporation |
B. A closely held corporation
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A reasonable purpose for a stock transfer restriction in a closely held corporation is;
A. a desire to limit the participation of outsiders in the firm B. a goal to restrain insiders from taking advantage of their positions C. an attempt to restrain the free flow of commerce among investors D. a wish to restrict the transfer of the shareholders' physical assets |
A. A desire to limit the participation of outsiders in the firm
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If a member in a closely held corporation with a stock transfer restriction agreement dies, this most likely;
A. triggers the division provision B. invalidates the entire agreement C. voids the division provision only D. violates the entire agreement |
A. Triggers the division provision
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Frida and Gregor want to market a new line of fishing gear. To avoid income taxes at the corporate level, they should form;
A. a C corporation B. a closely held corporation C. an S corporation D. a private corporation |
C. an S corporation
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Stable Hydraulics Corporation's articles list an incorrect address for its incorporator. Under this circumstance, Stable is most likely;
A. a corporation by estoppel B. a de facto corporation C. a de jure corporation D. ultra vires |
C. a de jure corporation
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Rapid Pest Control itself out to others as being a corporation but makes no attempt to incorporate. Ponce signs a contract with Rapid Pest Control that is not performed. Ponce files a suit against the firm. The court will likely hold that Rapid Pest Control is;
A. a corporation by estoppel B. an alien corporation C. an S corporation D. Ultra vires |
A. a corporation by estoppel
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Sophie and Tiny incorporate their beverage-container business as U-Twist Productions Inc. The first board of directors may be appointed by the firm's;
A. board of directors B. incorporators C. Officers D. shareholders |
B. Incorporators
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Whit is a director of Vids Corporation. With respect to policymaking decisions necessary to the management of corporate affairs, White and the other Vids directors have responsibility for;
A. all of the decisions B. only the decisions referred to them by the shareholders C. only the decisions referred to them by the officers D. None of the decisions |
A. All of the decisions
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Flite-Craft Corporation makes and sells aircraft parts. In most states, the minimum number of directors that must be present before Flite-Craft's board could transact its business is;
A. all of the directors authorized in the articles or bylaws B. a majority of the number authorized in the articles or bylaws C. any odd number D. One |
B. a majority of the number authorized in the articles or bylaws
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Raul is chairman of the board of Swif-Vac Corporation. Pinky, a consumer, is injured while using a Swif-Vac product. Pinky sues Swif-Vac, and Raul individually. Swif-Vac may pay Raul's legal fees under;
A. the director's right to certification B. the director's right to compensation C. the director's right to indemnification D. no circumstances |
C. the director's right to indemnification
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Cara and Dru are officers of EZ trucking corporation. As corporate officers, the rights of Cara and Dru are;
A. determined by their employment contracts B. specified in state corporation statutes C. the same as those of the directors D. the same as those of the shareholders |
A. determined by their employment contracts
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Olive, a director of pitstop Service Station Corporation, does not attend a board meeting for 3 years. During that time, Noreen, Pitstop's president, makes improper loans that cost the company $100,000. Olive is most likely;
A. liable for negligence or mismanagement B. liable for violation of the business judgment rule C. not liable because missing meeting is an honest mistake D. not liable because missing meeting is only poor judgment |
A. liable for negligence or mismanagement
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Nicole and Oliver are shareholders of MediCare Residences, Inc. As shareholders, they must approve;
A. conducting a merger B. deciding to pursue new business opportunities C. terminating a managerial employee D. negotiating a contract between management and labor |
A. conducting a merger
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Niche Stores, Inc., must hold a shareholders' meeting;
A. monthly B. annually C. biannually D. only when it is called by the board of directors |
B. annually
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Odell, Prince and Quinn are shareholders of Rite corporation. Before a shareholders' meeting, they agree in writing to vote their shares together in a certain manner. Usually, such agreements are held to be;
A. invalid and unenforceable B. oppressive and irresponsible C. suspect and voidable D. valid and enforceable |
D. Valid and enforceable
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Orin is a shareholder of Pinkwater Corporation. In some states, Orin might incur personal liability for Pinkwater obligations if he;
A. accepts a dividend knowing it was paid from retained earnings B. buys stock for less than its fair market value C. fails to fulfill his fiduciary duty to the major shareholders D. sells his shares |
B. buys a stock for less than its fair market value
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Jody and Kent each own one-half of Local Motion, a club, as a tenant in common. Kent sells his interest to Meri, who now owns;
A. No interest in the firm B. the firm in fee simple C. the firm with Jody as joint tenants D. the firm with jody as tenants in common |
D. the firm with Jody as tenants in common
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Jamal signs a lease with Kelvin to occupy a house on Leech Lake for the summer. Jamal's tenancy is;
A. a fixed-term tenancy B. a periodic tenancy C. a restrictive covenant D. a tenancy at will |
A. a fixed-term tenancy
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With respect to Egor's land, Fig has an easement, Gabe has a profit, and Huck has a license. A right to possess the land is owned by;
A. Egor B. Fig C. Gabe D. Huck |
A. Egor
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Opal conveys three acres of wetlands to Pristine Places, Inc., with a deed that warrants only that Opal held good title during her ownership of the property. This deed is;
A. a grant deed B. a quitclaim deed C. a special warranty deed D. a warranty deed |
C. a special warranty deed
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To acquire the ownership of a vacant lot by adverse possession, Durwood must occupy the lot exclusively, continuously, and peaceably for a specified period of time;
A. in an open, hostile and adverse manner B. until the owner files a suit C. without the owner's knowledge D. with the state's permission |
A. in an open, hostile, and adverse manner
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Consumer Shops, Inc., signs a lease for a storefront owned by Downtown Building Company. Unlike a purchaser of real property, Consumer Shops;
A. acquires only temporary possession of the premises B. enjoys exclusive possession of the premises C. holds only temporary title to the premises D. retains temporary, exclusive possession and title to the premises |
A. acquires only temporary possession of the premises
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Property Management Corporation (PMC) owns several apartment buildings in two states. Regarding standards for maintenance of the buildings, PMC should consult;
A. the applicable city ordinances and state statutes B. the previous owners C. the long-term tenants D. the Uniform Landlords' Maintenance Manual |
A. the applicable city ordinances and state statutes
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Bren leases an apartment from Cris for one year. After two months, she sublets the premises for the next six months to Dee, without obtaining Cris's consent. Dee pays the rent for only four months. For the last two months of Dee's six-month term, Bren is;
A. liable for the rent, because Dee defaulted B> liable for the rent, because the sublease lacked Cris's consent C. not liable for the rent, because Bren does not own the apartment D. not liable for the rent, because Bren sublet the premises to Dee |
A. Liable for the rent, because Dee defaulted
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Sig rents an apartment from Town Homes, Inc. The lease, which ends on May 31, does not include an option for renewal, and Sid and Town do not discuss whether Sid can stay at the end of the term. On June 1, Sid has;
A. an implied option to renew the term B. a right to remain contingent on notice from Town C. a right to remain contingent on notice to Town D. No right to remain |
D. no right to remain
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Shopping Mall, Inc, leases space to Toney Goods Company and Uneek Stuff store. Later, Uneek begins to sell items that are similar to Toney's goods, and Toney abandons its space before the end of the lease term.
Toney is liable to; A. neither SMI nor its tenants B. SMI and Uneek for disputing Uneek's business decision C. SMI for at least some of the unpaid rent D. SMI's tenants, except Uneek, for abandoning Toney's space |
C. SMI for at least some of the unpaid rent
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Do individual partners have the ability to make charitable contributions without the consent of other partners?
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No
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In a partnership, who is liable for the debts of the partnership?
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The partners are PERSONALLY liable for the debts.
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Joint liability means that
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a third party must sue all of the partners as a group, but each partner can be held liable for the full amount.
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Joint and several liability means that:
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a third party has the option of suing all of the partners together (jointly) or one or more of the partners separately (severally).
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When is a new partner liable for the debts of a partnership?
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When a partnership borrows money after they have been admitted. Their liability to existing creditors of the partnership is limited to their capital contribution to the firm
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_________________ occurs when a partner ceases to be associated in the carrying on of the partnership business.
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Dissociation
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What are the 5 events that normally cause dissociation?
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1. Partner voluntarily giving notice
2. Occurrence of an event in the partnership agreement 3. Unanimous vote of other partners 4. Court or arbitrator if the partner has engaged in wrongful conduct 5. Partner's bankruptcy, assignment of interest or death |
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When can wrongful dissociation occur?
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When a partner's dissociation breaches a partnership agreement
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Who is liable when a partner wrongfully dissociates?
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The partner wrongfully dissociating.
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What is the buyout price based upon?
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the amount that would have been distributed to the partner if the partnership had been wound up on the day of dissociation.
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How many years after a partner dissociates from a continuing partnership can the partnership be bound by the acts of the dissociated partner?
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2 years
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What are the two stages of the termination of a partnership?
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Dissolution
Winding up |
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What is dissolution?
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The commencement of a winding up process.
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What is the winding up process?
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The actual process of collecting, liquidating, and distributing the partnership assets.
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Any partnership can be dissolved by what?
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The partners' agreement
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What are the three ways a partnership can be terminated?
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1. Partners agreement to dissolve
2. Operation of law (death or bankruptcy of a partner, illegality) 3. Judicial decree (insanity, incapacity, improper conduct, etc) |
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What order are a dissolved partnership's assets distributed in?
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1. Payment of debts
2. Return of capital contributions and distribution of profits to partners |
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If the partnership's liabilities are greater than its assets, who bears the losses?
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The partners
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In what type of agreement do partners agree in advance that, in the event of the death of one of the partners or some other event, how remaining partners will buy-out the deceased partners' interest?
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Buy-Sell Agreements. Sometimes referred to as Buyout agreements
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What type of partnership is a hybrid form of business designed mostly for professionals who normally do business as partners in a partnership?
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LLCs
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What is an advantage of creating a Family LLC? Exempt from real estate transfer taxes when partnership real estate is transferred among partners
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Exempt from real estate transfer taxes when partnership real estate is transferred among partners
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What do limited partnerships consist of?
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At least 1 general partner and one or more limited partners
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What are the responsibilities of a general parter in a limited partnership?
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Assumes management responsibility and has full responsibility for the partnership and for all of its debts
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What are the responsibilities of a limited partner?
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They contribute cash or other property. They own interest in the firm but to not undertake any management responsibilities and are not personally liable for partnership debts beyond their investment.
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In an LP, a general partner's voluntary dissociation from the firm normally will lead to dissolution unless what?
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All partners agree to continue the business.
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What is the difference between an LLLP and a LP?
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An LLLP (Limited liability limited partnership) allows a general partner the same liability to the partnership as a limited partner.
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A ___________ is a hybrid entity that combines the limited liability of a corporation and the tax advantages of a partnership
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A Limited Liability Company
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LLCs are taxed as what?
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A partnership
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Are foreign investors allowed to own LLC interests?
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Yes. This includes non-resident aliens. No jurisdictional ownership in LLCs
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Like corporations, LLCs are creatures of what type of law?
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State law
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To form an LLC, what must you file?
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Articles of Organization with a central state agency
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What are (5) typical requirements on the Articles of Organization?
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Name of business
Principal Address Name and address of registered agent Names of the owners How it will be managed |
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What are two different common types of management styles?
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1. Decentralized (member managed)
2. Centralized (Managers) |
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What is a key advantage in forming an LLC?
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The liability of the members are limited to the amount of their investments
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Besides enjoying Limited Liability, what are three other advantages of forming an LLC?
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1. Flexibility in taxation - an LLC with two or more members can choose to be taxed as either a partnership or a corporation. One member LLCs are taxed as sole proprietorships
2. Flexibility in Management style 3. Ability for Foreign investors to participate |
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What are two disadvantages of forming an LLC?
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1. Lack of uniformity with state laws, may not receive consistent treatment in all states (same for corporations)
2. Still a pretty new concept. Not a lot of cases regarding LLCs to set precedents so many times they are ruled similar to cases involving corporations |
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Are Operating Agreements required in LLCs?
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No - they are preferred. Especially preferred in writing. This will contain provisions relating to management, dividends, meetings, transfer of membership interests and other issues. These are strongly recommended when there is more than one member or when members aren't going to be treated equally
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If an issue arises in an LLC and is not covered in the Operating agreement, what laws are often applied?
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Partnership law.
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In a _________-managed LLC, all of the members participate in management, and decisions are made by majority vote
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Member-managed
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In a ______________-managed LLC, the members designate a group of persons to manage the firm
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Manager-managed
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A ___________________ is a special business form that is a relationship in which two or more persons or business entities combine their efforts or their property for a single transaction or project or a related series of transactions or projects.
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Joint Ventures
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A Joint Venture resembles a ______ and is taxed like one also.
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Partnership
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A ____________ is a special business form that is created by a written trust agreement that sets forth the interests of the beneficiaries and the obligations and powers of the trustees.
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Business Trust
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In a Business Trust, who legally owns and manages the trust's property?
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The trustees, and the profits are distributed to the beneficiaries.
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A ____________ is a special business form that is an association organized to provide an economic service to its members. (without profit)
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Cooperative
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The cooperative form of business is generally adopted by groups of individuals who are looking to do what?
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To pool their resources to gain some advantage in the marketplace. For example: Seller marketing co-ops are formed to control the market and thereby enable members to sell their goods at higher prices
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In a corporation, the responsibility for the overall management of the firm is entrusted to who?
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A board of directors - whose members are elected by the shareholders.
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A _______________ is recognized as a "person" and enjoys many of the same rights and privileges under state and federal law that US citizens enjoy.
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Corporation
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In corporations - shareholders are at risk for what?
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Their investment in the company
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A _______________ company is a company whose business activity consists of holding a controlling amount of shares in another company. Typically established off-shore
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A holding company
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What are the 3 classifications of corporations?
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1. Domestic
2. Foreign 3. Alien |
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What is a domestic corporation?
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A corporation formed and doing business in its home state. Ex. A florida corporation doing business in Florida
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What is a foreign corporation?
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A corporation formed in one state but doing business in another. Ex. Georgia corporation doing business in Florida
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What is an alien corporation?
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A corporation formed in another country doing business in the US
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A __________ corporation is formed by the government to meet some political or governmental purpose
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Public corporation
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A _______________ held corporation is any corporation whose shares are publicly traded in a securities market
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Publicly held
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Privately held corporations are created wholly or in part for;
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Private benefit (profit). Most corporations are private. Although they may serve a public purpose, as a public electric or gas utility does, they are owned by private persons instead of the government.
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A ________________ held corporation is one whose shares are not publicly traded. The shares are often held by family members or by a relatively small group of persons. Often treated as a partnership
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Closely held corporation
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A closely held corporation will automatically be taxed under subchapter ____ in the IRS code unless it elects ____ corporation status
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A closely held corporation will automatically be taxed under subchapter C in the IRS code unless it elects S corporation status
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What are the 6 requirements for a company to be taxed as an S corporation?
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1. Must be a domestic corporation
2. Corporation must not be a member or an affiliated group of corporations 3. The shareholders of the corporation must be individuals, estates, or certain trusts and tax-exempt organizations 4. The corporation must have no more than one hundred shareholders 5. The corporation must have only one class of stock, although all shareholders do not need to have the same voting rights 6. No shareholder of the corporation may be a non-resident alien |
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An S corporation is taxed like a ___________, so the corporate income passes through to the shareholders, who pay personal income tax on it
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Partnership
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Taxation on an S corporation enables the corporation to avoid;
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double taxation imposed on regular corporations
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What are the 4 steps to follow during incorporation?
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1. Select the state of incorporation
2. Prepare the articles of incorporation 3. File the articles with the state 4. First organizational meeting to adopt the bylaws |
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What are the two terms for improper incorporation?
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De Jure - Properly formed corporation - minor defect during filing (incorrect address etc)
De Facto - Only challengable by the state - statutory requirements were not met, but made good faith to comply with the laws. |
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If a corporation acts like one, but has not been incorporated, they cannot avoid liability by claiming no corporation exists. What is this called?
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Corporation by Estoppel
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Where are express powers in a corporation listed?
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In the bylaws
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Unless expressly prohibited by a constitution, a statute or the articles or incorporation, the corporation has the implied power to do what?
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Perform all acts reasonably appropriate and necessary to accomplish its corporate purposes
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When will the courts ignore the corporate structure and pierce the corporate veil and expose shareholders to personal liability?
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When the owners use a corporate entity to perpetrate a fraud, circumvent the law, or in some other way accomplish an illegitimate objective
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The initial board of directors for a corporation serves until
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The first annual shareholder's meeting.
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When can a board of director member be removed?
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For cause - failing to perform a required duty, as either specified in the articles or bylaws or by shareholder action.
The board of directors also have the power to remove a director for cause, subject to shareholder review |
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A director who is also an officer of the corporation is referred to as an;
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Inside director
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A director who does not hold a management position is an
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Outside director
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Normally, a majority of the board of directors must be present to constitute a __________
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Quorum - the minimum number of members of a body of officials or other group that must be present for business to validly transacted. The bylaws are permitted to set a quorum at more or less than a majority
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What are the 3 rights board of director members are entailed to?
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1. The right to participation
2. The right of inspection 3. The right to indemnification (if they become involved in litigation by virtue of their position, they have rights to reimbursement for legal fees and damages) |
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What are the most common types of committees created by board of directors?
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1. Executive Committee - makes management decisions between board meetings
2. Audit committee - selects/compensates/oversees independent CPAs who audit financial records 3. Nominating committee - selects candidates for Board of directors 4. Compensation committee - reviews and decides salaries, bonuses, stock options, etc. 5. Litigation Committee - decides if corporation should pursue request for filing lawsuits |
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Under which rule will a corporate officer or director not be liable to the corporation or to its shareholders for honest mistakes of judgment and bad business decisions?
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The business judgment rule
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If shareholders perceive that the corporate directors are not acting in the best interest of the corporation they can sue the directors in what is called a;
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Shareholder's derivative suit
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Shareholders must approve fundamental changes affecting the corporation before the changes can be implemented. What are 4 things shareholder approval normally required for?
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1. Amend the articles of incorporation or bylaws
2. Conduct a merger or dissolve the corporation 3. to sell all or substantially all of the corporation's assets 4. Power to vote or elect/remove members to the board of directors |
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A corporation must notify its shareholders of the date, time and place of an annual or special shareholder's meeting at least _________ days but not more than _______ before the meeting date
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at least 10 days but not more than 60 days
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Proxies are valid for ______ unless the proxy agreement mandates a longer period
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11 months
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All shareholders who own stock worth $1,000 are eligible to submit
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Shareholder Proposals
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A group of shareholders can agree in writing prior to a shareholders' meeting in a;
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Shareholder voting agreement, to vote their shares together in a specified manner
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What are preemptive rights?
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Must be provided in the Articles of corporation. Allows each shareholder to maintain their proportional control, voting power, or financial interest in the corporation
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_____________ are rights to buy stock at a stated price by a specified date that are given by the company.
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Stock warrants
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A _______ is a distribution of corporate profits or income ordered by the directors and paid to the shareholders in proportion to their respective shares in the corporation.
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dividend
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Shareholders are entitled to examine specified corporate records, including voting lists. This inspection right is limited how?
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The inspection must be for a proper purpose, the request must be made in advance. Some states require a shareholder must have held their shares for a minimum period of time or hold a minimum amount of shares
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When a corporation issues shares for less than their fair market value, the shares are referred to as
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Watered Stock
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What are possessory interests?
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(Fee simple, life or leasehold estate) - Give the owner a right to possess the land.
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What are Nonpossessory interests?
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(easement, profit or license) do not give the owner a right to possess land
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What type of ownership gives the owner the greatest aggregation of rights and indefinite right to exclusive possession and use of property?
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Ownership in Fee Simple
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What are the duties of a life tenant?
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Keep the property in repair and pay property taxes.
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People who share ownership rights simultaneously in particular property are said to have;
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Concurrent ownership
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What are the two principal types of concurrent ownership?
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Tenancy in common
Joint tenancy |
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In Tenancy in Common and Joint Tenancy ownerships, each type of ownership, the owners own undivided interest in the property. What is the difference between the two?
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Tenancy in Common - When one of the owners dies, the interest passes to the tenant's heirs
Joint Tenancy - At death, the interest passes to the surviving joint tenants |
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A __________ is a less common form of ownership that typically is created by conveyance (transfer) of real property to a husband and wife
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Tenancy by the Entirety
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What type of ownership applies to most property acquired by the husband or wife during a marriage?
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Community Property
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A _________ is created when a real property owner (landlord) agrees to convey the right to possess and use the property to a lessee (tenant) for a certain period of time
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Leasehold estate
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A fixed-term tenancy is created by an express contract by which property is leased for a specified amount of time. At the end of that time,
|
The lease ends (without notice) and the possession of the property returns to the lessor
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A Periodic tenancy lease does not specify how long it is to last but does specify;
|
that rent is to be paid at certain intervals. Continues until one period's notice is given to tenant. If rent is paid monthly, then the period is one month's notice
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Tenancy at will (although rare) allow;
|
either the landlord or tenant to terminate the tenancy without notice
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A type of tenancy under which one who, after rightfully being in possession of leased premises, continues to (wrongfully) occupy the property after the lease has been terminated
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A tenancy at sufferance
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Possession and title to land are passed from person to parson by means of a;
|
Deed
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A ____________ deed makes the greatest number of warranties and thus provides the most extensive protection against defects of title. It includes a number of promises that the grantor makes to the grantee
|
Warranty deed
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A ______________ deed, generally referred to as a limited warranty deed, warrants only that the grantor or seller held good title during his or her ownership of the property. DOes not warrant that there were no defects of the title when the property was held by previous owners
|
Special warranty deed
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A ______________ deed offers the least protection against defects in the title. Basically coneys to the grantee whatever interest the grantor had.
|
Quitclaim deed
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In a _____________ deed, the grantor simply states, "I grant the property to you" or "I convey, or bargain and sell, the property to you.
|
Grant deed
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A __________ deed is a document giving ownership rights to a buyer of property at a sheriff's sale, which is held by a sheriff when the owner of the property has failed to pay a court judgment against them
|
Sheriffs deed
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Once the seller delivers the deed to the buyer (at closing), the buyer should do what?
|
Record the deed. This gives notice to the public that a certain person is now the owner of a particular parcel of real estate
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____________ title (or good title) means that the grantor's ownership is free from encumbrances (except those already disclosed) and free of defects
|
marketable title
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What occurs when one person possesses the property of another for a certain statutory period of time and that person automatically acquires the title to the land as if there had been a conveyance by deed?
|
Adverse Possession
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Adverse possession must be: (4 things)
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1. Actual and exclusive
2. Open, visible and notorious 3. Continuous and peaceable 4. Hostile and adverse |
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________________ is the power of the government to take land for public use
|
Eminent doman - sometimes referred to as the condemnation power
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A private restriction on the use of land is known as a _________________. If the restriction is binding on the party who purchases the property originally, it is said to "run with the land"
|
Restrictive covenant
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_______________ occurs when a government takes private property from a landowner without paying any compensation. In this situation, the land owner is forced to sue the government for compensation for the lost value of the land
|
Inverse Condemnation
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|
What are the three permissible uses of land?
|
1. Residential
2. Commercial 3. Industrial |
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|
What are three exceptions to zoning laws?
|
1. Variances - request for exception to the rules
2. Special use permits 3. Special incentives |
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|
Leases give the tenants the temporary right to _____________ possess the property
|
exclusively
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|
What are the 4 areas of concern of rights and duties for landlords and tenants?
|
1. Possession
2. Use and maintenance of the premises 3. Implied warranty of habitability 4. Rent |
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|
What are the two ways you can transfer rights to a leased property?
|
1. Assignment
2. Sublease |
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|
When a tenant transfers their entire interest in the leased property to a third person it is an assignment of the lease. While the assignee acquires all of the tenant's rights under the lease, this does not
|
release the assigning tenant from the obligation to pay rent should the assignee default
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|
|
The tenant's transfer of all or part of the premises for a period shorter than the lease term is a sublease.
True or false: If there is a valid sublease, the original lessee is not released from their obligations of the lease |
True
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