09 Business Structure Flashcards
Define “joint venture.”
A one-shot general partnership
List the actions included under the authority of a director on the board of directors.
Borrowing money
Selling corporate stock
Hiring and firing officers
Declaring dividends
Making other distributions
Setting salaries of employees and themselves
Proposing major organic changes for shareholder approval
Define “sole proprietorship.”
A single-owner business
Define “general partnership.”
An association of two or more persons to carry on as co-owners a business for profit
Define “limited partnership.”
A partnership with at least one general partner and one limited partner
Defined “limited liability partnership (LLP).”
A partnership that protects partners from liability for other partners’ torts
Define “limited liability limited partnership (LLLP).”
A limited partnership where no partner need be generally liable
List the instances when corporate distributions are considered illicit.
If they render a corporation: Equity insolvent or Bankruptcy insolvent.
List the events that terminate a sole proprietorship.
When sole owner dies, retires, or sells the business
List the general causes for a “dissociation” of a general partnership.
Notice of a partner’s desire to dissolve
Death of a partner
Bankruptcy of a partner
Expulsion of a partner
What happens upon dissociation of a general partnership?
Either:
That partner’s interest is bought out or
The partnership is wound up.
List the categories of corporate dissolution.
- Voluntary
- Involuntary by:
a. Administratively by secretary of state
b. Judicially by courts, in:
i. Actions by attorney general
ii. Actions by shareholders
iii. Action by creditors
iv. Where judgments are unpaid
List the major protections of shareholders in an organic change.
Procedures requiring director and shareholder approval
Appraisal rights
What are the management rights of a partner in a general partnership?
The right to share equally in management
What is the condition under which general partners may use partnership property?
Only for partnership purposes
What actions are available to creditors of individual partners?
Creditors may get a judicial charging order but may not seize partnership property.
Who authorizes corporate distributions?
The board of directors, not shareholders
What is a partner’s right to payment?
A partner is generally not entitled to be paid for work for the partnership.
List the duties that partners owe each other.
Duty of loyalty
Duty of care
List the basic corporate shareholder rights.
To vote for directors
To properly inspect corporate records
To have financial priorities respected
To exercise appraisal rights
To file derivative lawsuits
To exercise preemptive rights
List the duties of directors and officers of a corporation.
Duty of attention
Duty of care
Duty of loyalty
Describe the business judgment rule.
Courts refuse to second guess decisions of directors absent a showing of bad faith or gross abuse of discretion.
True or False: The basis of general partnership authority is based on agency law.
True. It is based on agency law.
List the conditions under which a partnership may still be bound if a partner acts without authority.
Apparent authority existed or
The Partnership ratifies the act.
Under what condition is a partnership generally liable for the partners’ torts?
When torts are committed within the scope of the partners’ employment or authority
Describe the corporate pyramid.
Shareholders elect directors who set the broad policies of the firm and select officers who run the business day to day.
What entity is responsible for the business and affairs of a corporation?
The board of directors
Describe the concept of delectus personae.
General partners may veto others’ attempt to join as new partners.
For what tort liabilities are partners in a limited liability partnership responsible?
Partners are liable for torts committed by themselves or those they supervise.
Define “watered stock.”
Stock issues for less than par value or less than amount authorized by the board.
How do partners share profits and losses?
Equally (absent agreement to the contrary)
Define “corporation.”
An artificial legal entity whose owners typically enjoy limited liability.
Define “Subchapter S corporation.”
A form of corporation that eliminates double taxation if certain requirements are met
What is the most common type of corporation form?
Most corporations are Subchapter S corporations.
What is the maximum number of shareholders in a Subchapter S Corporation?
100 shareholders
List the requirements for a Subchapter S corporation.
Domestic corporation
All shareholders consent
No more than 100 shareholders
All shareholders must be individuals estates or certain exempt organizations or trusts; and
Only one class of stock
Define “limited liability company (LLC).”
A company that allows owners to gain liability-limiting advantages of corporate form while enjoying single taxation.
What formation forms do not require a formal filing?
Sole proprietorship
General partnership
List the items generally required in articles of incorporation.
Name indicating a corporate form
Number of authorized shares
Address of registered office
Name of registered agent
Names and addresses of incorporators
List the steps in organizing a corporation.
File articles of incorporation with secretary of state
Hold an organizational meeting
Draft and adopt by-laws
Obtain certificates of authority to do business
What tests should be met before corporate shares are issued?
Quality tests
Quantity tests
List the conditions under which promoters may profit in deals with a corporation.
Informed approval by majority of owners or
Informed approval by majority of board.
Who is responsible for the operation of a general partnership?
All partners have equal vote, absent agreement to contrary.
List the “extraordinary” actions that require general partnership unanimity to be approved.
Admitting a new partner
Assigning partnership property
Disposing of goodwill
Doing any act making it impossible to carry on ordinary business
List the operating forms of a limited liability corporation (LLC).
Owner managed
Manager managed
Describe the corporate triangle.
Shareholders elect directors who make broad policy and select officers who run things day to day.
What is meant by “piercing the corporate veil?”
Imposing personal liability upon shareholders under particular circumstances.
What is the rationale for “piercing the corporate veil”?
To prevent the corporate entity from being used to defeat public convenience, justify wrong, commit fraud, or protect crime.
List the reasons for piercing the corporate veil.
Commingling of funds
Diversion of corporate assets to personal use
Failure to maintain corporate formalities
Failure to adequately capitalize
How is a partner’s account balance in a partnership determined?
Contribution + Share of profits - Share of liabilities = Account balance
List the items for which partners are reimbursed.
Payments made for partnership
Liabilities incurred on behalf of partnership
Advances made beyond agreed contribution
Who is responsible for the operation of a sole proprietorship?
The sole proprietor makes all decisions.
