AC 312 Exam 3 Flashcards
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AC 312 Exam 3 Flashcards

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Questions and Answers

The first major expansion of the Commerce Clause of the U.S. Constitution was done through which of these?

  • The Dodd Frank Act
  • Wickard v. Filburn
  • Gibbons v. Ogden (correct)
  • The Securities Exchange Act

    • If Drake, a shareholder of Sweet Corp., feels that he has been deprived of the right to purchase some of the corporation's newly issued stock, he:

  • May bring a direct suit against Sweet's corporate management (correct)
  • May bring both a derivative suit and a direct suit against Sweet's corporate management
  • May bring a derivative suit against Sweet's corporate management
  • Has no legal recourse against Sweet's corporate management

    • ____________ give(s) shareholders more voting control, because this voting method states that each share of stock has as many votes as there are directors to be elected.

  • Pooling agreements
  • Voting trusts
  • Cumulative voting (correct)
  • Proxy voting

    • An attempt at a(n) ____________ occurs when one corporation makes a tender offer to the shareholders of another corporation.

    <p>Stock acquisition</p> Signup and view all the answers

    To submit a shareholder proposal, a shareholder must have owned (for the past year) __________ percent or __________ in market value of the voting stock of the corporation.

    <p>1; $2,000</p> Signup and view all the answers

    Pogisa is a director at Trendz Corp. After studying and consulting with experts, Pogisa votes to have Trendz sell a tract of land for $500 per acre. Within a year, the land is worth $2,000 per acre, and Trendz shareholders want to sue Pogisa for her vote to sell the land. Under the ____________, Pogisa may be entitled to legal protection.

    <p>Business Judgment Rule</p> Signup and view all the answers

    EA Games Industries is a manufacturer of home video game machines and home video games. Johnson Department Store wants to market the home video games, but EA refuses to sell the games unless Johnson also agrees to purchase the home video machines. A court will most likely find such a restriction to be a(n):

    <p>Unlawful tying agreement</p> Signup and view all the answers

    In a ____________, a target corporation uses news releases, advertisements, and press conferences to convince shareholders to retain present management.

    <p>Public relations campaign</p> Signup and view all the answers

    A ____________ refers to the actual document that is used to request the right to vote the other shareholders' votes.

    <p>Proxy solicitation</p> Signup and view all the answers

    Michelson was chairman of the board and chief executive officer of a computer manufacturing firm. When considering whether to purchase CompuPrint, the manufacturer of computer printers, Michelson examined CompuPrint's financial records, consulted with legal and financial experts, and conducted an in-depth study of the marketplace and decided that it would be profitable for his corporation to purchase CompuPrint. If CompuPrint turns out to be a poor investment, and a court hears a case challenging Michelson's decision, the court will most likely analyze his conduct based on the ____________ rule.

    <p>Business judgment</p> Signup and view all the answers

    A ____________ is defined as a coalition of individual outsiders who do not necessarily own stock, but can be affected by corporate decision making.

    <p>Special interest group</p> Signup and view all the answers

    Small State has a limited customer base north and south of the interstate highway. Company A and Company Z agree that A will sell north of the interstate highway and Z will sell south of the interstate highway. This is a ___________ violation of the Sherman Antitrust Act.

    <p>Per se</p> Signup and view all the answers

    When does the agency end if the agreement is silent?

    <p>When the house is sold</p> Signup and view all the answers

    What notice must The Great Retail Store provide to its creditors when Betty quits?

    <p>The Great Retail Store should send an actual notice to parties Betty has done credit business with and place an advertised notice in a newspaper of general circulation to the rest of the public.</p> Signup and view all the answers

    What legal theory, if any, would allow Repair Garage to be sued by the customer?

    <p>Apparent authority</p> Signup and view all the answers

    In which of the following situations can an agent legally appoint a subagent?

    <p>When the appointment is implied from the nature of the employment</p> Signup and view all the answers

    What type of authority has Charlena given Megan?

    <p>Apparent authority</p> Signup and view all the answers

    Corazon impliedly agreed to Josefina's delegation to Lillian.

    <p>True</p> Signup and view all the answers

    The agency relationship continues after a property is destroyed by fire.

    <p>False</p> Signup and view all the answers

    A(n) ____________ is an exception to the rule that either the principal or the agent may terminate an agency relationship at any time.

    <p>agency coupled with an interest</p> Signup and view all the answers

    Most likely, the agency is terminated because of impossibility.

    <p>True</p> Signup and view all the answers

    What does the Uniform Electronic Transactions Act (UETA) do?

    <p>Legitimizes the use of electronic agents.</p> Signup and view all the answers

    What is the legal liability of Iris to Peggy regarding the contract with Drew?

    <p>Iris is liable for a breach of implied warranty of authority.</p> Signup and view all the answers

    Edgar violated any obligation to Carlos when he sold on credit to Andrew.

    <p>True</p> Signup and view all the answers

    An agent's duty of loyalty means she likely cannot act for:

    <p>Two principals in the same transaction</p> Signup and view all the answers

    The bankruptcy of Henry will terminate the agency relationship.

    <p>True</p> Signup and view all the answers

    What responsibility does Bigger Company owe Desmond?

    <p>As Bigger's agent following instructions, Desmond is entitled to indemnification.</p> Signup and view all the answers

    Which of the following tasks may Smith delegate to Elizabeth?

    <p>Keeping a record of transactions Smith undertakes on behalf of New Life.</p> Signup and view all the answers

    What type of authority would authorize Thomas to purchase office supplies?

    <p>Implied authority</p> Signup and view all the answers

    How frequently must Greta account to Wayne for the money she receives?

    <p>Within a reasonable period of time after the money is received</p> Signup and view all the answers

    What legal theory, if any, allows Geoffrey to contract a garage for van repair?

    <p>Incidental authority</p> Signup and view all the answers

    What amount should be paid to Amy when she sells Jamie's house?

    <p>A fair value for the services performed</p> Signup and view all the answers

    What is the status of Liz's contracts if there is a novation clause?

    <p>Liz will escape potential liability under the novation contract entered into.</p> Signup and view all the answers

    What role does Jan hold when signing articles of incorporation?

    <p>Incorporator</p> Signup and view all the answers

    Under RUPA, a ____________ takes place whenever a partner is no longer associated with the running of the firm.

    <p>dissociation</p> Signup and view all the answers

    Who has liability for partnership actions if Tina assumes management duties?

    <p>Mark and Tina</p> Signup and view all the answers

    The four fundamental legal principles designed to protect the corporate structure include corporate status as an entity, corporate constitutional rights, corporate citizenship and:

    <p>Limited liability</p> Signup and view all the answers

    What happens to Big Corp. after Kay, an 80% shareholder dies?

    <p>Unaffected</p> Signup and view all the answers

    The Titanic Partnership's loan from Big Bank is structured so that payments vary according to profitability. What does this best describe?

    <p>This is not evidence of a partnership between Titanic and Big Bank.</p> Signup and view all the answers

    Alan and Baker want to join their partnership with another partnership.

    <p>True</p> Signup and view all the answers

    A(n) ____________ is one that has been formed properly by incorporators who followed all of the steps outlined by the state incorporation statute.

    <p>de jure corporation</p> Signup and view all the answers

    In a limited partnership, general partners:

    <p>Take an active part in management, but have unlimited liability for the firm's debts.</p> Signup and view all the answers

    Who is liable on the lease signed by Henry for Ajax Corp.?

    <p>Both Henry and Ajax</p> Signup and view all the answers

    The status of a de facto corporation can be directly challenged by:

    <p>The state government</p> Signup and view all the answers

    A promoter can escape liability by having the corporation and the third party create a(n):

    <p>Novation</p> Signup and view all the answers

    Charlotte can leave the AMLAP partnership without any liability.

    <p>True</p> Signup and view all the answers

    When forming a limited partnership, it is critical to know that:

    <p>A certificate of limited partnership must be filed with the Secretary of State's office.</p> Signup and view all the answers

    What is the citizenship classification of the Panon Corporation incorporated in Tennessee with headquarters in Massachusetts?

    <p>Considered a citizen of both Massachusetts and Tennessee.</p> Signup and view all the answers

    A partner's ____________ is her share of the ___________ plus any ____________, which is any remaining funds after dissolution.

    <p>economic interest; profits and losses; surplus</p> Signup and view all the answers

    Patricia is guaranteed the rights to some of the profits of the corporation.

    <p>False</p> Signup and view all the answers

    Limited partners are nonparticipating investors.

    <p>True</p> Signup and view all the answers

    Since Nodest is a foreign corporation, what must it do?

    <p>It must obtain a certificate of authority from California.</p> Signup and view all the answers

    Under the UPA, a partner in a tenancy in partnership has all the following rights except:

    <p>The right to be a co-owner of partnership property with no interest in partnership property which can be transferred, either voluntarily or involuntarily.</p> Signup and view all the answers

    Alan sells merchandise on credit to ABC Co. ABC fails to pay for the merchandise. If ABC is a partnership consisting of Alice, Betty, and Charles, which legal doctrine might shield them from personal liability?

    <p>Corporation by estoppel</p> Signup and view all the answers

    Susan purchases a truck with her personal funds, naming Easy Partnership on the title. Who owns the truck?

    <p>Easy Partnership only</p> Signup and view all the answers

    Which of the following is the official authorization of a corporation to do business in a state?

    <p>Certificate of incorporation</p> Signup and view all the answers

    ____________ refer(s) to the written application to the state for permission to form a limited liability company.

    <p>Articles of organization</p> Signup and view all the answers

    Grant wants to know the date of the annual shareholders meeting of Big Co. Which document will contain this information?

    <p>Bylaws or regulations</p> Signup and view all the answers

    Vivian, owner of Titan Corp., uses Titan Corp. as a way to order merchandise for her personal benefit. Which legal doctrine would allow a personal suit against her?

    <p>Piercing the corporate veil</p> Signup and view all the answers

    Jack has an auto accident while on business for Small Enterprises, an RLLP consisting of Jack and Alex. Who is liable for damages resulting from the auto accident?

    <p>Jack only</p> Signup and view all the answers

    Under the RUPA, who owns the $10,000 invested by Thomas in the Tremendous Enterprise partnership?

    <p>Tremendous Enterprise</p> Signup and view all the answers

    Jackie's interest in the partnership property cannot be assigned. What is her legal position with regard to the mortgage under UPA?

    <p>Jackie's interest in the partnership property cannot be assigned.</p> Signup and view all the answers

    Janice requires information about the voting rights of members of Titan, LLC. Which document will contain this information?

    <p>Articles of organization</p> Signup and view all the answers

    John wants to purchase land for Franklin Partnership. Can he lawfully have his aunt buy the land to resell to Franklin Partnership?

    <p>No, it violates John's duty of loyalty.</p> Signup and view all the answers

    The RUPA has eliminated which concept?

    <p>The concept of tenancy in partnership.</p> Signup and view all the answers

    A(n) ____________ is a corporation where the outstanding shares of stock and managerial control are held by fewer than ____________ shareholders.

    <p>close corporation; 50</p> Signup and view all the answers

    Under the RUPA, a partnership has what feature?

    <p>Continuity of existence.</p> Signup and view all the answers

    Which of the following occurs after the charter is issued in the incorporation process?

    <p>The organizational meeting is held.</p> Signup and view all the answers

    What is an advantage of a sole proprietorship?

    <p>The owner has complete control over the business.</p> Signup and view all the answers

    A limited liability company is best thought of as a cross between a partnership and a:

    <p>Corporation</p> Signup and view all the answers

    Arian is a sole proprietor and owes business creditors. What can these creditors sue to take?

    <p>Both business and personal assets.</p> Signup and view all the answers

    When Alan and Delen enter into a partnership agreement, six months later Delen loans Alan $1,000. What is the nature of the loan?

    <p>Personal loan to Alan only.</p> Signup and view all the answers

    Linda, a manager at United Traders, violated instructions by taking a $20 million position. Does she have any liability to United?

    <p>Yes, because she violated specific instructions.</p> Signup and view all the answers

    Mill Enterprises needs to raise money. It sells a fractional interest in orange groves. What has Mill Enterprises sold?

    <p>Securities.</p> Signup and view all the answers

    Which of the following occurs when a targeted corporation makes a deal with the suitor to protect its management?

    <p>A targeted shareholder agreement.</p> Signup and view all the answers

    A ____________ might be used by target management if the target owns an irreplaceable piece of property.

    <p>Lockup agreement.</p> Signup and view all the answers

    In a(n) ____________, the buyer purchases enough shares to gain voting control of a corporation.

    <p>Stock acquisition.</p> Signup and view all the answers

    ____________ is based on the belief that corporate decision-making influences more than just shareholders and managers.

    <p>Governmental control.</p> Signup and view all the answers

    The ___________ Act prohibits contracts, combinations, and conspiracies in restraint of trade.

    <p>Sherman Antitrust.</p> Signup and view all the answers

    L&N Corp. asks the Spendle Corp. to outbid Crown to avoid takeover. In this situation:

    <p>L&amp;N is the target, Crown is a hostile bidder, and Spendle is a white knight.</p> Signup and view all the answers

    The right to cast another shareholder's vote is called:

    <p>Proxy voting.</p> Signup and view all the answers

    If Titanic Co. makes a tender offer to acquire more than ____________ of the shares of a target, it must file a statement with the SEC.

    <p>5%</p> Signup and view all the answers

    Aqua, LLC is a member-managed LLC. If Andrew agrees to resolve a dispute by arbitration, this action is:

    <p>Not legally binding on Aqua.</p> Signup and view all the answers

    Ajax Co. has a deadlock among its six directors. How will a court likely resolve this deadlock?

    <p>Order an involuntary dissolution of Ajax.</p> Signup and view all the answers

    Under the corporate opportunity rule, Alan may pursue a business opportunity if:

    <p>He first offers it to DollarShopper, and the corporation rejects it.</p> Signup and view all the answers

    Homeruns Co. withdrew deals from retailers who refused to put a price tag on bats. This act of Homeruns Co. is:

    <p>Legal under the quasi-RPM arrangement.</p> Signup and view all the answers

    In the case United States v. Todd Newman and Anthony Chiasson, for a ____________ to be ____________, she must have the requisite ____________.

    <p>Defendant-tippee; criminally liable; mens rea.</p> Signup and view all the answers

    Generally, a ____________ is established as a pre-offer strategy that remains dormant until activated.

    <p>Poison pill defense.</p> Signup and view all the answers

    ___________ elect the ____________, who take whatever appropriate actions in the best interests of the corporation.

    <p>Shareholders; board of directors.</p> Signup and view all the answers

    The ____________ case held that a farmer's production of wheat for personal use impacted interstate commerce.

    <p>Wickard v. Filburn.</p> Signup and view all the answers

    For most business decisions, the quorum, or minimum number of directors necessary to conduct business, is usually ____________ of the total number of directors.

    <p>A majority.</p> Signup and view all the answers

    A ____________ means the exclusive control of a market by a business enterprise.

    <p>Monopoly.</p> Signup and view all the answers

    Some jurisdictions consider managers liable only if they exceed their authority and the violation results in which type of conduct?

    <p>Obedience.</p> Signup and view all the answers

    Some states require that a merger involving an LLC have a ____________, rather than the two-thirds majority required of corporations.

    <p>Unanimous approval.</p> Signup and view all the answers

    When shareholders join together in a temporary arrangement, it is called a:

    <p>Pooling agreement.</p> Signup and view all the answers

    If Tom is a potential investor in Delta Co., he should receive a ____________ prior to investing.

    <p>Prospectus.</p> Signup and view all the answers

    The ____________ Act specifically addresses promotional allowances.

    <p>Robinson-Patman.</p> Signup and view all the answers

    In order to bring a derivative suit, a shareholder must own stock:

    <p>Both at the time of the injury and at the time of the suit.</p> Signup and view all the answers

    Some suggest that the insistence that all disputes involving U.S. corporations be fashioned under ____________ law makes listing in the U.S. unpopular.

    <p>American; legal imperialism.</p> Signup and view all the answers

    Study Notes

    Agency Relationships

    • Agency ends when the principal's purpose is fulfilled, such as when the house is sold.
    • Requiring notice to creditors when a manager quits involves notifying those who had credit transactions and advertising in a general circulation newspaper.
    • Apparent authority allows customers to hold Repair Garage liable for the actions of agents like Joe, who misrepresented their authority.

    Types of Authority

    • An agent may appoint a subagent when the appointment is implied by the nature of the employment.
    • Apparent authority is indicated when an agent, such as Megan, acts on behalf of a principal without clear express authority.
    • Implied authority allows agents like Thomas to perform necessary tasks like buying supplies even without specific instruction.
    • Delegation of authority in a professional context requires reliance on the primary agent's integrity; Corazon relied on Josefina’s expertise but did not authorize delegation to Lillian.
    • An agency relationship is automatically terminated if the subject matter, such as a house, is destroyed.

    Business Structures and Partnerships

    • Limited partnerships require formal filing of a certificate of limited partnership with the Secretary of State’s office.
    • In limited partnerships, general partners manage the business with unlimited liability, while limited partners do not participate in management.
    • A corporation retains its structure and rights after the death of a shareholder, like Carl inheriting shares from Kay.

    Corporate Governance and Liability

    • A de jure corporation is formed correctly following state requirements, while a de facto corporation is effective but can be challenged by the state.
    • Novation allows promoters like Henry to transfer liabilities from pre-formation contracts to newly formed corporations.
    • A partner's economic interest in a partnership consists of their share of profits, losses, and any surplus upon dissolution.

    Responsibilities and Rights of Partners

    • Limited partners are nonparticipating investors and enjoy limited liability, protecting their personal assets from business debts.
    • In a general partnership, partners have rights to use partnership property for business purposes but may deal differently with personal debt attachability.
    • Legal doctrines like corporation by estoppel can protect individuals from personal liability if they were mistaken about the entity type.
    • All partners have obligations and rights under partnership agreements, including the distribution of assets if a partner faces mental incompetence, as in Charlotte's case.

    Incorporation and Corporate Status

    • Foreign corporations, like Nodest Co. from Delaware wanting to operate in California, must obtain a certificate of authority from the state.
    • The status of a corporation can be affected by the competence of its promoters and the contractual obligations they engage in during the formation process.### Definitions and Concepts
    • Certificate of Incorporation: Official authorization for a corporation to conduct business in a state.
    • Articles of Organization: Written application required to form a Limited Liability Company (LLC).
    • Bylaws or Regulations: Document detailing the scheduling of annual shareholders meetings.
    • Piercing the Corporate Veil: Legal doctrine allowing personal liability against individuals using corporate structures for personal gain.
    • RUPA (Revised Uniform Partnership Act): Eliminates the concept of tenancy in partnership and allows partnerships continuity of existence.
    • Close Corporation: Owned by fewer than 50 shareholders, typically more private in nature.
    • Liability in Partnerships: Individuals like Jack in an RLLP may incur personal liability for their own actions.
    • Partnership Property: Under RUPA, partners' contributions are considered property of the partnership, not individuals.
    • Duty of Loyalty: Partners must act in the interest of the partnership and cannot engage in self-dealing.
    • Derivative Suit: Shareholders must own stock at the time of an injury and at the time of suit to bring action against corporate management.

    Corporate Governance

    • Voting Rights: Articles of Organization or operating agreements specify member voting rights in LLCs.
    • Proxy Voting: Shareholders can delegate their voting rights to another, often used in corporate elections.
    • Majority Requirements: Typically, a majority of directors is needed for corporate decisions; quorum needs vary.
    • Business Judgment Rule: Protects directors' decisions made in good faith from legal challenges, as long as they are informed.

    Transactions and Mergers

    • Tender Offer: An attempt by one corporation to acquire another by offering to buy shares directly from shareholders.
    • Securities Sale: The act of selling fractional interests in business assets, deemed as securities under law.
    • Unlawful Tying Agreement: Courts may find it illegal when a company conditions the sale of one product on the purchase of another.

    Shareholder Rights and Proposals

    • Cumulative Voting: A method allowing shareholders to allocate votes across multiple candidates, increasing their control in elections.
    • Pooling Agreement: Temporary arrangement by shareholders to secure voting power collectively.
    • Prospectus: A document provided to potential investors detailing an investment opportunity before purchase.
    • Sherman Antitrust Act: A federal law prohibiting contracts and conspiracies that restrain trade.
    • Robinson-Patman Act: Addresses promotional allowances and pricing strategies among competitors.
    • Business Entity Types: Differences among sole proprietorships, corporations, LLCs, and their respective liabilities and governance structures.

    Case Law Impact

    • Wickard v. Filburn: Expanded the interpretation of the Commerce Clause regarding local production affecting interstate commerce.
    • Gibbons v. Ogden: First major case expanding the scope of federal powers under the Commerce Clause.

    Strategic Defense Mechanisms

    • Poison Pill Defense: A strategy used by companies to thwart takeover attempts through specific pledges that disadvantage bidders.
    • Lockup Agreement: A defense tactic whereby a target corporation secures an agreement to protect valuable assets during a takeover bid.

    Miscellaneous Facts

    • Merger Approval: Some jurisdictions may require unanimous approval for LLC mergers, unlike the two-thirds majority needed for corporations.
    • Duty of Care: Managers are expected to exercise reasonable care in their decisions, with liability only if surpassed.
    • Direct vs. Derivative Suit: Distinctions in shareholder legal recourse based on the nature of the grievance against corporate management.### Business Judgment Rule
    • Courts evaluate corporate decisions using the business judgment rule, assessing the decision-making process of executives.
    • Michelson's thorough examination of CompuPrint's financial records and market analysis demonstrates adherence to this rule.
    • The rule protects directors and officers from legal liability if their decisions are made in good faith and with rational business purposes.

    Stakeholder Definition

    • A stakeholder is an individual or group that can be affected by corporate decisions, regardless of stock ownership.
    • Different from shareholders, stakeholders encompass a wider range of interests including employees, customers, and the community.

    Antitrust Violation

    • Practicing market division, such as the agreement between Company A and Company Z to separate territories, typically violates antitrust laws.
    • This specific situation is classified as a per se violation of the Sherman Antitrust Act, indicating its illegality regardless of intent or economic justification.
    • Per se violations do not require detailed analysis of the impact on competition; they are inherently deemed harmful.

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