Business Association Cards Flashcards
General Partnership
Is the default form of partnership, where partners share profits, co-own, and manage the business together. No writing is required and it does not need to be filed with the Secretary of State.
Limited Partnership
Is formed when it is filed with the Secretary of State, signed by all general partners. It has general partners, which manage the partnership and are personally liable for the parternerships acts, and limited partners who are not liable for the partnerships acts, do not have management duties, and are only liable for contribution/investment. Must have some iteration of Limited Partnership in the name.
Limited Liability Parntership
Requires filing of a certificate of qualification executed by at least 2 partners, and must have some iteration of LLP in the name. An LLP comes into existence when that public documents is filed or on the deferred date for existence to take place, if any. All partners have limited liability.
Limited Liability Company
Is a hybrid organization. Its owners have limited liability like a corporation. However, LLCs get the pass-through tax treatment that partnerships get. Must be filed with the Secretary of State.
Corporation
Is formed when its articles of incorporation are filed with the secretary of state, stating the corporations purpose.
De Jure Corporation
Comes into existence only when the secretary accepts the articles.
De Facto Corporation
Occurs when there is a filing to the secretary of state but fails to reach, but there was a good faith attempt to comply with the formalities for forming a corporation.
Employee
Is a person who works for the company that does not share profits, and works under the management and direction of partners/directors.
Partners
Partners run and manage a business and share profits.
Members
Belong to the LLC and are protected under the LLC.
Shareholders
Are people who own stock or equity in a corporation. Generally not liable to the corporations creditors, beyond the amount of their capital contributions.
Actual Authority
Is separated into two thoughts. Express and Implied. Express is when the partnership/principal gives actual express authority through an agreement, conduct, or words expressly granting the partner/agent to conduct an act. Implied is formed when the partner/agent reasonably believes that he/she is allowed to act in a certain way based on conduct of the partnership/principal.
Apparent Authority
Is given when a third party reasonably believes that the partner/agent has authority to act on behalf of the principal/partnership. Partner must be acting in the scope of the partnership business. It does not exist if the third party had reason to know the partner did not have authority.
Piercing the Corporate Veil
Limited liability can be ignored by the courts in very particular circumstances by the courts. Requires the corporation be a closely held corp, it be necessary to prevent fraud or abuse, and it would be unfair not to do so. Occurs when there is a finding of an alter ego, fraud or undercapitalization.
Alter Ego
Occurs when the personalities of the corporation and the shareholder no longer exist. Usually arises when the shareholder treats corporate assets as their own (commingling) or fail to observe corporate formalities.
Fraud
Occurs when the shareholders have been using the corporation merely as a shield against their existing liabilities and for the sole purpose of defrauding existing creditors.
Undercapitalization
Occurs where the initial capital contributions of shareholders at the inception of the corporation were clearly insufficient to meet the corporation’s foreseeable future liabilities, taking into account the corporation’s foreseeable future revenues.
Duty of Care
Requires a director to act as a reasonable, prudent person would do in the management of his own affairs. Thei directors are not “guarontors” of their bad decisions and will generally be protected by the business judgement rule, and found not to have breached their duty of care even where they made a decision which later turns out to have been ill-advised.
Business Judgement Rule
Protects directors where their decisions have been informed, made in good faith, made in the absence of a conflict of interest, and had a reasonable basis.
Duty of Loyalty
Requires a director to act in good faith, in which he reasonably believes to be the best interests of the corproation. A director is in a conflict of interest if he has a personal interest in the transaction.
Derivative Action
Where a director breaches his duty of loyalty or his duty of care to the corporation, only the corporation has a recourse, not the shareholders individually. A shareholder may, however, take a derivative action provided that the shareholder held stock at the the time of the of the breach and continues to through the action, the shareholder can adequately represent the corps interests, and the shareholder has made a written demand to enforce claim but was denied.
Bankruptcy
Secured Creditors have priority. All unsecured creditors are treated the same, unless there has been subordination. When the veil is pierced, the court can order that any loans made by the shareholders to the corporation be subordinated to the debts of the corp to other ordinary creditors.
Formalities
Duty to Shareholders
Generally, shareholders do not owe a duty to other shareholders, however, a majority shareholder owes the duty to a minority shareholder, not to use its majority share to discriminate against the minority shareholder, and not to sell his shares to a prospective looter.
