Study sets, textbooks, questions
Upgrade to remove ads
BUl 4422 Exam #3
Terms in this set (128)
What are corporations considered as under U.S. law?
Corporations are legal entities, in other words, they exist separately from their shareholders
Courts have held that corporations...
are "persons" in this case and thus have a right to due process.
Courts consider corporations to be persons with respect to?
The Fourth Amendment and thus protected from unreasonable searches and seizures.
What rights do corporations have?
Corporations have free speech rights protected by the First Amendment.
What is the relationship between corporations and their directors, officers, and employees?
This is an agency relationship.
Because the relationship between corporations and their directors, officers, and employees is an agency relationship, corporations are liable...
for torts and crimes committed by their agents during the scope of their employment.
Courts refer to this liability as the doctrine of...
Respondeat Superior (Latin for "Let the master answer").
What two powers do corporations have?
Express Powers and Implied Powers
What are the Express Powers of a corporation? (7)
1). Power to have perpetual existence
2). Power to sue and be sued in the corporation's name
3). & 4). Power to acquire property; power to make contracts and borrow money
5). Power to lend money
6). Power to make charitable donations
7). Power to establish rules for managing the corporation
What are the Implied Powers of a corporation? (2)
1). Power to take whatever actions are necessary to execute express powers.
2). Power given in the statement of corporate purpose in the articles of incorporation.
The general rule is that courts are likely to pierce the corporate veil when: (4)
(1) A corporation lacked adequate capital when it initially formed.
(2) A corporation did not follow statutory mandates regarding corporate business.
(3) Shareholders' personal interests and corporate interests are commingled such that the corporation has no separate identity.
(4) Shareholders attempt to commit fraud through a corporation.
Characteristics of Nonprofit Corporations (4):
1.) Nonprofit corporations may earn profits
2.) Nonprofit corporations do not have shareholders
3.) They do not issue stock
4.) Nonprofit corporations provide services to their members (not shareholders) and reinvest most of their profits in the business
What are two examples of nonprofit corporations?
Churches and charitable organizations
A corporation located in the stage in which it is incorporated.
A corporation that conducts business in a state in which it is not incorporated.
A business that is incorporated in a foreign country.
A corporation whose incorporation process included an error or omission.
Latin for "lawful corporation"; a corporation that has met the mandatory statutory provisions and thus received its certificate of incorporation.
De Jure Corporation
Latin for "corporation in fact"; a corporation that has NOT substantially met the requirements of the state incorporation statutes.
De Facto Corporation
Requirements for an S-Corporation (5):
(1) Cannot have more than 100 shareholders
(2) Only individuals, trusts, and (in certain circumstances) corporations can be shareholders (partnerships cannot be shareholders)
(3) S Corporations can issue only one class of shares, although they need not have identical voting rights
(4) All S Corporations must be domestic corporations
(5) No shareholder can be a nonresident alien
Directors' Meetings and Voting: A minimum number of directors, or a _________, must be present at each directors' meeting for decisions to be valid.
Quorum requirements are...
different in each state, but most states leave the decision up to the corporation itself.
Because a quorum is required at each meeting, ______ are notified whenever special meetings are called
How do directors vote?
Directors vote in person, and each has one vote.
While ordinary decisions require a ________ vote, more important decisions sometimes require a ________ vote.
Directors are also officers or employees of the corporation
Directors who are not officers or employees
Outside directors are further divided into...
Affiliated directors and Unaffiliated directors.
_________ directors have business contacts with the corporation, while _________ directors do not.
Shareholders' Roles: Shareholders __________ the firm.
Are shareholders legally recognized as an owner of corporate property?
While a shareholder is not legally recognized as an owner of corporate property, every shareholder has an ___________, or ownership, interest in the company.
___________ are not directly responsible for the daily management of the corporation, but they elect the directors who are.
A writing signed by a shareholder that authorizes the individual named in the writing to exercise the shareholder's votes (corresponding to his or her shares of stock) at a shareholders' meeting.
________ typically have few legal duties.
In rare instances, majority shareholders have fiduciary duties to...
the corporation and to minority shareholders.
In some corporations, the majority shareholder owns...
such a significant portion of the corporation's stock as to essentially control the firm.
The majority shareholder in this situation has a fiduciary duty to act with care and loyalty when selling the shares.
A court may find a corporate officer criminally liable regardless of the extent to which the officer took part in the criminal activity.
Responsible person doctrine
Can an officer who knew nothing about the criminal activity be held criminally liable?
Yes, even an officer who knew nothing about the criminal activity can be held criminally liable if the court determines that a responsible person would have known about and could have prevented it.
This rule says that directors and officers are not liable for decisions that harm the corporation if they were acting in good faith at the time.
Business Judgement Rule
In other words, if there was reason to believe that the decision was a good one at the time, the directors and officers...
are not liable for the resulting harm
Effects of Merger (4):
(1) The surviving entity remains a single corporation
(2) Its shareholders must amend its articles of incorporation according to the specific conditions of the merger.
(3) The surviving corporation becomes liable for all debts and obligations of the absorbed corporation
(4) The surviving entity obtains the absorbed corporation's property and assets. Additionally, it acquires the absorbed corporation's rights, powers, and privileges
Combinations of two or more corporations where none of the original corporations continue to exist as a legal entity.
A merger in which a parent corporation absorbs a subsidiary corporation.
Short-form merger. Also called parent-subsidiary merger.
Do not require shareholder approval
A dissenting shareholder's right to have his or her shares appraised and to receive monetary compensation from the corporation for their value.
Generally, the value of the shares on the day _________ the shareholder vote is used to value shares when an appraisal is involved.
A takeover to which the management of the target corporation objects.
A type of takeover in which an aggressor corporation offers the target shareholders a price above their stock's current market value
A takeover in which an aggressor gradually accumulates the target company's shares
A ________ ________ occurs when a group within a corporation (usually management) buys all outstanding corporate stock held by the public
leveraged buyout (LBO)
A takeover-resistance strategy in which a target corporation offers to buy its shareholders' stock.
The legal termination of the corporation
Courts can force involuntary dissolution for three reasons (RMBCA 14.30):
(1) The corporation obtained its articles of incorporation fraudulently.
(2) The directors have abused their power.
(3) The corporation is insolvent.
The process by which the board of directors converts the corporation's assets into cash and distributes them among the corporation's creditors and shareholders
End of life cycle of corporation
Agencies may make rules for....
An entire industry, adjudicate individual cases, and investigate corporate misconduct
Because they have all three types of power traditionally placed in separate branches of the government--- that is, legislative, judicial, and executive---some people call ________ ________ the unofficial "fourth branch of the government"
A statute that specifies the name, functions, and specific powers of an administrative agency and grants the agency broad powers for the purpose of serving the "public interest, convenience, and necessity."
An order to appear at a particular time and place and provide testimony.
An order to appear and bring specified documents.
Subpoena Duces Tecum
Who appoints the commissioners of independent agencies with the advice and consent of the Senate?
What terms do commissioners of independent agencies serve?
They serve fixed terms and cannot be removed except for cause. (Serving fixed terms is said to make the commissioners less accountable to the will of the executive, thus the term independent agency).
Who can be members of any single political party?
No more than a simple majority of an independent agency can be members of any single political party.
Where are independent agencies generally located?
Independent agencies are generally NOT located within any department.
The primary type of rule making used by administrative agencies
Informal rule making
The APA requires __________ ______ ________ when an enabling statute or some other legislation requires that all regulations or rules be enacted by an agency as part of a formal hearing process that includes a complete transcript.
Formal rule making
A type of rule making that combines features of both formal and informal rule making
Hybrid rule making
There are four basic limits on agency power:
Does not apply to Congress, the federal courts, the executive staff of the White House, state or local governments, and private business
Freedom of Information Act
Exemptions to FOIA include, but are not limited to:
National security, Internal agency matters (such as human resources issues), Criminal investigations, Financial institutions, and an individual's private life
Judicial Limitations: If an agency rule is subjected to judicial review, the court will consider the following:
The facts of the case: Courts typically defer to an agency's fact finding. The facts must be supported by substantial evidence
The agency's interpretation of the rule: Once again, the courts typically defer to the expertise of the agency and uphold the agency's interpretation of the rule
The scope of the agency's authority: Has the agency exceeded the authority granted to it by its enabling legislation?
_____ is a creature of the State --- can only be created pursuant to state law
State law governs internal affairs of LLC, however many of the characteristics, powers, governance, and control of the company and its affairs are derived from the ....
LLC with at least two members is classified as a __________ for federal income tax purposes.
LLC can elect to be treated as...
"C" Corp or "S" Corp for federal tax purposes
How is a single-member LLC treated for federal income tax purposes?
A disregarded entity.
(The company's gains, losses, etc. will be reported on the individual's federal income tax return.)
How is a single-member LLC treated for employment tax purposes?
Single member must pay self-employment taxes in the same manner as a sole proprietorship.
Pre-Formation Activities: Name of LLC must include...
Limited liability company, limited company, L.L.C., LLC, L.C, or LC
Ltd and Co. may also be used.
The LLC's name must be...
distinguishable from other business registered in the state and may not imply LLC has an association with state or federal government agencies.
_________ have the power to do all things to maintain the existence and purpose of the company pursuant to state law.
Examples of the powers of a limited liability company: (5)
(1) Enter into contracts in its own name
(2) Sue and be sued in its own name
(3) Distribute income to members
(4) Buy, sell, and lease real property
(5) Lend and borrow money
State law is default if LLC has no ___________ _______.
State law supersedes operating agreement in certain instances such as procedures regarding...
registered agent, duty of loyalty, duty of care, duty of good faith, and fair dealing (otherwise operating agreement controls).
Members in Member Managed LLC owe the ________ ______ _________ (requires that member place the interests of the LLC before member's self interest)
duty of loyalty
_______ ________ _______ prohibits member from competing with the LLC or acting on behalf of a party adverse to the LLC.
Duty of loyalty
Members in Member-Managed LLC also owe a ________ ______ _______ (refrain from engaging in "grossly negligent or reckless conduct, willful or intentional misconduct, or knowing violation of law.")
Duty of care
Who owes the same duties as Members in Manager-Managed LLCs?
Six events that trigger dissociation:
1. Provides express notice to other members
2. Is expelled per the terms of operating agreement
3. Entire interest in the LLC is foreclosed by a charging order
4. Is expelled by unanimous vote of all the other members
5. Is expelled by court order
6. Dies or loses contractual capacity
________ of a LLC can exercise complete control over management of the company like a partnership, yet enjoy the limited liability protection of shareholders of a corporation.
Member and Manager Liability: What are members still responsible for?
Malpractice, negligence, intentional torts, and instances such as when a member signs a personal guaranty to secure a loan on behalf of the LLC.
These Theorists argue that a few powerful sellers should not dominate the economy.
Traditional Antitrust Theories
Two theories of Trust Law?
Traditional Antitrust Theories and Chicago School Theories
These theorists argue that the central, and perhaps only, purpose of antitrust law is to encourage economic efficiency
Chicago School Theories
The ________ __________ applies to business practices that restrain trade or commerce "among the several States, or with foreign nations."
How did Congress pass the Sherman Act?
Through its authority to regulate interstate commerce
An inquiry into the competitive effects of a company's anticompetitive behavior to determine whether the benefits of the behavior outweigh the harm.
An action that by its very existence carries with it liability, as opposed to an action that violates a rule of reason.
per se violation
An agreement between two competitors in the same market to engage in a practice that restrains trade
horizontal restraint of trade
Types of agreements classified as horizontal restraints of trade are: (5)
price fixing, horizontal division of markets, group boycotts, trade associations, and joint ventures.
The use of certain business practices with the intent to gain market share by excluding competitors and thereby gain monopoly power.
Attempt to monopolize
The practice in which a company prices one product below normal cost until competitors are eliminated and then it sharply increases the price.
The practice of selling the same goods to different buyers at different prices.
A defense to the Clayton Act in which a firm engages in price discrimination to compete in good faith with another seller's low price.
Conglomerate mergers exist in three basic forms:
(1) Product extension
(3) Diversification mergers
Exists when a firm merges with another firm producing a related product
Conglomerate mergers involve a firm attempting to extend the market for one of its current products by merging with a firm already active in the target market
Occur when the acquiring firm desires to spread into new markets where it currently does not have a product
The court inquires into the competitive effects of a company's behavior to determine whether social benefits or positive effects on competition outweigh the harm of anticompetitive behavior
Rule of Reason Analysis
Rule of Reason Analysis: The following factors are taken into consideration: (4)
(1) Nature and purpose of the restraint on trade
(2) Scope of the restraint
(3) Effect of the restraint on business and competition
(4) Intent of the restraint
At minimum, the duty of care of the accountant entails compliance with the ___________, established by the Financial Accounting Standards Board (FASB), and the _________, established by the American Institute of Certified Public Accountants (AICPA).
Generally Accepted Accounting Principles (GAAP); Generally Accepted Auditing Standards (GAAS).
Failure to comply with GAAP and GAAs will almost certainly constitute a...
breach of duty
Compliance does not automatically mean the ________ _______ ________ has been met.
duty of care
When hired to perform a task, the accountant enters into a contract called an _________ ________ with the client that makes certain explicit and implicit promises.
When an accountant breaches a contract,
The client is entitled to recovery for damages that include the cost of obtaining a different accountant and any reasonable and foreseeable damages related to the breach.
An accountant who engages in a ________ _______ ______ ______ is not entitled to compensation for work completed.
material breach of contract
Third-party liability, as decided by the states, falls into three general groupings:
(1) privity or near-privity (the Ultramares rule),
(2) foreseen users and classes of users (the Restatement rule), and
(3) reasonably foreseeable users.
An accountant will be held liable for negligence only to those with whom he or she had privity of contract, meaning the client and anyone for whose "primary benefit" the accounting statements were prepared.
An accountant is liable to known third-party users of the accountant's work product and also to those in the limited class whose reliance on the work the accountant specifically foresaw.
An accountant is liable to any third party who was or should have been foreseen as a possible user of the accountant 's work product and who did in fact use and rely on that work product for a proper business purpose
Reasonably foreseeable users test
Who are accountants liable to for fraudulent statements made to the SEC?
Buyers and sellers.
Accountants are liable for any ___________ or ___________ fraudulent statements made in the process of selling any security
written or oral
Exists when the accountant's actions meet the above criteria.
Fraud without fraudulent intent---a plaintiff must prove that the accountant was grossly negligent in performing his or her duties.
Accountants found liable for fraud can be assessed...
compensatory, as well as punitive, damages
While failure to comply with GAAP and GAAS will almost certainly constitute a breach of duty, _________ does not automatically mean the duty of care has been met.
Sometimes a ______ ________ or _________ _______ may impose additional legal requirements on accountants beyond GAAP and GAAS.
state statute or judicial opinion
Three primary types of liability are assessed to accountants under the common law:
(2) breach of contract, and
Sets with similar terms
Corporations: Formation and Organization
BLAW Review Chp. 18-19
LS 246 Ch 8,10
Other sets by this creator
Money & Banking Exam 3
International Finance Exam 1
BUL 4422: Exam #2
BUL 4422 Exam 1
Other Quizlet sets
social psych final exam
Fysisk aktivitet som psykiatrisk behandling
HFT 4471 Test 1
government exam flashcards