Ch. 7 Agency, Partnerships and Corporations

Question 1

______ is the relationship where one person, known as the principal, intends for another person, known as the agent, to act on her behalf.

Answer 1

Agency

Question 2

An agency is created by:

a. an agreement, express or implied
b. by estoppel- the principal indicates to a third party that someone has the ability to act as her agent
c. by ____________, - meaning that the principal agrees to be held liable for the actions of a third party, even when those actions were not originally authorized by the principal AND
d. by __________ - a principal will be held responsible for the agent’s acts during an emergency situation

Answer 2

ratification; necessity

Question 3

True / False: A written agreement is needed to create an agency.

Answer 3

False, only in some states when the contract involves the Statute of Frauds

Question 4

An agent owes 3 fiduciary duties to a principal:

1. duty of _______ - the agent cannot act in ways that benefits herself in detriment to the principal.
2. duty of ________ - they must obey all reasonable instruction from the principal.
3. duty of ____ - agent must carry out her duties on behalf of the principal in good faith and with reasonable care.

Answer 4

loyalty; obedience; care

Question 5

A principle will be held liable for actions of an agent so long as the agent acted with _________.

Answer 5

authority

Question 6

Two forms of authority:
______ authority - agent reasonably believes she has based on her interactions with the principal (express actual authority or implied)
________ authority - when the principal leads a third party to reasonably believe that the agent has the authority to act on her behalf.

Answer 6

actual; apparent

Question 7

Implied actual authority may arise from ____________ - when the agent has performed an action for the principal in the past and they had notice of the performance, but failed to object to it within a reasonable period of time.

Answer 7

acquiescence

Question 8

True/False: If the agent does not have authority to act, then the agent will be liable for any transactions they enter.

Answer 8

True

Question 9

If a principal is __________, meaning their existence AND identity are known to the third party, then the agent will have no liability unless the parties intend otherwise. A principal is _________ _________ if a third party has knowledge of their existence, but not their identity, and an ___________ principal is one whose identity and existence are not knows to the third party.

Answer 9

disclosed; partially disclosed; undisclosed

Question 10

If a principal is partially disclosed, then both the agent and principal are liable for the transaction. However if a principal is __________, only the agent is liable.

Answer 10

undisclosed

Question 11

A ___________ is an association of two or more people who enter into a business together for the purpose of making profit. It can be formed without any formalities, and need not be in ______.

Answer 11

partnership; writing

Question 12

If one person enters a business to make profit, it’s referred to as a _____ _____________.

Answer 12

sole proprietorship

Question 13

To determine a partnership, the sharing of ______ is prima facie evidence.

Answer 13

profits

Question 14

A partnership by ________ arises when a person indicates to a third party that he is a partner, when in fact he is not. The person will be held liable to the third party for any harm created by his ________________.

Answer 14

estoppel; misrepresentation

Question 15

True/ False : All partners share equally in profits and losses of the business and have equal rights to manage the affairs of the partnership.

Answer 15

True

Question 16

A partnership is subject to ___-through tax treatment where the partnership itself is not taxed, but each partner is taxed on their share of the profits, whether or not the profits have been distributed.

Answer 16

flow

Question 17

A partnership is an ________ relationship

Answer 17

agency

Question 18

Each partner is ___________ _______ for the debts and obligations of the partnership, sometime referred to as a ________ partnership.

Answer 18

personally liable; general

Question 19

A _____ admitted partner is personally liable only for the debts and obligations that arise after he became a member.

Answer 19

newly

Question 20

A ____________ represent a change in the relation of the partners (like someone exiting). This can arise by:

a. a specific period of time as outlined in an agreement
b. express desire of any partner, if the partnership has no specific period
c. mutual agreement of all partners
d. the expulsion of any partner
e. the death of a partner
f. bankruptcy of a partner or the partnership OR
g. court decree

Answer 20

dissolution

Question 21

After the affairs of a partnership have been ______ up, the remaining assets must be distributed in the following order:
`1. ________
2. Any partners who made loans to the partnership
3. Partners, as return on their capital contributions AND
4. All partners equally, or consistent with the terms of the agreement.

Answer 21

wound; Creditors

Question 22

A _______ partnership must have a certificate filed with the secretary of state or an equivalent state office.. It has two types of partners:
Limited partners and ________ partners

Answer 22

limited; general

Question 23

A _________ partner has personal liability for all debts and obligations of the limited partnership. A ______ partner does not have personal liability and does not participate in managing the affairs of the business.

Answer 23

general; limited

Question 24

A _______ ______ ___________ (LLP) is an entity that has all of the features of a general partnership, EXCEPT with regard to formation and liability. A ______ is required to create a LLP. _____________ liability is used and is when liability only extends to partners who commit a wrongful act or who are supervising people who commit such an act. Partners in an LLP may have ________ liability

Answer 24

limited liability partnership; filing; supervisory; limited

Question 25

A ________ ______ _______ (LLC) is an entity in which the people who have made financial investment in the company (known as ________), do not have personal liability.

Answer 25

limited liability company; members

Question 26

An LLC can choose their __________ structure where all members can participate in the management of the LLC, called a _______-managed LLC or only a few members, known as ________, may be authorized to manage the LLC, this is referred to as a _______-managed LLC. The LLC [does/does not] require a filing to be formed.

Answer 26

management; member; managers; manager; does

Question 27

A __________ is an artificial entity created by law and viewed as having an existence distinct from its owners and managers. It also has ________ existence.

Answer 27

corporation; perpetual

Question 28

To form a corporation, a __________ must be filed, this process is called the ___________.

Answer 28

certificate; incorporation

Question 29

The certificate is referred to as the _______ of incorporation or organization OR knows as the _______.

Answer 29

articles; charter

Question 30

The articles must contain the name of the corporation, it's _______ and powers, amount of ______ they are authorized to issue, and the name of the incorporators of the initial directors.

Answer 30

purpose; shares

Question 31

Once a corporation comes to existence, an initial meeting must be called to elect ________ and _______ as well as other transactions will be approved that will enable the corporation to carry on its business. ______ will also be adopted that essentially represent the operating agreement for the corporation, set rules and procedures including functions of various offices, how meetings will be conducted and voting requirements.

Answer 31

directors and officers; bylaws

Question 32

___________ are viewed as the owners of the corporation because they own stock. They vote to elect members of the ______ of directors, who have the authority to manage the corporation's affairs. These directors elect or appoint ________ who operate the corporation on a day-to-day basis.

Answer 32

shareholders; board; officers

Question 33

Shareholders rights are _______ to a few matters: 1. vote in ________ to the # of shares they hold 2. vote to elect the member of the board of directors 3. vote on fundamental matters such as to amend the articles of incorporation, to dissolve or to sell all of the corporations assets.

Answer 33

limited; proportion

Question 34

Shareholders can bring suits against the corporation - they can take the form of a _____ suit or a _________ suit.

Answer 34

direct; derivative

Question 35

A _____ suit is brought because the corporation or its officers or directs need to remedy a harm inflicted on an individual shareholder.

Answer 35

direct

Question 36

A __________ suit is brought by a shareholder on behalf of the corporation usually alleging that officers or directors have breached their fiduciary duty and caused harm to the corporation and its shareholders.

Answer 36

derivative

Question 37

Actions by the board of directors are decided by ________ ____. A board can delegate authority to one or more __________, which are comprised of members of the board of directors.

Answer 37

majority vote; ;committees

Question 38

The board can also elect officers such as the president, VP, secretary, and ________. These officers then hire the employees.

Answer 38

treasurer

Question 39

The ________ judgement rule is a presumptions that officers and directs are well-intentioned and perform their duties in good faith.

Answer 39

business

Question 40

In addition to duty of care, directors and officers have fiduciary duty of _______, which governs transactions in which directors and officers have a conflict of interest. They must prove that such transactions are fair to the corporation.

Answer 40

loyalty

Question 41

Shares of stock can be divided into classes, generally _______ shares and __________ shares.

Answer 41

common and preferred

Question 42

______ shares represent the basic class of shares issued. __________ shares represent shares with some type of preference, such as the ability to receive dividends prior to common shareholders, ability to receive a specific amount of dividends or the ability to receive assets in __________ prior to common shareholders.

Answer 42

common; preferred; liquidation

Question 43

A ________ reflects a distribution by the corporation to shareholders issued in proportion to their share ownership.

Answer 43

dividend

Question 44

A corporation is not subject to flow-through tax treatment, so it is _____ itself. In addition, each shareholder is taxed when the corporation issues dividends, making two levels of tax applied called ______ taxation.

Answer 44

taxed, double

Question 45

The corporation is responsible for its debts and obligation, thus all partied within the corporation enjoy ______ liability. Occasionally, the court will disregard the corporation for liability purposes and "pierce the corporate ____" to hold officers, directors, and shareholders liable for corporate debts but only to prevent fraud, illegality, or provide relief in circumstances where corporate actors have operated the corporation improperly and in a manner that harms third parties.

Answer 45

limited; veil

Question 46

A corporation terminates by _________ or liquidation. It can be dissolved either voluntarily or by the court. To voluntarily dissolve, a certificate of dissolution or article of dissolution must be filed .

Answer 46

dissolution