Business Law: Part 2

Question 1

when there are fewer than 12 unsecured creditors an involuntary petition for bankruptcy can be filed if a debtor owes more than ___ in unsecured debt to any one creditor and is not paying

Answer 1

16,750

Question 2

are inheritances, proceeds from life insurance, divorce settlements, rents, interest, dividends included in a bankruptcy estate?

Answer 2

yes, if received within 180 days after the bankruptcy petition is filed

Question 3

is the commencement of Chapter 11 bankruptcy reorganization proceeding voluntary or involuntary?

Answer 3

can be either or

Question 4

what type of corporations may not participate in Chapter 11 or Chapter 7?

Answer 4

savings and loan corporations

Question 5

___ and ___ cannot be petitioned involuntarily into bankruptcy.

Answer 5

farmers and nonprofit charities

Question 6

does a debtor need to be insolvent to file for Chapter 7?

Answer 6

NO

Question 7

what groups are specifically excluded from filing for bankruptcy?

Answer 7

stockbrokers and insurance companies

Question 8

under Chapter 7, what does a discharge do?

Answer 8

discharges most debts of a debtor

Question 9

what does the filing of a petition in bankruptcy (voluntarily or involuntarily) do?

Answer 9

stops the enforcement of all judgement liens and collection actions against the debtor (called “automatic stay”)

Question 10

what are the 3 requirements to be successfully petitioned involuntarily into bankruptcy?

Answer 10

debtor must owe at least 16,750 in UNSECURED debt

if 12 or more creditors, at least 3 with unsecured claims aggregating at least 16,750 must join the petition; otherwise 1 or more creditors with at least 16,750 in unsecured claims may file

debtor is unable to pay

Question 11

is a contemporaneous exchange for new value considered a preference?

Answer 11

NO

Question 12

how is solvency determined?

Answer 12

FMV of all assets - the value of all liabilities

Question 13

in what type of bankruptcy is a trustee appointed? How about a creditors’ committee?

Answer 13

Chapter 7

Chapter 11

Question 14

T or F, an antecedent debt of less than 600 paid within the preference period by an individual whose debts are primarily consumer debts will not be set aside as a preferential transfer.

Answer 14

T

Question 15

what type of payments within the preference period (90 days, or 12 months for insiders) will not be set aside as a preferential transfer?

Answer 15

payments to fully secured creditors

Question 16

what priority do employees have for salary claims?

Answer 16

4th. To the extent of 13,650 per claimant with respect to wages earned within 180 days prior to bankruptcy. They are paid after the secured creditors are paid

Question 17

what 3 elements must a plaintiff prove to recover under Section 11 of the Securities Act of 1933?

Answer 17

plaintiff acquired the stock

registration statement was signed by the CPA and contains either a misrepresentation of material fact or omission of material fact

plaintiff suffered losses

*don’t need to prove reliance or fraud

Question 18

under the Act of 1933, what must a non well-known seasoned issuers registration statement disclose

Answer 18

description of the security

how the corp will use the proceeds

description of the business and management

financial statements

a prospectus

Question 19

what are the 3 major types of transactions that are exempt from registering with the SEC?

Answer 19

small offerings

private (transaction that only involve accredited investors)

intrastate offerings

Question 20

Rule 504 of Regulation D

Answer 20

can raise 5 million in any 12 month period without registration

securities can be sold to anyone

SEC must be notified within 15 days of sale

Question 21

Rule 506 of Regulation D

Answer 21

no limit on the amount

securities can be sold to unlimited number of accredited investors, but no more than 35 unaccredited investors

SEC must be notified within 15 days of sale

*corp not required to give any specific info to ACCREDITED investors if only accredited investors purchase the securities

Question 22

what kind of damages can be recovered under Section 11 of the 1933 Act?

Answer 22

only monetary damages

*rescission is available under the 1934 Act

Question 23

what does Rule 147 state?

Answer 23

that for 6 months after the last sale by the issuer, resales can only be made to residents of the state

Question 24

under Section 12 of the Securities Exchange Act of 1934, what companies must register (duty to file periodic reports)?

Answer 24

ones that are listed on a nation securities exchange
OR
ones that have at least 500 shareholders in any outstanding class and has more than 10 million in assets

Question 25

generally, which type of issuers are permitted to make an offering by using shelf registration?

Answer 25

well-known seasoned issuers

Question 26

are taxes paid under the Federal Unemployment Tax Act (FUTA) deductible by the employer as a business expense?

Answer 26

YES

*employers have to pay the tax if quarterly payroll is more than 1,500 or they employ at least one person one day a week for twenty weeks in a year

Question 27

who pays for unemployment compensation insurance and workers’ compensation insurance, employer or employee?

Answer 27

employer

Question 28

which forms of income are not subject to FICA tax?

Answer 28

interest on municipal bonds

capital gains

dividends

*wages are subject to FICA; remember that wages are compensation for labor

Question 29

what do social security benefits include?

Answer 29

payments to divorced spouses

payments to disabled children

medicare

*medicaid not included bc medicaid is state run

Question 30

does an employee receiving disability benefits receive full wages?

Answer 30

NO, only a percentage

Question 31

unless there is an agreement to the contrary, what is the voting power of members in an LLC based on?

Answer 31

each member’s capital contribution

Question 32

are partnership agreements normally subject to the statute of frauds?

Answer 32

NO, therefore a written partnership agreement is usually not necessary

Question 33

under the Revised Uniform Partnership Act, unless agreed otherwise, how do partners share losses?

Answer 33

in the same manner they share profits

Question 34

when a partnership agreement does not state the duration of the partnership, what is required for a partner to withdraw from the partnership?

Answer 34

nothing, can withdraw at any time

Question 35

T or F, general partners in a limited partnership are personally liable for all obligations of the partnership.

Answer 35

T

Question 36

what is a partnership?

Answer 36

an association of two or more persons to carry on as co-owners of a business for profit

Question 37

are partners co-owners of partnership property?

Answer 37

NO, the partnership owns the property

Question 38

T or F, partners are jointly and severally liable for obligations of the partnership

Answer 38

T

Question 39

what does approval of an ordinary management decision in a partnership require?

Answer 39

a majority vote (e.g., 3 out of 4)

Question 40

how do partners in a general partnership share profits and losses if not otherwise stated?

how about partners in a limited partnership?

Answer 40

equally

based on partners’ contributions

Question 41

what is a derivative action?

Answer 41

action by a shareholder in the name of the corporation to recover damages or to seek some other remedy on behalf of the corp when the corp does not enforce its own rights

Question 42

what is an ultra vires act?

Answer 42

an act outside of a director’s or an officer’s scope of authority and thus is a beach of duty to the corporation

Question 43

what is the only thing that will relieve a promoter of personal liability on pre-incorporation contracts?

Answer 43

novation

*promoter is basically the person who organizes the corporation