R8 - Business Law: Part 2

Question 1

What does an automatic stay means under a Chapter 7 or 11 bankruptcy?

Answer 1

When a bankruptcy petition is filed in either a voluntary case or an involuntary case, an automatic stay becomes effective against most creditors

Question 2

What are the four major benefit programs the federal social security system has?

Answer 2

1. (OASI) old age and survivor insurance
2. (DI) Disability insurance
3. Medicare
4. (SSI) supplemental security income

Question 3

What are preemptive rights?

Answer 3

It gives existing shareholders the ability to buy newly issued stock sufficient to mantain the shareholder’s proportionate share of rights in the newly issued shares.

Question 4

When can creditors file an involuntary petition under chapter 7 Bankruptcy?

Answer 4

One or more creditors are owed at least $18,600 of unsecured debt (fewer than 12 creditors)
1. fewer than 12 creditors: if a debtor has fewer than 12 creditors, any one or more creditors are owed at least $18,600 in unsecured bedt may file.
2. 12 or more creditors: if a debtor has 12 or more creditors, at least 3 creditors who are owed at least $18,600 in aggregate, in unsecured, undisputed debt must join in the involuntary petition.

Question 5

How are taxes payable uner the Federal Unemployment Tax Act (FUTA) treated?

Answer 5

They are deductible by the employer as a business expense for federal income tax purposes.

Question 6

Who does the penalty for aiding and abetting understatement of tax liability applies?

Answer 6

The penalty for aiding and abetting applies to any person, not only tax return preparers. The IRS has the burden of proof to establish that any person is liable for civil penalty.

Question 7

What are the results of the court’s final drecree in a Chapter 11 of the Bankruptcy Code?

Answer 7

The final decree results in a discharge of all debts and liabilities that arouse before confirmation of the plan, except as otherwise provided in the plan, the order of confirmation, or the Bankruptcy code.

Question 8

Does Chapter 15 prohibits discrimination against foreign creditors?

Answer 8

Chapter 15 prohibits discrimination against foreign creditors (except certain foreign government and tax claims, which may be governed by treaty).

Question 9

When an employee has a job-related injury, who is at fault under the unemployment compensation law?

Answer 9

Employers are strictly liable ragardless of fault. The only requirement is that the employee’s injury occured while acting in the scope of employment.

An employee can collect even if the employee was negligent, grossly negligent, or asumed the risk.

Question 10

When is a general partnership/joint venture formed?

Answer 10

A general partnership/joint venture is formed whenever two or more persons intend to carry on as co-owners a business for profit.
1. Papers need not be drawn up to form a partnership
2. Nothing need be filed with the state
3. An express agreement is not required; an agreement can be implied from conduct.

Question 11

What is required for a corporation to be voluntarily dissolved?

Answer 11

Dissolution requires directors and shareholders approval. Dissolution can also be pursuant to a court order.

Question 12

What property becomes part of the bankruptcy estate under Chapter 7 of the US Bankruptcy Code?

Answer 12

1. The debtor’s estate (assets available to pay creditors) includes real and personal property at the time of filing.
2. Estate property (e.g., interest from bonds) received within 180 days after filing of the petition for relief.
3. Property the debtor receives from divorced, inheritance, or insurance within 180 days after filing of the petition.
4. Leases of property may be assumed and retained by the trustee, assumed and assigned to another, or rejected by the trustee.

Question 13

When a company files a petition for reorganization under Chapter 11, how is the creditor’s committee integrated?

Answer 13

A creditor’s committee, if appointed, will consist of unsecured creditors.

Question 14

What is fiduciary duty of loyalty?

Answer 14

It’s when the director must act in the best interest of the corporation, rather than in their own interest or in the interest of some third party

Question 15

What is fiduciary duty of care?

Answer 15

When making a decision for the corporation, officers and directors must act with the care an ordinarily prudent person in a like position would exercise.

Question 16

What debt would not be discharged in a bankruptcy?

Answer 16

The nondischargeable debts are as follows:
1. W - Willful and malicious injury
2. A - Alimony
3. T - Taxes
4. E - Educational loans
5. D - Debts undisclosed

Question 17

Does a debtor need to be insolvent or have 3 or more creditors to file for a voluntary Chapter 7 Bankruptcy?

Answer 17

No, the debtor does not need to be insolvent, nor is a requirement of 3 creditors in a voluntary petition.

The involuntary petition requires at least 3 creditors to file if the debtor has 12 or more creditors.

Question 18

How is a general partnership created?

Answer 18

1. All general partners in a partnership are personally liable for the obligations of the entity.
2. There is no requirement fo file with the state.
3. An express agreement is not required.

Question 19

When is a limited partnership created?

Answer 19

1. A limited partner’s liability is limited to his investment and unpaid capital commitment.
2. A limited partner has no right to take part in the management of the business.
3. They are liable to any party who reasonably believed they were a general partner.

Question 20

What benefits does the Federal Insurance Contribution Act (FICA) provides to workers and its dependents?

Answer 20

FICA provides workers and its dependents with benefits in case of death, diability, or retirement.