BA

Question 1

An agency relationship is created when:

Answer 1

1. The parties voluntarily consent to enter into an
   agency relationship; AND
2. The agent is subject to the principal’s control.

Question 2

Termination of an agency relationship:

Answer 2

1. Agent or principal manifests to the other the desire
   to cease the agency relationship;
2. Express terms of the agency expire; OR
3. Purpose of the agency relationship isfulfilled.

Question 3

The agency relationship may be terminated by operation of
law if the:

Answer 3

1. Agent or principal dies;
2. Agent or principal loses capacity; OR
3. Agent materially breaches a fiduciary duty owed to
   the principal.

Question 4

AUTHORITY TO BIND PRINCIPAL:

Answer 4

An agent may bind a
principal to a contract if the agent is acting within his actual
or apparent authority. Once a principal is validly bound to a
contract by his agent, the principal is liable under the termsof
the contract.

Question 5

ACTUAL AUTHORITY:

Answer 5

An agent acts with actual authority
(express or implied) when the agent reasonably believes, in accordance with the principal’s manifestations to the agent, that the principal wishes the agent to act.

Question 6

Express Authority.

Answer 6

Actual express authority exists when
the principal directs the agent to engage in the precise
task in question.

Question 7

Implied Authority.

Answer 7

Actual implied authority exists when
the agent believes, based on a reasonable interpretation
of the principal’s words or conduct, that the principal
wishes the agent to act on his behalf.

Question 8

APPARENT AUTHORITY:

Answer 8

An agent acts with apparent
authority when:

1. The principal holds the agent out as having authority
   to act on the principal’s behalf;
   AND
2. The principal’s conduct, when reasonably
   interpreted, causes a third party to rely on the agent’s appearance of authority when dealing with
   the agent.

Question 9

RESPONDEAT SUPERIOR:

Answer 9

An employer (principal) may be
liable for torts committed by an employee (agent) if:

1. An employer-employee relationship exists; AND
2. The employee’s commission of the tort occurs within
   the scope of employment.

Question 10

INDEPENDENT CONTRACTORS:

Answer 10

Generally, a principal is not
liable in tort for the unauthorized conduct of an independent
contractor. The principal’s amount of control over the agent is the key factor in determining whether an agent is an
independent contractor. Other relevant factors include:

1. The nature of the work
2. The skill required in the particular occupation;
3. Who supplies the equipment or tools to perform the
   work;
4. The method of payment (hourly, salary, etc.);
5. The length of the employment; AND
6. How the parties characterize the transaction.

Question 11

General Partnership

Answer 11

A GP is a type of partnership
that has no limited personal liability. A GP is formed when:

1. Two or more person;
2. Associate as co-owners;
3. To carry on a business for profit.

Question 12

LIMITED PARTNERSHIP

Answer 12

An LP consists of one or more
general partners and one or more limited partners. General
partners remain personally, jointly and severally liable for all
debts of the LP, while limited partners are personally liable
for debts only to the extent of their investment in the LP.

Formation. An LP is formed when a written certificate of
limited partnership is executed in substantial compliance
with state law and filed with the secretary of state.

Question 13

LIMITED LIABILITY PARTENRSHIP

Answer 13

An LLP limits a
partner’s potential liability for professional malpractice thatis
committed by another partner. Any partnership may become
an LLP upon the:

1. Approval of the partners by vote; AND
2. Filing a statement of qualification with the secretary
   of state.

Question 14

TORT LIABILITY PARTNERSHIP:

Answer 14

General partners are jointly and severally
liable for all obligations of the partnership arising from any
wrongful act or omission of any partner acting:

1. Within the ordinary course of business; OR
2. With the authority of all other partners.

Limited partners are not personally liable for obligations of the LP arising from the wrongful acts or omissions of other partners (they are always liable for their own misconduct).

Question 15

CONTRACT LIABILITY PARTNERSHIP:

Answer 15

Each partner is an agent of the
partnership. Therefore, the actions of every partner that are
made within the ordinary course of business to carry on the
partnership’s business bind the partnership, unless the
partner taking the action:

1. Has no authority to act on behalf of the partnership;
   AND
2. The other side has knowledge or notice that the
   partner lacks authority.

Question 16

DUTIES OF PARTNERS: DUTY OF CARE

Answer 16

Each partner owes a limited fiduciary duty of care to the partnership and other partners, which requires that each partner refrain from engaging in:

1. Grossly negligent or reckless conduct;
2. Intentional misconduct; OR
3. A knowing violation of the law.

Question 17

DUTY OF LOYALTY PARTNERSHIP:

Answer 17

Each partner owes a fiduciary duty of loyalty to the partnership and other partners, which requires that each partner:

1. Act in good faith and fairly toward the other
   partners;
2. Account for any property, profit, or benefit derived
   by the partner from the partnership business;AND
3. Refrain from:

a. Competing with the partnership; AND
b. Usurping a business opportunity that
properly belongs to the partnership.

Question 18

PARTNERSHIP: EFFECT OF BREACH

Answer 18

If a partner breaches the duty of care or loyalty, he may be held personally liable for damages.

Question 19

PARTNERSHIP DISSOLUTION

Answer 19

DISSOLUTION: Dissolution of a partnership does not
immediately terminate the partnership. Rather, the
partnership enters a “winding up” phase, which continues
until the winding up of the partnership’s affairs is completed.

Question 20

CAUSES OF PARTNERSHIP DISSOLUTION

Answer 20

There are three main causes of dissolution
1. Actions taken by the partners (e.g., dissociation);
2. Operation of law (e.g., the partnership’s business
becomes illegal); OR
3. Court order (e.g., a judicial dissolution may be
granted if it becomes impracticable to continuethe
partnership’s business).

Question 21

PARTNERSHIP DISSOLUTION: UNIFORM PARTERNSHIP ACT

Answer 21

Under the UPA, any
change in partner membership automatically triggers
dissolution of the partnership unless there is an agreement to
the contrary.

Question 22

PARTNERSHIP DISSOLUTION:REVISED UNIFORM PARTERNSHIP ACT

Answer 22

Under RUPA, absent an agreement to the contrary, the “disassociation”
(occurs when a partner ceases his association with carrying on
the partnership business) of a partner does not automatically
trigger dissolution unless:

1. The partnership is an at-will partnership; OR
2. There is an occurrence of an event that the partners
   specified in the partnership agreement that would
   cause dissolution (e.g., term partnerships).

Question 23

PARTNERSHIP DISSOLUTION: TERM PARTNERSHIPS

Answer 23

Under RUPA, a term partnership may be dissolved before its term expires if:

1. At least half of the partner’s express their will to
   wind up the business within 90 days after a partner’s
   disassociation by death, bankruptcy, becoming
   incapacitated, or wrongful disassociation; OR
2. All of the partners agree to amend the partnership
   agreement by expressly agreeing for dissolution.

Question 24

CORPORATE FORMATION: ARTICLES OF INCORPORATION

Answer 24

Generally, a corporation is
formed when the articles of incorporation are filed with the
secretary of state (unless the articles specify a delayed
effective date).

Amendments. The articles may be amended if there is a
majority vote from the directors and shareholders. However, minor amendments may be made by the board
of directors without shareholder approval.

Question 25

CORPORATE FORMATION: CORPORATE BYLAWS

Answer 25

Corporate bylaws are written rules of conduct that must be initially adopted by the incorporators or board of directors. The bylaws may contain any provision for managing the business and regulating the affairs of the corporation to the extent that is consistent with the law and articles of incorporation. If there is a conflict between the articles and bylaws, the articles of incorporation govern. Amendments. The bylaws may be amended or repealed by the corporation’s shareholders. The board of directors may also amend or repeal the bylaws unless the shareholders expressly specify otherwise.

Question 26

PIERCING THE CORPORATE VEIL: GENERAL RULE

Answer 26

Generally, shareholders of a corporation are not personally liable for the debts of the corporation. However, the major exception to this rule is the doctrine of piercing the corporate veil.

Question 27

PIERCING THE CORPORATE VEIL:

Answer 27

Courts will allow a creditor to pierce the corporate veil and hold a shareholder personally liable for the debts of a corporation when: 1. The shareholder has dominated the corporation to the extent that the corporation may be considered the shareholder’s alter ego; 2. The shareholder failed to follow corporate formalities; 3. The corporation was undercapitalized; OR 4. There is fraud or illegality present.

Question 28

PIERCING THE CORPORATE VEIL: EFFECTS

Answer 28

Once the corporate veil has been pierced, courts generally hold all of the shareholders liable. However, some courts do not extend liability to passive investors.

Question 29

SHAREHOLDER RIGHTS: MEETINGS

Answer 29

MEETINGS: A corporation must hold an annual meeting of shareholders at a time that is fixed in accordance with the bylaws. Special meetings can be held in certain situations. Notice. Generally, shareholders who are entitled to vote must be provided with sufficient notice of all annual and special meetings. Quorum. A quorum must be present in order for the shareholders to take action at a meeting. Unless otherwise set forth in the articles, a quorum exists when at least a majority of the shares entitled to vote are present.

Question 30

SHAREHOLDER RIGHTS: VOTING

Answer 30

The articles may provide that holders of certain types of shares cannot vote unless specific conditions are satisfied. Unless otherwise provided by law or the articles, all shareholders’ votes are counted equally, regardless of class.

Question 31

SHAREHOLDER RIGHTS: ELECTING DIRECTORS

Answer 31

Shareholders elect directors either directly (each share equals one vote) or cumulatively (voters can put multiple votes on one or more candidates). Generally, cumulative voting is more favorable to minority shareholders.

Question 32

SHAREHOLDER RIGHTS: VOTE BY PROXY

Answer 32

A vote by proxy allows a shareholder to vote without physically attending the meeting by authorizing another to vote her shares on her behalf. A valid proxy must exist in the form of a verifiable electronic transmission or a signed written appointment form. Freely Revocable. A proxy is freely revocable unless the recipient of the proxy has an economic interest in the shares.

Question 33

SHAREHOLDER RIGHTS: BOOKS AND RECORDS

Answer 33

A shareholder possesses the right to inspect corporate books and records during normal business hours so long as the purpose for the inspection is proper. However, a shareholder may inspect the articles and bylaws without providing a proper purpose.

Question 34

SHAREHOLDER RIGHTS: SALE OF CORPORATE ASSETS

Answer 34

Shareholder approval is required for the corporation to sell, lease, exchange, or otherwise dispose of all, or substantially all, of its property if the disposal is not in the corporation’s usual and regular course of business. However, if the disposal of assets is in the corporation’s usual and regular course of business, shareholder approval is not required (unless otherwise set forth in the articles of incorporation).

Question 35

DUTIES OF DIRECTORS AND OFFICERS: AUTHORITY OF DIRECTORS

Answer 35

Subject to any limitation imposed by law or the articles, the board of directors has full control over the affairs of the corporation.

Question 36

DUTIES OF DIRECTORS AND OFFICERS: AUTHORITY OF OFFICERS

Answer 36

The board of directors generally delegates day-to-day management of the corporation’s business to officers elected by the board. The board may remove officers at any time with or without cause.

Question 37

DUTIES OF DIRECTORS AND OFFICERS: DUTY OF CARE

Answer 37

Directors and officers owe the corporation a fiduciary duty of care. This duty includes: 1. The duty to take reasonable steps to monitor the corporation’s management; 2. The duty to be satisfied that proposals are in the corporation’s best interests; 3. The duty to disclose material information to the board; AND 4. The duty to make reasonably informed decisions.

Question 38

BUSINESS JUDGMENT RULE (BJR):

Answer 38

In suits alleging that a director or officer violated his duty of care owed to the corporation, courts will apply the BJR. Under this rule, a court will not second guess the decisions of a director or officer so long as the decisions are made: 1. In good faith; 2. With the care an ordinarily prudent person in a like position would exercise under similar circumstances; AND 3. In a manner the director/officer reasonably believes to be in the best interests of the corporation. If a director or officer breaches the duty of care, he may be held personally liable for damages.

Question 39

SHAREHOLDERS RIGHTS: CONFLICTING INTEREST TRANSACTIONS

Answer 39

Directors and officers have a duty to avoid implicating their personal conflicting interests in making business decisions for the corporation. However, a director/officer that enters into a conflicting interest transaction may be protected if: 1. Disinterested shareholders approve the transaction; 2. The non-interested members of the board authorize the transaction; OR 3. The transaction, at the time of commitment, is established to have been fair to the corporation.

Question 40

SHAREHOLDERS RIGHTS: CORPORATE OPPORTUNITIES

Answer 40

The corporate opportunity doctrine prohibits directors and officers from usurping business opportunities that rightfully belong to the corporation for their own benefit.

Question 41

MERGERS AND CONSOLIDATIONS

Answer 41

A merger occurs when one of two existing corporations is absorbed by the other corporation. A consolidation occurs when two existing corporations combine into one new corporation. A merger or consolidation both require: 1. The recommendation of an absolute majority of the board of directors; AND 2. The agreement of each corporation by an absolute majority of shareholders.

Question 42

MERGERS AND CONSOLIDATIONS: DISSENTERS' RIGHTS

Answer 42

After a merger or consolidation occurs, dissenting shareholders opposed to the action may either: 1. Challenge the action; OR 2. Receive payment determined at fair market value of their shares immediately before the merger or consolidation took effect.

Question 43

SHAREHOLDER LITIGATION: DERIVATIVE CLAIMS

Answer 43

A derivative claim is a lawsuit brought by a shareholder on behalf of the corporation. The shareholder is suing to enforce the corporation’s rights when the corporation has a valid cause of action, but has failed to pursue it. If successful, the proceeds go to the corporation. However, if the award to the corporation benefits the defendants, the court may order that damages be paid directly to the shareholder who brought the action. Demand. Generally, a shareholder must make a written demand on the board before commencing a derivative action. After submitting the demand, the shareholder must wait 90 days to file the derivative action, unless the board rejects the demand during the 90-day period. However, under the common law, and in some jurisdictions today, the plaintiff shareholder does not have to make a demand on the board if it would be futile to do so (e.g., the board is interested in the transaction being challenged).

Question 44

SHAREHOLDER LITIGATION: DIRECT CLAIMS

Answer 44

A direct claim is a lawsuit brought by a shareholder to enforce his own rights. The shareholder must prove actual injury that is not solely the result of an injury suffered by the corporation. If a direct claim is successful, the proceeds go to the shareholder.