Business Association Cards

Question 1

General Partnership

Answer 1

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.

Question 2

Limited Partnership

Answer 2

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.

Question 3

Limited Liability Parntership

Answer 3

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.

Question 4

Limited Liability Company

Answer 4

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.

Question 5

Corporation

Answer 5

Is formed when its articles of incorporation are filed with the secretary of state, stating the corporations purpose.

Question 6

De Jure Corporation

Answer 6

Comes into existence only when the secretary accepts the articles.

Question 7

De Facto Corporation

Answer 7

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.

Question 8

Employee

Answer 8

Is a person who works for the company that does not share profits, and works under the management and direction of partners/directors.

Question 9

Partners

Answer 9

Partners run and manage a business and share profits.

Question 10

Members

Answer 10

Belong to the LLC and are protected under the LLC.

Question 11

Shareholders

Answer 11

Are people who own stock or equity in a corporation. Generally not liable to the corporations creditors, beyond the amount of their capital contributions.

Question 12

Actual Authority

Answer 12

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.

Question 13

Apparent Authority

Answer 13

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.

Question 14

Piercing the Corporate Veil

Answer 14

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.

Question 15

Alter Ego

Answer 15

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.

Question 16

Fraud

Answer 16

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.

Question 17

Undercapitalization

Answer 17

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.

Question 18

Duty of Care

Answer 18

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.

Question 19

Business Judgement Rule

Answer 19

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.

Question 20

Duty of Loyalty

Answer 20

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.

Question 21

Derivative Action

Answer 21

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.

Question 22

Bankruptcy

Answer 22

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.

Question 23

Formalities

Question 24

Duty to Shareholders

Answer 24

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.

Question 25

Par Value

Answer 25

Sets the minimum price for which stock may be issued. Shares cannot be issued for less than that minimum price. If a share is distributed below par value it is considered “watered” and the shareholder who knowingly accepts the watered stock may be liable. The board will be liable to the corp by the difference between the the par and issues value.

Question 26

Shareholder Votes

Answer 26

Certain major events in a corporation must be put to a shareholder vote. These include a merger or an acquisition of substantially al of the corporation’s assets. Appropriate notice must be given to shareholders, informing them of the terms of the transaction and date to vote.

Question 27

Tort Liability

Answer 27

Generally, persons are liable for their own negligent conduct. While employers can be vicariously liable for an employee’s tortious conduct, this liability is in addition to the employee’s liability. However, if an employee was acting within the scope of their employment, to further the goals of the business, they could seek indemnification from the business.

Question 28

Corporate Vicarious Liability

Answer 28

A corporation/partnership/principal can be vicariously liable for the tortious conduct of its agents if those agents act in furtherance of the principal, under the principal’s control, and with the principal’s express, implied, or apparent authority.

Question 29

Corporate Debt

Answer 29

Generally, a corp and partnership are liabel for the debts incurred during the normal course of business.

Question 30

Corporation by Estoppel

Answer 30

Parties who acted as if there were a corporation are estopped from denying the corp’s
existence and cannot avoid liability in K (N/A to tort victims).

Question 31

Shareholder Agreement

Answer 31

Is an agreement whereby shareholders agree to combine their votes for voting matters related to their rights as shareholders. The agreement is less formal than a voting trust and requires simply that the shareholders agree to the course of action. Voting trust requires notice to Secretary of the Corp, Shareholder agreement does not.

Question 32

Proxy

Answer 32

Is an agreement between shareholders to have one vote on their behalf. The corp. must be notified and a proxy is valid for 11 months, unless otherwise agreed. An irrevocable proxy requires that the proxy be labeled irrevocable and must be coupled with an interest.

Question 33

Controlling Shareholders

Answer 33

Have fiduciary duties to other