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LGS 200 Unit 2 Exam
Terms in this set (129)
Agreement enforceably by the law
has all 4 elements and therefore law is enforceable
no contract at all
contract that on its face appears to be valid however there is a defect that gives one party the option to cancel the contract
an otherwise valid contract that the law will not enforce because of a specific reason
pressure or threats of any kind that takes away your free will (physical or non-physical)
relationship of trust. More than friends or associates. One the other party who is legally obligated to look out for legal and financial interests of the other party but takes advantage of person.
Misrepresentation of a material fact
-requires a business to get a license before it is authorized to do business
-purpose is to raise money
Violating a revenue licensing statue
purpose is to protect public by setting minimum qualifications to get license
Violation of a regulatory licensing statue
Sunday Blue Laws
prohibit some types of business on Sunday (varies by state)
-if you leave a company, you cannot work for a competitor's company
-in the sale of a business the buyer requires seller to agree to not open a competing business after sale
Enforced by an injunction
court can modify an unreasonable restriction to make it reasonable and then the court can enforce it
Blue Pencil Rule
a legal concept in common law countries, where a court finds that portions of a contract is void or unenforceable, but other portions of the contract are enforceable.
1. contracts for the buy/sale of land
2. promises to pay debt of a third party
What contracts have to be in writing?
-Names of parties
-Terms of contract
-Signed by whoever is obligated
Must have 3 things written in document form...
Statue of Frauds
law has been passed in all 50 states that allows some contracts to be in writing.
released; released from liability/obligations
An agreement between the parties to cancel their contract, releasing the parties from further obligations under the contract.
a contract does not have to be in writing
Unless required by the statue of frauds...
an oral or verbal contract is unenforceable
If the statue of frauds applies which requires a writing...
Upon disaffirming, minor must return what he bought if he still has it and whatever condition it is in
What does a minor have to do with what he bought if he disaffirms?
minor loses his right to disaffirm
What if a minor misrepresents her age to adult?
being under the influence under mind altering substance
declared mentally incompetent you lose ability to enter into a contract and if you do enter one its void
Level of intoxication is different for everyone. T/F
Level of intoxication equals you don't know what you're doing. T/F
bargaining for exchange between the parties
Consideration from the offeror
only requirement is the offeror must do something he is not already obligated to do
Contract must be for a legal/lawful purpose.
Unenforceable there is no remedy given to plaintiff or defendant. Law leaves parties as is.
Violating an usury
Usury laws sets maximum rate of interest that can be charged on a loan
both parties agree to cancel the contract
Accord and Satisfaction
both parties agree to substitute a new performance for the original which discharges the obligated party
both parties agree to substitute a new obligated person for the original person of obligation who is then discharged from further performance on the contract
Operation of law
specific legal reason that discharges one of the parties
statue of limitations
timed deadline in which a lawsuit must be filed. If you miss the deadline, the obligated person is released
is there an impossibility to complete a contract
ex: bad weather, shortage of labor
-does not discharge a person
ex: destruction of subject matter
specified event that will release one party from his obligations
prevention in a contract that releases one party in advance from negligence liability
Dissolution of a partnership
Legal entity seizes to exist: death of partner, withdrawal by a partner, expulsion (partner gets fired)
-required distribution for money
-creditors get paid first
-any loans by partners are repaid
-capital contributions are repaid to partners
-any remaining money is distributed as profits would be
After a liquidation what do you do with the money?
Personally, reliable for only debts created after he joined
What if a partner joins a partnership?
human or non-living thing that the law recognizes as having rights and responsibilities
can own property in its own name, can enter into a contract in its name, can be sued or sue in its own name
Legal entity can..
legal entity status
-partnership is LE
-can enter in a contract
-sue as a plaintiff or be sued as a defendant
-partnership as LE does not pay income tax on partnership profits.
-each partner pays income tax on their share of the partnership profits on that partners individual tax return.
-each partner gets a K1 form for that partners share of the partnership's profits
A business owned by one person
Capital of sole proprietorship
limited to whatever you have
Sole Proprietorship businesses
-can use any business name as long as he doesn't use someone else
-legal name of owner doesn't have to be in trade name
-not necessary to file any documents with state government to start it
-highest failure rate
-liability for your debts
management of sole proprietorship
direct/ hands on by the owner
the owner is
Who/what is the legal entity in a sole proprietorship?
lack of continuity
be the owner is the legal entity; the legal entity does if the owner dies
owner pays income tax on business profits on the owner's personal tax return
How do you pay taxes in a sole proprietorship?
Association (contract) of two or more persons operating a business for profit as co-owners
Types of Partnerships
General partnership, limited partnership
Name of partnership
same rules apply
capital contributions (general partners)
cash, real/personal property, expertise
two basic differences of limited partnership
1. in a limited partnership there are 2 types of partners (general partner and limited partner)
2.limited partners in a limited partnership have limited liability for partnership debts
the amount the limited partner has paid as his/her capital contribution
the limit of a limited partners liability is...
as much as you paid for capital contribution
the maximum amount you could lose as a limited partner is...
unlimited personal liability
if you are a general partner in a limited partnership you have...
do not have unlimited liability, you have none for your partnership debts
if you are a limited partner you...
Would you rather be a general partner or limited partner if looking at debt?
You must file required documents with your state government in order to create a limited partnership. note: if you fail to file the required paperwork, you are nothing more than a general partnership
How do you create a limited partnership?
limited partners only risk their...
2. the abbreviation "LP"
3. the single word "limited"
4. the abbreviation "LTD".
You must add one of the following 4 to your trade name as a limited partnership
your name will inform the public that it's dealing with a limited liability structure.
what is the purpose of the requirement adding one of the 4 required phrases to your trade name in the limited partnership?
You must have at least 1 general partner and at least 1 limited partner (no limit on either).
How many partners do you have to have in a limited partnership?
raise large amounts of capital
Limited partnership is generally used to...
1. your share of the profits is less than the share of profits of the general partners.
2. limited partners have no voice in the management of the limited partnership.
2 disadvantages to being a limited partner
the general partner/s
All management is done by who?
he loses his limited liability protection
if a limited partner participates in management...
Capital contributions (limited partners)
cash and real/personal property
1. we do not need your skill set because you are not running the business anyway
2. you can not put a dollar value on your skill level. we must know your exact dollar amount for the liability you lose and there is none on expertise.
why can't limited partners contribute expertise?
if you sell your share nothing will happen.
How can you withdrawal from a limited partnership?
the rule for a limited partnership on taxation is the same
1. a new will form and business will continue
2. shut business down and let it go
After effects of dissolution
partners get paid their capital. limited partners get their capital paid first then general partners. other than that, everything is the same
What's the priority of distributing cash?
Legal Entity Status
the limited partnership is a legal entity
sole proprietorship, general and limited partnerships, and corporations
a ownership structure with 2 distinguishing characters
1. the owners have indirect managerial control
2. the owners have limited liability for corporate debts
What are the 2 distinguishing characteristics of a corporation?
limited liability structure
Corporations are another...
Stock (or stock certificate)
What is it the owners actually own?
Assets. They own the piece of paper called stock certificate
The owners do not own what of the business?
whatever he paid to buy his stock
The limited of the owner's liability in a corporation is what?
A stockholder is also known as a what?
A stockholder is treated exactly like a what?
you can only lose whatever you pay for your stock.
If you are a stockholder and the corporation owes debt, what can you lose?
Yes. Because of this limited liability and raises large amounts of capital
Is a corporation an attractive ownership structure and if so why?
must file certain documents with your state government in order to create the corporate status. (varies by state)
How to create a corporation?
1. owners (stockholders)
2. board of directors
3. the officers
3 different groups of people involved in every corporation:
-one of the rights they have is to elect board of directors.
-every stockholder gets to vote on who they want to serve on board of directors
-hire and fire the officers (ceo, vice president, treasurer)
Board of directors duty:
-responsible for day-to-day management of the corporation
the officers duty:
ALL managerial decisions in a corporation are made and decided by whom?
who has the ability to indirectly control the management of the corporation?
either owning or controlling the majority of the stock. in other words, at least 51%.
The only way the owners can indirectly control the management of the corporation is by what?
No you can't. You don't t have the power to. But if you own or control 51% or more of the stock, you can go to the board of directors and insist they change the officers.
As an owner of a corporation, if you're not satisfied with the management the officers and you want change, can you pick up the phone and tell the president of the corporation how you want him running it? Why or why not?
they can vote and elect a new board of directors that will then fire the existing officers and hire new officers that the stockholders want. This is an example of indirect control.
Let's assume the board of directors refuse to make managerial changes. They in essence tell the stockholders "sorry we like the officers and going to keep them". Then the stockholders (assuming they have 51% or more) can what?
Is it possible to be a stockholder, director, and officer at the same time in the same corporation?
Many large corporations in addition to salary, give their upper level executives what?
they give them stock as an incentive to manage the company well so the stock price will increase.
Why do large corporations in addition to salary give their upper level executives stock?
1. any trade name as long as you don't use an existing business name
2.don't have to use the legal name or names of the owners in the trade name
(same 2 rules that we have seen in sole proprietorship and both typed of partnerships)
3. must have 1 of the 4 things:
1. the abbreviation "INC."
2. Abbreviation "CORP."
3. the word "incorporated"
4. the word "corporation"
Name for your corporation:
they are not personally liable for corporations debts.
the owners of a corporation have limited liability which means...
1. appreciation in value
How can you make money owning stock? (2 ways)
Appreciation in Value
the stock price goes up.
a cash payment to the stockholders made out of the corporate profits
1. the corporate pays corporate income tax on its profits
2. if dividends are paid. Dividends are paid out of corporate profits. Whatever is left, each stockholder has to pay income tax.
How is a corporate taxed?
Disadvantage to being a corporation
Double taxation of the corporation is a...
legal entity status of a corporation
the corporation is a legal entity separate and distinct from its owners.
owners can come and go from the corporate structure without causing it to dissolve as a legal entity
a corporation can last for ever
sole proprietorship dies when he dies, general partnerships dissolves when general partner dies, limited partnership dissolves when general partner dies.
can sole Proprietorship, general partnerships, and limited partnerships dissolve?
there is no dissolution of the corporate structure as a legal entity
A corporation is a structure where owners can die and...
if and when a corporation can be liable for the wrongful acts of its employee.
Corporation in legal terms is called:
Employees in legal term are called:
1. the agent (employee) is always personally liable for any tort he commits.
2. the principle (corporation) is liable for the tort committed by its agent (employee) if the agent was doing his job duties when he committed the tort.
Who and what can you sue?
No. You cannot recover double, but the significance of that is the corporation is likely to have more ability to pay than an employee.
Can you sue both the agent and the principle if both rules are present?
stay in contract, a minor can only after reaching majority age
to leave, a minor can at any time that they remain a minor within a reasonable time after turning 19
-accept all of the terms of the offer
-be absolute and unconditional
-be communicated to the offeror
Acceptance you must...
keep paying for what you got
most common way of affirming
the person who makes the offer
receives the offer; can say yes or no, counter offer, or say nothing
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