Test 3

  1. Mechanic lien
    A statutory lien on the real property of another, created to ensure payment for work performed and materials furnished in the repair or improvement of real property, such as a building.

    If the homeowner doesn't pay the property can be sold to satisfy the debt.
  2. Procedures to file a Mechanic Lien
    • 1. Lienholder must file a written notice of lien against the property involved.
    • 2. Notive of the lien must be filed within a specific time period, measured from the last date on which materials or labor was provided. (usually 60 to 120 days)
    • 3. If property owner fails to pay. Lienholder is entitled to foreclose on the real estate on which the work or materials were provided and to sell it to satisfy debt.
    • 4. Sale proceeds are used to pay the debt and the cost of legal proceedings, the surplus, if any goes to the former owner.
  3. Artisan lien
    A possessory lien given to a person who has made improvements and added value to another person's personal property as security for payment for services performed. (lienholder must have expressly or impliedly agreed to provide services on a cash, not credit basis.)

    Remains in existence as long as the lienholder maintains posession, and the lien is terminated once posession is VOLUNTARILY surrendered

    Usually takes priority over other creditors' claims to the same property.
  4. Garnishment
    • A most often postjudgment remedy, it is used by a creditor to collect a debt by seizing property of the debtor (such as wages) that is being held by a third party (such as the debtor's employer)
    • The person or entity on whom judgment is served is the garnishee (debtor's employer)
  5. Equity of redemption
    The right of a mortgagor who has breached the mortgage agreement to redeem or purchase the property prior to foreclosure proceedings 367 69
  6. Suretyship
    An express contract in which a third party to a debtor-creditor relationship (the surety) promises to be primarily responsible for the debtor's obiligation.

    Creditor can demand payment from the surety from the moment debt is due. Creditor need not to exaust all legal remedies against the principal debtor before holding the surety responsible for payment.
  7. Guaranty arrangement
    The guarantor (3rd person making the guaranty) is secondairly liable to debt belonging to primary debtor. Guarantor can only be required to pay after the debtor faults and usually only after creditor has made an attempt to collect from the debtor.
  8. Right of subrogation
    Right belonging to a surety or guarantor. Right to stand in the place of (be substituted for) another, giving the substituted party the same legal rights that the original party had. Such as bankruptcy, rights to collateral possessed by the creditor, and rights to judgments obtained by the creditor.
  9. Right of reimbursement
    The legal right of aperson to be restored, repaid, or indemnified for costs, expenses, or losses incurred or expended on behalf of another.
  10. Right of contribution
    The right of a co-surety who pays more than his or her proportionate share on a debtor's default to recover the excess paid from other co sureties.
  11. Homestead exemption
    A law permitting a debtor to retain the family home, either in its entirety or up to a specified dollar amount, free from the claims or unsecured creditors or trustees in bankruptcy.
  12. Chapter 7 bankruptcy
    Purpose: Liquidation

    Who can Petition: Debtors (Voluntary) or Creditors (Involuntary)

    Who can be a Debtor: Any "person" (including pertnerships, corporations, and municipalities) except for Railroads, insurance companies, banks, saveing and loan intitutions, investment companies licensed by the Small Business Administration, and credit unions. Farmers and charitable insitutions cannot be involuntarily petitioned. If the court finds the petition to be substantial abuse of the use of Chapter 7, the debtor may be required to conver to a Chapter 13 repayment plan.

    Procedure Leading to Discharge: Non exempt property is sold, and the proceeds are distributed (in order) to priority groups. Dischargeable debts are terminated.

    Advantages: On liquidation and distribution, most debts are discharged, and the debtor has an opportunity for a fresh start.
  13. Involuntary bankruptcy
    When a debtor's creditors force the debtor into bankruptcy proceedings.

    • Requirements:
    • 1. If debtor has 12 or more Creditors (3 or more of these creditors having unsecured with debt totaling at least $14,425 must join the petition)
    • 2. If debtor has fewer than 12 creditors (1 or more creditors having a claim totaling $14,425 or more may file)

    • Order for relief will be entered if:
    • 1. The debtor is not paying debts as they come due.
    • 2. A general receiver, assignee, or custodian took possession of, or was appointed to take charge of, substantially all the debtor's property within 120 days before the filing of the petition.
  14. Chapter 11 bankruptcy
    Purpose: Reorganization

    Who can Petition: Debtors (Voluntary) or Creditors (Involuntary)

    Who can be a Debtor: Any debtor eligible for Chapter 7 relief; railroads are also eligible. Individuals have specific rules and limitations.

    Procedure Leading to Discharge: Plan is submitted; if it is approved and followed, debts are discharged.

    Advantages: Debtor continues in business. Creditors can accept the plan, or it can be "crammed down" on them. The plan allows for the reorganization and liquidation of debts over the plan period.
  15. Chapter 12 & 13 bankruptcy
    Purpose: Adjustment

    Who can Petition: Debtor (voluntary) only.

    • Who can be a Debtor:
    • Chapter 12- Any family farmer (one whose gross income is at least 50% farm dependent and whose debts are at least 50% farm related) or family fishermen (one whose gross income is at least 50% dependent of ccommercial fishing operations and whose debts are at least 80% related to commercial fishing) or any partnership or closely held corporation at least 50% owned by a family farmer or fisherman when total debt does not exceed a specified amount ($3,792,650 for farmers and $1,757,475 for fishermen).

    Chapter 13-Any individual (not partnerships or corporations) with regular income who owes fixed (liquidated) unsecured debts of less than $360,475 or fixed secured debts of less than $1,081,400.

    Procedure Leading to Discharge: Plan is submitted and must be approved if the value of the property to be distributed equals the amount of the claims or if the debtor turns over disposable income for a 3 year or 5 year period; if the plan is followed, debts are discharged.

    Advantages: Debtor continues in business or in possession of assets. If the plan is approved, most debts are discharged after the plan period.
  16. Limited Liability
    Exists when the liability of the owners of a business is limited to the amount of their investments in the firm.
  17. Unlimited Liability
  18. Sole proprietorship
    The simplest form of business, in which the owner is the business; the owner reports business income on his or per personal income tax return and is legally responsible for all debts an obligations incurred by the business.
  19. Franchises
    Any arrangement in which the owner of a trademark, trade name, or copyright licenses another to use that trademark, trade name, or copyright, under specified conditions or limitations, in the sellg of goods and services.
  20. Distributorship
    A business arrangement that is established when a manufacturer licenses a dealer to sell its product. An example of this is an automobile dealership.
  21. Chain-style business
    A franchise that operates under a franchisor's trade name and that is identified as a member of a select group of dealers that engage in the granchisor's business. The franchisee is generally required to follow standarized or prescribed methods of operation. Examples of this would be McDonald's and most other fast food chains.
  22. Manufacturing arrangement
    a franchise that is created when the franchisor transmits to the franchisee the essential ingredients or formula to amke a particular product. The franchise then markets the product either at wholesale or at retial in accordance with the franchisor's standards. Expamples: Coca-Cola and Pepsi
  23. Partnership
    An agreement by two or more persons to carry on , as co-owners, a business for profit.
  24. General agency powers
  25. Joint & several liabilities
    in partnership law, a doctrine under which a plaintiff may sue, and collect a judgment from, one or more of the partners separately (severally, or individually) or all of the partners together (jointly). This is true even if one of the partners sued did not participate in, ratify, or know about whatever gave rise to the cause of action.
  26. Partnership dissociation
    the severance of the relationship between a partner and a partnership when the partner ceases to be associated with the carrying on of the partnership business.
  27. Fiduciary Duty
    The duty, imposed on fiduciary by virtue of his or her position, to act primarily for another's benefit.
  28. Uniform Partnership act
  29. Pass-through entity
    Any entity that does not have its income tazed at the level of that entity; expamples are partnerships, S corporations, and limited liability companies.
  30. Partnership by estoppels
    A judicially created partnership that may, at the court's discretion, be imposed for purposes of fainess. The court can prevent those who present themselves as partners (but who are not) from escaping liability if a 3rd persion relies on an alleged partnership in good faith and is harmed as a result.
  31. Buy-sell agreement
    In the context of partnerships, an express agreement made at the time of partnership formation for one or more of the parttners to buy out the other or others should the situation warrant-and thus provide for the smooth dissolution of the partnership.
  32. Limited Liability company
    A hybrid form of business enterprise that offer the limited liability of the corporation but the tax advantages of partnership.
  33. Member-managed LLC
    all of the members participate in management, and decisions are made by majority vote.
  34. Manager-managed LLC
    the members designate a group of persons to manage the firm. the management group may consist of only members, both memvers and nonmemvers, or only nonmembers.
  35. Limited Partner
    In a limited partnership, a partner who contributes capital to the partnership but has no right to participate in the management and operation of the business. The limited partner assumes no liability for partnership debts beyond the capital contributed.
  36. Limited Partnership
    A partnership consisting of one or more general partners (who manage the business and are liable to the full extent of their personal assets for debts of the partnership) and one or more limited partners (who contribute one assets and are liable only to the extent of their contribution)
  37. Limited Liability Limited Partnership
    A type of limited partnership. The difference between a limited partnership and an LLLP is thatthe liability of the general partner in an LLLP is the same as the liability of the limited partner. That is, the liability of all partners is limited to the amount of their investments in the firm.
  38. Corporation
    A legal entity formed in compliance with statutory requirements. The entity is distinct from its shareholders-owners.
  39. Holding company
    A company whose business activity is holding shares in another company.
  40. Shareholder
    One who purchases shares of a corporation's stock, thus acquiring an equity interest in the corporation.
  41. Dividends
    A distribution to corporate shareholders of corporate profits or income, disbursed in proportion to the number of shares held.
  42. Retained earnings
    The portionsof a corporation's profits that has not been paid out as dividends to shareholders.
  43. Domestic Corp
    In a given state, a corporation that does business in, and is organized under the laws of, that state.
  44. Foreign Corp
    In a given state, a corporation that does business in the state without being incorporated therein.
  45. Alien Corp
    A designation in the United States for a corporation formed in another country but doing business in the United States.
  46. Public Corp
    A corporation owned by a federal, state, or municipal government--not to be confused with a publicly held corporation.
  47. Private Corp
  48. Non profit Corp
  49. Close corp
    A corporation whose shareholders are limited to a small group of persons, often including one family members. The rights of shareholders of a closely held corporation usually are restricted regarding the transfer of shares to others.
  50. S Corp
    A close business corporation that has met certain requirements as set out by the Internal Revenue Code and thus qualifies for special income tax treatment. Essentially, an S corporation is taxed the same as a partnership, but its owners enjoy the privilege of limited liability.
  51. Piercing the corporate Veil
  52. Liability of directors
  53. Business Judgments Rule
    A rule that immunized corporate management from libility for actions that result in corporate losses or damages if the actions are undertaken in good faith and are within both the power of the corporation and the authority of management to make.
  54. Preemptive Rights
    Rights held by shareholders that entitle them to purchase newly issues shares of a corporation's stock equal in percentage to shares presently held, before the stock is offered to any outside buyers. Preemptive rights enable shareholders to maintain their proportionate ownership and boice in the corporation.
  55. Shareholders derivative suit
    A suit brought by a shareholder to enforce a corporate cause of action against a third person.
  56. Liability of shareholders
    Shareholders are not personally liable for debts, but they can lose thier investments.
Card Set
Test 3
Test 3 Legal Enviroment of Business