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REG > R8 - Business Law: Part 2 > Flashcards

R8 - Business Law: Part 2 Flashcards

1
Q

Bankruptcy: Discharge Effect on Creditor

A

Relieves debtor of any personal liability to the judgment creditor

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2
Q

Bankruptcy: Chapter 7

A

Trustee Appointed:

  • Collects debt and uses assets to pay it off
  • If debtor is an individual, then they are discharged based on certain rules
  • If debtor is corp, it is dissolved, no discharge available
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3
Q

Bankruptcy: Chapter 13

A

Adjustment of Debts of Individuals with Reg Income (Trustee still appointed)

  • Debtor pays back his date over a 3-5 year period
  • No liquidation and trustee oversees handling
  • Remaining debt is discharged at end
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4
Q

Bankruptcy: Chapter 11

A

Reorganization: No Trustee, No liquidation

  • Usually used by businesses
  • Debtor remains in possession of his/her assets and a plan of reorganization is adopted
  • Creditors are paid to the extent possible and business continues
  • Can be voluntary or in-
    voluntary
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5
Q

Bankruptcy: Chapter 7 Bankruptcy Estate Include/Exlude

A

Include:
- Estate (real/personal property)

  • Income generated from property (interest from bonds) received within 180 days of filling
  • Divorce, inheritance (within 180 days of filling)
  • Leases can by retained/assumed by trustee

THIS MEANS THEY ARE SURRENDER FOR DISTRIBUTION TO THE CREDITORS

Exclude:
 - Post filling earnings
 - Spendthrift trusts
 - Educational IRA's
 - State tuition program
      -Made 365 days before 
       filling 
 - Property necessary to live
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6
Q

Bankruptcy: Petition Against Bankruptcy

A

A debtor will lose a petition if they aren’t paying their debt as it becomes due

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7
Q

Bankruptcy: STAYS

A

When a bankruptcy petition is filed, and automatic “stay” goes into effect that doesn’t allow a creditor to collect against the debtor

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8
Q

Bankruptcy: Preferential Payments

A

When a payment is “set aside” it is taken back from the creditor who received it:

Can Include:
- Transfer made to or for the
benefit of the creditor

  • On account of an
    “antecedent debt” (already
    existing) of the debtor
  • Made within 90 days prior
    to the filling of the petition
    (one year if creditor is an
    insider)
 - Results in the creditor 
   "receiving more than the 
   creditor would have 
   received" under 
   Bankruptcy code
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9
Q

Bankruptcy: Powers of a Trustee

A
  • Hypothetical lien-creditor on debtor’s property (the instant bankruptcy is filed but relates to statutory liens before filing petition)
  • Caution: PMSI in Non-inventory item could have preference if perfected and within 30 days after the debtor received collateral
  • Power over fraudulent transfers (selling a car to your mom for $100, fraud against the creditors)
  • Dis-affirm Preferences (preferential payments)
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10
Q

Bankruptcy: Chapter 11 - Those who can’t file for relief

A

Stockbrokers

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11
Q

Bankruptcy: Transfers that can’t be set aside by Trustee

A

-Insolvency (90 days directly
after filing)

-Payments to “fully secured”
creditors

-Transfer to repay a debt 
 that the debtor incurred in 
 the ordinary course of 
 business
  -PMSI perfected within 30 
   days
  -Consumer payments
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12
Q

Bankruptcy: Preferential Payments NOTE

A

Payments only on preexisting debt (antecedent) can be set aside but Contemporaneous Exchanges cannot (selling a boat for cash)

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13
Q

Bankruptcy: Chapter 7 - Those who can’t file for relief

A

Railroads, insurance companies, savings institutions, banks and small business investment companies

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14
Q

Bankruptcy: Solvency of Debtor for Preferential Payments NOTE

A

Solvency only matters when the loans are being PAID not when the loan is originally MADE

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15
Q

Bankruptcy: Involuntary Petition for Bankruptcy

A

Can’t be done to Farmers.

Creditors who must join petition:

-Fewer than 12 creditors:
-One or more owed at
least $15,775

-12 or more creditors:
-at least 3 creditors who
are owed at least $15,775

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16
Q

Bankruptcy: Insolvency CALCULATION

A

FMV of all assets

Value of all liabilities

= Solvent is + Insolvent is -

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17
Q

Bankruptcy: Priority Creditors List

A

S = Support to spouse/children

A = Admin expenses for bankruptcy

G = Gap creditors

W = Wages up to $12,850 if earned within 180 days

E = EBP contributions up to $12,850 reduced by wage claims if earned in 180 days prior to filing

G = Farmer claims up to $6,325

C = Consumer deposits for goods paid but not delivered up to $2,850

T = Taxes (not secured)

I - Injury claims for drunk driving

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18
Q

Bankruptcy: Timeliness of Claims Filed

A

If claim isn’t filed timely, the only amount to be paid to these is the amount of money left over after other creditors have been paid

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19
Q

Bankruptcy: Secured vs Unsecured Claims CALCULATION

A

Total Bankruptcy Estate

-Secured Claims

=Remaining to be allocated to unsecured claims

Remaining is distributed proportionally to unsecured claim holders.

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20
Q

Bankruptcy: Confirming Bankruptcy Filing

A

Only court can confirm

Cram-down: court can confirm even if only one impaired class votes to affirm the plan

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21
Q

Bankruptcy: Creditors Committee

A

Made up of unsecured creditors

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22
Q

Bankruptcy: Acceptance of of Bankruptcy Plan

A

Considered accepted if:
- Accepted by creditors holding at least 2/3 in amount and more than 1/2 i number of the allowed claims

What must be confirmed before the court approves it? Wont confirm if it isn't..
  - Plan for paying for admin 
    costs and full payments to 
    certain other classes of 
    creditors
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23
Q

Bankruptcy: Corps vs Individuals

A 
Corps = dissolved
Individuals = discharged
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24
Q

Bankruptcy: Objections to discharge

A
  • Debtor not an individual
  • Fraudulent Transfers/concealment
  • Unjustifiably failed to keep books/records
  • Prior discharge within 8 years
  • Commission of bankruptcy crime
    • False oath/account
    • False claim
    • Bribes
    • Withholding documents
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25
Q

Section 11: Plaintiff Needs to Prove what?

A

Imposes civil liability for misstatements (intentional or not)

Plaintiff only needs to prove: 
-Acquired the stock (not 
 reliance)
-Suffered a loss
-Material Misstatement on registration statement

-Can only recover monetary damages

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26
Q

Securities and Exchange Act of 1934: What must a plaintiff prove?`

A

Scienter/intent to deceive

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27
Q

Securities and Exchange Act of 1934: Defendant is Liable when?

A
  • Intentionally makes a misstatement

- Recklessly disregards the truth and plaintiff relies on the work/opinion given

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28
Q

Securities and Exchange Act of 1934: What reports did this institute?

A

10-K, 10-Q and 8-K

29
Q

Securities and Exchange Act of 1933: Transaction Exemptions

A

Not all sales of securities are covered under the 1933 act.

Transaction Exemptions: 
  -Casual sales are exempt 
   (not an issuer, underwriter, 
   dealer)
 -Exchanges with existing 
  holders and corp 
  reorganizations
 -Intrastate sales exemption 
  for securities sold to people 
  in the same state (issuer 
  must do at least 80% of 
  their business in this state)
30
Q

Securities and Exchange Act of 1933: Regulation D

A

Exempt “private offerings” and SEC has 3: 504,505,506. These can be any form of securities.

General rules: 
 -Immediate resales to 
  public is prohibited 
 -SEC must be informed 
  within 15 days
-No general solicitation 
Specific:
504: 
 - securities sold may not 
   exceed $1 million within 12 
   month period
 - No limit on purchasers or 
   types of purchases and no 
   specific disclosure is 
   required

505:
- securities sold may not
exceed $5 million within 12
month period
- Can be sold to any number
of accredited investors and
35 or fewer unaccredited
(accredited = 4 year
average net worth of $1
million excluding home)
- Disclosure is only required
if unaccredited investors
are included

506:
- Unlimited $ amount
- Any number of accredited
investors and 35 or fewer
unaccredited but
sophisticated investors
- Disclosure is only required
if unaccredited investors
are included

31
Q

Securities and Exchange Act of 1934: Filling Requirements

A
  • Shares traded on national stock exchange

- 500 shareholders in any one class who are not accredited and more than $10 million in assets

32
Q

Securities and Exchange Act of 1933: Types of Securities that don’t have to be registered

A

-Issued by banks
-Issued by not-for-profits
-Issued by gov’t
-Issued by railroads
-ST commercial paper
-Insurance policies
-Chapter 11 bankruptcy
-Issued by Church plan or
similar entity that isn’t an
investment company

33
Q

Shelf-Registration

A

Must be a seasoned issuer and original registration must be kept updated

34
Q

Securities and Exchange Act of 1934: Reports to be given to the SEC?

A

-10k
-10Q
-8K
-Proxy Statements
(permission to vote at a
shareholder’s meeting)
-Tender offers (offer to all
shareholder’s to buy stock,
anytime its more than 5%
you must file report with
SEC)
-Insiders (officers, directors and >10% shareholders)

35
Q

Securities and Exchange Act of 1933: Parts of the Registration Statement

A 
1 = Prospectus
2 = Other information
36
Q

Regulation A:

A

Simplified registration for smaller companies

-Offering statement which consists of:
- Notification
- Offering circular
-Some companies may
“TTW” (test the water) first
before filling if offers are
preceded or accompanied
by a “preliminary offering
circular”

37
Q

Securities and Exchange Act of 1933: Purpose

A

Ensure investors are provided with adequate information on which to make investment decisions

38
Q

Securities and Exchange Act of 1933: Rule 147 Intrastate Commerce

A

9 months after the last sale by the issuer, resales of those securities can only be made to the residents of that state.

39
Q

Securities and Exchange Act of 1933: Rule 147 Intrastate Commerce

A

9 months after the last sale by the issuer, resales of those securities can only be made to the residents of that state.

40
Q

FUTA:

A

-Participation: quarterly
payrolls of at $1,500 and
who employee at least one
person for 20 weeks.

  • No self-employed
  • Generally only assessed against employer, current rate is 6% of first $7,000 for each employee
  • Credit can be used for state taxes (up to 5.4% of first $7000) if employer has below-average unemployment rate claims from prior years
  • Deductible as business expense for employer
41
Q

FICA: What can make employer’s liable for penalties?

A
  • Failure to supply ids

- Failure to make timely FICA deposits

42
Q

Deductions from employee’s salary include?

A
  • Unemployment compensation insurance

- Worker’s compensation insurance

43
Q

Worker’s Comp: General Rule

A

Employer is strictly liable for employee’s injury without consideration to who’s fault it was

44
Q

Social Security Benefits Include

A
  • Old Age and survivors insurance
  • Disability insurance
  • Medicare
  • Supplemental security income
  • Payment to divorced spouses
  • Payment to disabled children
45
Q

Worker’s Comp: Provide what benefits?

A
  • Burial expenses
  • Monthly payments to surviving dependent children
  • Pros-ethic devices

-Doesn’t include “full-pay”

46
Q

Forming an LLC: What must be submitted to the state?

A

Articles of organization

47
Q

Dissociation of a partner in a partnership:

A

Bankruptcy

48
Q

Dissolution of Partnerships: What happens?

A
  • Apparent authority continues until proper notice to 3rd parties
  • Existing liabilities from partnership would continue
49
Q

Partnership Agreements: NOTE

A

Written agreements are not necessary. Partnerships are not normally subject to the statue of frauds

50
Q

General Partnerships: Profits/Losses

A

Partners are allowed to determine how profits/losses are divided among partners.

If profits are not explicitly talked about in the agreement, they are split evenly among the partners

51
Q

Partnerships: Limited Partnerships

A 
General Partners: 
 -Liable for debts of 
  partnerships
 -Can be a limited partner
 -Can be secured/un-
  secured creditor
52
Q

Partnerships: Assigning Partnership Interests

A

The only thing that the person being assigned the partnership interest will be profits and a new partner will not be introduced unless consented by other partners.

53
Q

LLC’s

A
  • Don’t pay taxes on earnings, instead they flow to the partners
  • Partners can be other entities
54
Q

Limited Partnerships: What must be filed?

A

Certificate of limited partnership.

-General partnerships don’t have to file anything with the state to form.

55
Q

Corp and Partnerships: Owners and stockholders both have the ability to do what?

A

Assign (sell) their interests

56
Q

Doing business in two states:

A

Company must get a certificate of authority to do business in others states.

57
Q

Disregard for Corporate Entity: “Piercing the Corporate Veil”

A
  • Shareholders commingle corp and non-corp funds
  • Corp was inadequately capitalized at formation
  • Corp was formed to commit fraud
58
Q

Amending Articles of Incorporation:

A

Typically done by shareholders not board

59
Q

Dissent/Appraisal Rights:

A

These shareholders have the right to vote on fundamental changes to the corp and if they vote against them, they have the right to have the corp buy their shares at a fair price.

60
Q

“Ultra Vires” Act

A
  • An act made by a director/board member that is outside their scope of authority.
  • Shareholder’s can bring derivative action against these acts
61
Q

Short Form Merger (90% owned subsidiary)

A

Subsidiary’s shareholders that dissent have a right to a remedy.

62
Q

Whats sets forth the rules for running a company?

A

By-Laws

63
Q

Who must file a “form of dissolution” with the state when they voluntarily want to dissolve?

A

Corporations

64
Q

Preemptive Right

A

This right to new shares before anyone else to maintain you share in the company

65
Q

Promoters:

A

Try to build money and resources to start a corporation.

Liable until corporation and third parties agree that the corporation will take the place of the promoter (novation)

66
Q

Dividends Declared: NOTE

A

Once dividends are declared, shareholders become “unsecured creditors” for the amount of unpaid dividends

67
Q

Business Judgement Rule:

A

Rule that protects corporate directors that act in good faith when making deals.

68
Q

Inspecting Corp’s Books:

A
  • Any shareholder any giving 5 days notice and having a proper purpose may inspect a corporation’s records.
  • This rule may not be limited by any by-law or article

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