LSB 3213 Unit 3 Exam Study Guide PDF

# LSB 3213 Unit 3 Exam Study Guide ## Chapter 27 * **Who are the principals of a business?** - The owners of a business entity, entitled to what % they own. * **What is a sole proprietorship?** - One-person business entity with minimal filing requirements. * **What certificate must a sole p...

# LSB 3213 Unit 3 Exam Study Guide ## Chapter 27 * **Who are the principals of a business?** - The owners of a business entity, entitled to what % they own. * **What is a sole proprietorship?** - One-person business entity with minimal filing requirements. * **What certificate must a sole proprietor file with a local or state office to use a trade name for the business rather than the sole proprietor's actual name?** - They must fill a DBA, "doing business as". * **What is the rule regarding a sole proprietor's personal liability for the debts and liabilities of the sole proprietorship?** - All debts and liabilities of the business are also personal debts and liabilities for the principal. * **What are the types of debt through which a sole proprietorship may be capitalized, and how do they differ from each other?** 1. Private Loan from an individual (family/friends) 2. Commercial Loan (bank) 3. Line of Credit (pay interest on amount used) 4. Unsecure Credit (credit card) * **What is collateral?** - Assets the borrower has pledged to secure a loan. * **What are the taxation requirements for a sole proprietorship?** - No corporate income tax or tax return, principal reports business income on their personal tax return and pays based on their own individual tax rate. * **In general, what are the two ways by which a sole proprietorship is terminated?** 1. Express act of the principal. 2. Operation of law. * **What is the rule regarding passage of a sole proprietor's ownership interest in the sole proprietorship to the sole proprietor's heirs through a gift or an estate?** - The proprietor's ownership interest in a sole proprietorship cannot pass to their heirs through gift or estate. SEE SUCCESSOR LIABILITY * **What is a franchise?** - Centers on contractual relationship rather than a business entity. Commercial relationship for the right to operate a business to the franchisor's trade name or sell branded goods. * **Which federal regulatory authority oversees the regulation of franchisors?** - The Federal Trade Commission (FTC). * **How did the Court of Appeals for the Fourth Circuit rule in Biller v. Snug Harbor Jazz Bistro of Louisiana, LLC (2012)?** - Affirmed decision in favor of Snug Harbor, the entity owned by Brumont terminated when he died because it was sole proprietorship, Snug Harbor LLC is a different thing entirely. ## Chapter 28 * **What is a general partnership?** - An association of two or more people who are co-owners and co-managers of the business and who share in the profits of their ongoing business. * **What is necessary in terms of a government filing to form a general partnership?** - No formal document or government filing is necessary to form a general partnership. * **What is the difference between a term partnership and a partnership at will?** - **Term partnership:** partners set a specific date or event for when the partnership will be dissolved. - **Partnership at will:** partners agree to continue association indefinitely. * **What is the difference between an express partnership and an implied partnership?** - **Express:** Oral or written agreement. - **Implied:** The law may consider a partnership based on conduct. * **What is the Revised Uniform Partnership Act (RUPA)?** - A model partnership drafted and occasionally revised by the National Conference of Commissioners on Uniform State Laws. * **What are the taxation requirements for a general partnership?** - Pass through entity, pays no corporate tax, reflected on the owner's taxes. * **What is the default rule regarding the sharing of profits and losses among the partners in a general partnership?** - * **What is a limited partnership?** - Exists by virtue of a state statute that recognizes one or more partners as managing the business while other partners participate only in terms of contributing capital or property. * **What is the general rule regarding a limited partner's liability for the partnership's debts and liabilities in a limited partnership?** - Each general partner in a Limited Partnership is personally liable for all the partnership's debts and liabilities, based on how much the other partner contributed. * **What is a family limited partnership?** - Limited partnership used for estate planning (rich families). * **What document must be filed with the appropriate public official to convert a general partnership into a limited liability partnership (LLP)?** - Statement of Qualification. * **What is windup?** - After dissolution, the process of paying the debts of the partnership and liquidating and/or distributing the remaining assets. * **How did the New York appellate court, in an opinion written by Judge Cardozo, rule in Meinhard v. Salmon et al. (1928)?** - Partnership agreement to lease a hotel, Salmon signed a thing without Meinhard knowing, Salmon breached duty of loyalty and required Salmon to send Meinhard half of the new lease interest. ## Chapter 29 * **What is a limited liability company (LLC)?** - Offers its owners many advantages like easy formation, flexible operation, limited legal liability of the owners, and pass-through taxation. * **What are the owners of an LLC called?** - Members. * **What are the Uniform Limited Liability Company Act (ULLCA) and Revised Uniform Limited Liability Company Act (RULLCA)?** - **ULLCA**: a model statute designed to promote uniformity among various state LLC laws. Can vary state to state. - **RULLCA**: amended form of ULLCA modifies the areas of formation, organizational matters, and operating agreement. Clarifies technical applications of LLC governance like handling deadlocks and rights of departed members of LLC. * **What must be filed with the designated public official in that state to form an LLC?** - Articles of organization. * **What is an operating agreement?** - Governs an LLC and sets out the structure and internal rules for operation of the entity. * **What is the difference between a member-managed LLC and a manager-managed LLC?** - **Member-managed**: like GP, members have authority to bind the business. - **Manager-managed**: name a designated manager who had the day-to-day operational responsibilities while non managing members are typically investors. * **What is the general rule regarding LLC members' personal liability for any business debt or liability if the business venture of the LLC fails?** - LLC members are insulated from personal liability for any business debt or liability if it fails. Landlords and other creditors often require a personal guarantee. * **What is the tax treatment of an LLC?** - Pass-through entities or can be elected to be taxed as a corporation if they consider the corporate tax structure to be more favorable. * **What is dissociation from an LLC?** - Individual member decides to withdraw. * **What is dissolution of an LLC?** - Liquidation process of an LLC to dissolve it forever. * **How did the Chancery Court of Delaware rule in AK-Feel, LLC v. NHAOCG, LLC (2012) on the claim of breach of fiduciary duty?** - In favor of NHAOCG, the operating agreement ambiguously limits fiduciary duties. ## Chapter 30 * **What is a corporation?** - Fictitious legal entity that exists as an independent “person” separate from its principals. * **What is business corporation law?** - Covers the structure of the corporation, oversight of the activity of the corporation's managers, rights of the principals in the case of the sale of assets or ownership interests, annual reporting requirements, and other issues that affect the internal rules of the business venture. * **What document is filed with a state authority to form a corporation?** - Articles of incorporation. * **What is the difference between a privately held corporation and a publicly held corporation?** - **Privately held corporation:** a corporation that does not sell ownership interests through sales via a broker to the public or to financial institutions or investors. * **What is the general rule regarding a promoter's personal liability for a contract the promoter makes on behalf of a not-yet-formed corporation, and when does a promoter's personal liability cease?** - Promoters are liable for contracts made for nonexistent businesses, ceases when the corporation is formed AND adopts the contract. * **What is the difference in tax treatment of a C corporation versus an S corporation?** - **C:** Double taxation. - Separate from owners. - Owners pay tax on earnings, Shareholders pay tax on dividends. - **S:** Pass-through. * **What are bylaws?** - Procedures and requirements for elections like term length and limits. * **What are the four factors most courts have used to consider whether to pierce a corporation's protective veil?** 1. Lack of capitalization (shell company). 2. Nature of the claim (injury due to negligence). 3. Fraud. 4. Failing to follow formalities. * **What is the difference between a corporation's shareholders, directors, and officers?** - **Shareholders:** owners of the corporation, electing and removing directors and approve or withhold major corporate decisions. - **Directors:** oversight and management of the corporation's course of direction. - **Officers:** carry out directors' set course of direction through management of the day-to-day operations of the business. * **Which two fiduciary duties do officers and directors owe a corporation's shareholders?** - **Duty of care:** Must act as a reasonable person would. - **Duty of loyalty:** Protection of shareholders (possibility of self-dealing) * **How did the Delaware Supreme Court rule in Smith v. Van Gorkom (1985)?** - The directors were grossly negligent and breached duty of care. ## Chapter 31 * **What is the difference between a merger and an acquisition?** - **Merger:** Two or more companies come together to make a new thing, neither company exists anymore. - **Acquisition/Takeover:** One company buys another, target company disappears lawfully. * **What is the difference between a stock purchase and an asset purchase?** - **Stock Purchase:** Buyer purchases shares (very small control) of target company, also buys the legal liabilities. - **Asset Purchase:** Buyer purchases assets, tries to leave out liabilities. * **What is a reverse merger?** - Transaction in which privately held company buys publicly listed company. * **What is the general rule regarding whether a company that acquires a seller's assets is responsible for the seller's liabilities simply due to the ownership of those assets, and what are the four well-recognized exceptions to this rule?** - The company that acquires the assets is not liable for their liabilities simply because of ownership. - **Exceptions:** - Express or implied agreement. - De Facto Merger. - Mere Continuation. - Fraudulent Transaction. * **What is a hostile takeover?** - Target company board of directors has no knowledge of a purchase offer, no laws against it. * **What is a letter of intent?** - Contract that binds parties to confidentiality and exclusivity during the due diligence phase. * **What is due diligence?** - Pre-closing process where the buyer looks at statements and records to identify liabilities of the target. * **How did the Delaware Supreme Court rule in Paramount v. QVC Network, Inc. (1994)?** - Affirmed the decision of lower court, applied enhanced scrutiny test, held that Paramount conduct was unreasonable (refused to negotiate with QVC).