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Questions and Answers
What does it mean for property owners to surrender their wealth to those in control of a corporation?
What does it mean for property owners to surrender their wealth to those in control of a corporation?
How has the function of corporations evolved according to the content?
How has the function of corporations evolved according to the content?
What is a significant consequence of the concentration of wealth in corporations?
What is a significant consequence of the concentration of wealth in corporations?
Which aspect of corporations is highlighted in the content?
Which aspect of corporations is highlighted in the content?
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How does the surrendering of control to a corporation affect the role of individual investors?
How does the surrendering of control to a corporation affect the role of individual investors?
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What is a primary characteristic of a general partner in a limited partnership?
What is a primary characteristic of a general partner in a limited partnership?
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What is true about the limited partners in a limited partnership?
What is true about the limited partners in a limited partnership?
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In a Limited Liability Partnership (LLP), what is generally true about the members?
In a Limited Liability Partnership (LLP), what is generally true about the members?
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What aspect of the Limited Partnership is accurate regarding the financial contributions?
What aspect of the Limited Partnership is accurate regarding the financial contributions?
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What governs the rights and duties of all members in a Limited Liability Partnership (LLP)?
What governs the rights and duties of all members in a Limited Liability Partnership (LLP)?
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What is typically necessary for implied authority to exist?
What is typically necessary for implied authority to exist?
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What characterizes apparent authority?
What characterizes apparent authority?
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Which of the following best describes the duty of loyalty that an agent has towards the principal?
Which of the following best describes the duty of loyalty that an agent has towards the principal?
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What is one consequence for an agent if they breach their fiduciary duties?
What is one consequence for an agent if they breach their fiduciary duties?
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Which statement is true regarding the relationship between agents and third parties?
Which statement is true regarding the relationship between agents and third parties?
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What are monitoring costs primarily associated with?
What are monitoring costs primarily associated with?
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Bonding costs are primarily incurred by agents for what purpose?
Bonding costs are primarily incurred by agents for what purpose?
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Residual loss in agency theory is typically borne by which party?
Residual loss in agency theory is typically borne by which party?
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Conflicts between shareholders and company directors are categorized under which aspect of agency costs?
Conflicts between shareholders and company directors are categorized under which aspect of agency costs?
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In closely-held companies, which type of conflict is likely to increase agency costs?
In closely-held companies, which type of conflict is likely to increase agency costs?
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Which situation reflects a conflict between shareholders and another constituency in a corporation?
Which situation reflects a conflict between shareholders and another constituency in a corporation?
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Which of the following is not considered a major area for agency costs to arise?
Which of the following is not considered a major area for agency costs to arise?
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What may bonding costs potentially lead to?
What may bonding costs potentially lead to?
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What happens to control when there is no substantial minority interest in a company?
What happens to control when there is no substantial minority interest in a company?
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What term describes the scenario where directors maintain control even with little stock ownership?
What term describes the scenario where directors maintain control even with little stock ownership?
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What effect does the separation of ownership from control have on security holders?
What effect does the separation of ownership from control have on security holders?
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In cases of management control, what is typically true about the controlling group's ownership interest?
In cases of management control, what is typically true about the controlling group's ownership interest?
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What was the primary observation made by Berle and Means regarding ownership and control?
What was the primary observation made by Berle and Means regarding ownership and control?
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Study Notes
General Partnership and Limited Partnership
- General partners bear unlimited personal liability for business obligations, including debts.
- They contribute cash, services, or other assets to the partnership and share profits and losses by the Limited Partnership Agreement (LPA).
- Limited partners typically enjoy liability protection, limiting their risk to the extent of their investment, generally facing no personal liability.
Limited Liability Partnership (LLP)
- Members of an LLP have no personal liability for business obligations, protecting personal assets.
- Members contribute capital or services and share profits and losses as per the LLP agreement.
- No minimum capital requirements are mandated for forming an LLP.
Agency Law Fundamentals
- Agency Law establishes mutual duties in the principal-agent relationship; principals honor obligations to third parties while agents prioritize the principal’s interests.
- Agents owe fiduciary duties, including loyalty, care, and good faith; they cannot directly compete or misappropriate business opportunities for personal gain.
Agency Costs and Opportunistic Behavior
- Agency costs can arise from conflicts between:
- Shareholders and management in public companies (delegated management).
- Majority and minority shareholders, especially in closely-held companies.
- Majority shareholders and other stakeholders like creditors, employees, and suppliers.
Corporate Ownership Vs. Control
- Ownership in a corporation can be detached from control, as illustrated by Berle and Means; wealth is often concentrated, leading to distant ownership.
- Directors or managers can control corporations through shareholder proxies, even when their ownership stake is small, a phenomenon referred to as "self-entrenchment."
Degrees of Separation of Ownership and Control
- The separation of ownership from control varies among corporations:
- Majority control, minority control, and management control can exist independently of the actual ownership stake.
- In management-controlled firms, controlling share ownership may constitute a minimal fraction of total holdings, limiting accountability from shareholders.
Summary of Corporate Dynamics
- Corporations serve as significant organizational structures influencing economic life, shifting power dynamics away from individual owners to executives or boards.
- This shift can lead to a lack of control by dispersed ownership, raising concerns about governance and accountability.
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Description
Test your knowledge on the roles and responsibilities of general and limited partners in a partnership. This quiz covers important topics such as personal liability, profit sharing, and management duties according to partnership agreements. Understand the implications of the Limited Partnership Agreement (PSA) and how it affects partnerships.