Mgt 340 Exam 3

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CHAPTER 14

Back 1

FINANCING OF SALES AND LEASES

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Credit Contract

Back 2

All the elements of a contract, rate of interest, number of payments, length, penalties, requires collateral, and statutory disclosures.

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Usury Statutes

Back 3

Limit on interest expense.

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Sub-Prime Lending Market

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Less credit-worth applicants pay higher interest rates.

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Equal Credit Opportunity Act (ECOA)

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Base credit on applicant's ability to repay a loan.

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Truth in Lending Act

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Part of Consumer Credit Protection Act; applies to consumer credit, individual or family, open or closed ended.
*Creditor must completely disclose lending information.

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Open End Credit

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On-going line of credit being repayed.

i.e. credit cards

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Closed End Credit

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Specific loan amount being repayed.

i.e. mortgage

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APR

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Annual Percentage Rate

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Armed Forces Protections

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Interest rate </= 6%

Limits foreclosures.

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Credit Card Solicitation

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No unsolicited cards may be sent.

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Reported Lost or Stolen Credit Card Limits

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$50 deductible limitation fee

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Three Day Cooling Off Period

Back 13

3 days to change your mind on solicited credit cards.

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Fair Credit Billing Act

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Opportunity to reject payments within 60 days.

Creditors receive 30 days to acknowledge & 90 days to fix discrepancy.

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Fair Credit Reporting Act

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Regulates reporting agencies and who they may disclose information to.

Bankruptcies more than 10yrs old may not be included.
Law suits & crimes 7yrs old may not be included, unless >$50K.

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Enforcement of Credit Transactions

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In writing, if loan is un-repayed, must give property as security.

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Fair Debt Collections Practices Act

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Pertains to third party collectors & attorneys.
Must provide written verification of debt, amount owed, creditor, and right to refute.
Cannot call before 8AM or after 9PM.
Cannot contact at club or job site, unless authorized.
Debtor may stop contact in writing.
Cannot contact third parties, except for spouses & parents.
May contact third party to find debtor.
Postcard contact prohibited.
Cannot harass, threaten, or issue jail time.
No physical force or misrepresentation of authority.

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Creditor Security

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May enforce debts by suing debtor.

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Debtor Bankruptcy

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Gives debtors a fresh start. In general, any person or business can file to gain relief.

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Straight Bankruptcy

Back 20

Property liquidated & creditors payed off.

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Chapter 7/Liquidation

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Worst case bankruptcy, best way out.

Front 22

Straight Bankruptcy Exemptions

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On residences that have up to $10K in equity.
Kentucky automobile $2500 or less.
Person property $1000 or less.

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Chapter 11/Reorganization Bankruptcy

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Business reorganizes, court takes control of business & trustee keeps the business in operation during reorganization.

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Stave

Back 24

Automatic stop on business when filed for bankruptcy.

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Chapter 13/Consumer Debt Adjustment Bankruptcy

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Used by individuals to establish plan to keep property & pay off debts.

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2 Types of Bankruptcy

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Voluntary or forced.

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Non Dischargable Debts (Cannot bankrupt)

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Taxes, student loans, child support, alimony, etc.

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CHAPTER 17

Back 28

AGENCY LAW

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Principal and Agent Relationship

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Agent works for the principal under a Power of Attorney

Front 30

2 Types of Power of Attorneys

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1. Specific
2. General

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Specific Agent Relationship

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Agent authorized to perform one specific task.

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General Agent Relationship

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Agent authorized to manage the principal's affairs.

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Principal

Back 33

Grants authority to the agent.

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Express Authority

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Issues authority from the principal to the agent.

Agent does not have any capacity that the principal does not hold.

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Implied Authority

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Extension of express; what the agent must do in order to perform their job.

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Apparent Authority

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Principal implies to a third party that the agent has an authority.

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Authority by Ratification

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Principal ratifies authority for the agent's action.

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Fiduciary

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Acting in the principal's best interest; loyalty, trust, care, & obedience.

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Agent Restrictions

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Agent cannot represent a competitor unless authorized by the principal.

Agent cannot take advantage of personal gain without the principal's permission.

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Contract Liability

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Principal is liable on contracts entered by agent. Principal may be liable for contracts entered without authorization.

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Partially Disclosed Principal

Back 41

Agent does not initially disclose principal, both are liable.

Front 42

Undisclosed Principal

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Agent does not disclose the principal, agent is held liable.

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Disclosed Principal

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Principal is known and held liable.

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Scope of Authority

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If agent acts within authority, the principal is liable.

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Termination of Relationship

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Agent may quit or be fired with or without cause.

Notice of termination to third parties.

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At-Will Employees

Back 46

May be fired at any time.

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CHAPTER 20

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FORMS OF DOING BUSINESS

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6 Structure Factors

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1. Cost
2. Continuity
3. Control
4. Liability
5. Taxes
6. Funding

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3 Tradition Structures

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1. Sole Proprietorship
2. Partnership
3. Corporation

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Sole Proprietorship

Back 50

One owner.
Most common, 2/3 of businesses.
Generate ~5% of revenue.
Average $50,000 income.
+Low cost advantage.
-No Continuity.
+Complete control.
-Personal funding responsibility.

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Partnership

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2 or more co-owners.
Formal contract not required.
~8% of all businesses.
~9% of revenue.
~10% of $1M businesses.
Each partner held liable, taxed individually, company also files informative return.

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Uniform Partnership Act

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Regulates when no written agreement is present.
States all partners are equal, any decision is binding for partnership.
Unanimous decision required on structural changes.
Partner can terminate at any time.

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Partnership Interests

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Share of capital plus investment.

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Dissolution

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Termination of partnership.

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Winding Up

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Division of funds, liquidation, etc.

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Liquidation Payment Terms

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1. Outside creditors
2. Partnership creditors
3. Partners
4. Divide profits

Front 57

Limited Partnership

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Partnership with limited partners (capital investors), must be in writing, cannot participate in management.

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Corporation

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~85% of revenue.
~15-20% of all businesses.
Artificial legal entity, created by the state.
Many headquartered in DE.

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Articles of Incorporation (6)

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Filed with the Secretary of State office.
1. Corporate name
2. Number & type of authorized shares of stock
3. Purpose "Any and all..."
4. Duration "Perpetual..."
5. Initial registered agent & office
6. Incorporates (names & addresses)

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Business in Other States

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Fee to conduct business in other states.

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Pearce the Corporate Veil

Back 61

Penalties when corporate rules are not followed.

Front 62

Liability Advantage

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Can take on debts & worth with agents.

Front 63

Corporate Tax

Back 63

Subject to double taxation.

Front 64

Preemptive Rights

Back 64

Shareholders receive right to purchase % of new stock.

Front 65

Derivative Lawsuit

Back 65

Shareholders suing the corporation

Front 66

Directors

Back 66

Appointed by shareholders; appoint officers.

Front 67

Business Judgement Rule

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Corporation not held liable while acting in good faith.

Front 68

"Respondeat Superior"

Back 68

Let the business superior respond.

Front 69

S-Corporation

Back 69

Issued by IRS, limited liability, single taxation, income flows directly to shareholders.

<100 shareholders, 1 type of stock.

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Limited Liability Company/Partnership

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Liability fixed to a certain sum.

Front 71

Shareholder Approval

Back 71

Required for takeovers & mergers.

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Merger

Back 72

2 or more companies combine and 1 continues to exist.

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Consolidation

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2 or more companies combine resulting in creating of a 3rd company.

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Tender Offer

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Offer is made publicly to buy stock for more than its worth.

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Hostile Takeover

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Unwanted by second company.

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CHAPTER 21

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SECURITIES

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Initial Public Offering (IPO)

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Corporations issue new securities.

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Securities

Back 78

Any investment of money in a common enterprise, expecting to make a profit generated by the efforts of others (Howie Test).

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Securities Act of 1933

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Oversees & governs IPOs.
Does not guarantee a good investment, guarantees full disclosure & requires a registration statement by the SEC.

Front 80

Registration Statement (2)

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1. Prospectus
2. Supplemental Information

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Prospectus

Back 81

Disclosure of financial information, risk, owners, audits, etc.

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Supplemental Information

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Sent only to the SEC, contains costs, contracts, etc.

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3 Stages of Registration

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1. Pre-Filing period: prior to registration
2. Waiting period: after registration
3. Post Effective period: post approval

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"Tombstone" Ads

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Issued during waiting period, notice of future sale of stock.

*Must include black border.

Front 85

Red Herring Prospectus

Back 85

Initial prospectus draft

*Cautionary letter heading required.

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Underwriters

Back 86

Sales agents of stock

Front 87

Best Efforts Underwriters

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Sales agents working on commission

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Firm Commitment Underwriter

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Buy stock at a discount and resell.

Front 89

Tax Exempt Securities (6)

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1. Government issued
2. Charities
3. Educational institutions
4. Annuities
5. Stock splits
6. Insurance

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Tax Exempt Transactions (2)

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1. Intrastate offerings
2. Minor offers

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Intrastate Offering Requirements

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Residents of the same state.
80% of assets within the state.
80% of income from within the state.
80% of stock income goes to the state.

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Minor Offer Requirements

Back 92

$5M or less
Sold to accredited institutions or investors.

*Simplified registration

Front 93

Securities Exchange Act of 1934 (5)

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Full disclosure of stock information.
1. Subject to if stock is sold in national exchange or $10M and 500 shareholders.
2. One-time filing of registration with SEC, updated annually.
3. Quarterly reports of financials.
4. SEC can suspend trading to protect investors.
5. SEC can bring civil liabilities upon anyone involved in unlawful trading.

Front 94

Due Diligence Defense

Back 94

Available to anyone but the corporation; acted in a reasonable manner.

Front 95

Fraud

Back 95

Illegal to engage in a scheme to defraud investors under 1933 & 1934 Acts.

Front 96

Insider Trading

Back 96

Illegal for an insider to buy or sell securities with material information not available to the public.

Front 97

Civil Suits

Back 97

SEC issues cease and desist order, seeks injunctions, require that profits be returned, impose 300% profit penalties, & prosecute criminally.

Front 98

State Security Laws

Back 98

"Blue Sky Laws"
Require legitimate offerings; protects citizens from unwise investments.