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Bar Exam Study > Business Associations > Flashcards

Business Associations Flashcards

includes agency, partnerships, corporations etc

You may prefer our related Brainscape-certified flashcards:
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1
Q

Agency Definition

A

Fiduciary relationship results from manifestation of consent by one party to another that the other shall act on his behalf subject to his control

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2
Q

Requirements for Agency

A

(1) consent
(2) control
(3) principal capacity
(4) check if underlying agreement SOF

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3
Q

Duties of Agent to Principal

A

Duty of Care
Duty of Loyalty (vibe check)
Duty of Obedience

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4
Q

Agent Duty of Care

A

Carry out the agency with reasonable care - sliding scale depending on heightened skills of agent (Baseline and heightened)

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5
Q

Duties of Principal Agency

A

Not fiduciary
(1) indemnify
(2) compensate

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6
Q

Contracts: Principal liability for actions of agent

A

If actual authority, apparent authority, or ratification, then P is bound to K and agent is not UNLESS undisclosed or partially disclosed then both agent and principal are bounf

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7
Q

Actual authors definition

A

Because of P actions, agent thinks they possess this - would reasonably expect
Express: conveyed in words
Implied: A reasonably thinks this exists bc of custom or behavior (“office management”

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8
Q

Termination of actual authority

A

End upon specified time
Changed circumstances
Agent breach
Unilateral act
Death effective upon notice
Etc

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9
Q

Apparent authority definition

A

Exists when P holds another out as having authority and 3P reasonably believes the authority exists
If words or conduct would lead reasonable person in 3P then 3P protection
Can be established by title or position if title given by principal

Always starts w something P did unless acquiescence

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10
Q

Lingering apparent authority

A

Even after actual authority ends, apparent authority continues and binds P unless companies had noticr

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11
Q

Ratification (definition and requirements)

A

Even if agent had no authority when entering into K, p is bound if ratified. Implied if you accept the benefits
(1) knowledge of all material terms
(2) accept entire transaction
(3) not alter rights of intervening parties

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12
Q

Factors for Right to Control

A

Skill required (more skill then IC)
Tools and facilities (employees)
Period of employment (longer then employee)
Basic compensation (time then employee, task then IC)
Business purpose (in furtherance then employee, distinct business then IC)

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13
Q

Termination of Actual Authority

A

end on specified time or event
change of circumstances
breach
death and notice of death

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14
Q

Liability for Independent Contractors

A

only if
(1) inherently dangerous activity
(2) non delegable duty
(3) P knowingly selected an incompetent IC

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15
Q

Partnership

A

when two or more people intend to carry on as co-owners of a business for profit. subjective intent irrelevant

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16
Q

Factors to Determine whether Partnership

A

Profit Sharing (most important factor - presumption you’re a partner unless received as payment of debt as a one time deal)
Right to Control
Loss Sharing

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17
Q

Default Partnership Rules

A

equal management rights and equal voting
ordinary business decisions = majority vote by numbers’ extraordinary = unanimous
no compensation

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18
Q

Partnership Rights

A

right to share in profits and losses
losses follow profits
profits shared equally among partners by number

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19
Q

Partnership Obligations

A

partnership and contract liability same as agency
partner is agent of partnership w authority to bind

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20
Q

Liability of Partners

A

each is joint and severally liable but P needs to first exhaust partnership resources first

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21
Q

To admit a new partner

A

need a unanimous vote bc pick your partner rule and they’re not liable for partnership obligations which arose before they were a partner

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22
Q

Partnership Fiduciary Duties

A

Duty of Loyalty - no adverse positions, no competing etc.
Duty of Care - refrain from gross negligence
Duty of Disclosure - each partner shall furnish without demand any info about partnership reasonably related to exercising partnerhsip rights; disclose on demand any other inco concerning partnership unless unreasonable or improper under circumstances

cannot eliminate duties of loyalty and care but you can get rid of duty to disclsoe

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23
Q

Partnership Property IF

A

(1) in partnership name
(2) bought with partnership funds
(3) in party’s name but it’s clear from the document it’s for the partnership use/she’s acting for the partnership

BUT: not presumed partnership property if in party name, bought with own funds and no document suggests partenrship useP

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24
Q

Partnership Property RIghts

A

totally unrestricted, but partner is not part owner of the property

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25
Q

Partner Personal Ownership interest in partnership

A

partnership interest is personal property and he can freely assign financial interest, but not management interest

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26
Q

Partnership Dissassociation

A

withdraw when party bows out of partnership for any reason
dissassociation by express will/notice
expelled
death
bankruptcy of partner
court decision
terminatino business entity

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27
Q

Wrongful Dissassociation

A

occurs if partnership is in breach of express term in partnership agreement
OR
partner withdraws, expelled, becomes bankrupt before the end of a term - liable to partnership for damages

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28
Q

Two Options if Partner Dissassociates

A

(1) Dissolution of Entity (pay inside/outside creditors, then capital contributions of partners, then split losses and profits)
(2) Continues and Buyout

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29
Q

Impact on Disassociated Partner

A

still liable for any pre-disassociation obligations and remains liable/apparent authority (unless dissolution) for 2 years after disassociation unless notice (takes effect in 90 days)

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30
Q

Limited Partnership

A

at least one limited liability partner and one general partner

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31
Q

Form Limited Partnership

A

File with secretary of state
Name of entity + LP
Name/Address general partner
registered agent/office

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32
Q

Limited Partnership Management Rights

A

General Partners manage, limited partners have no management rights

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33
Q

Limited Partnership Financial Rights

A

distributed based on contribution

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34
Q

Limited Partnership Liability

A

general partners = general partnership principles
limited partners = no liability for partnership debt, but liability for own torts and debts

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35
Q

Fiduciary Duties of Limited Partnership

A

limited partners have no fiduciary duties - that only applies to people with management rights

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36
Q

Limited Liability Partnership Definition

A

all partners have limited liability - apply partnership rules except no general liability

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37
Q

Limited Liability Partnership Formation

A

(1) file w secretary of state
(2) name and address of entity + LLP
(3) deferred effective date if any

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38
Q

Limited Liability Company (LLC) definition

A

hybrid - owners have limited liability and partnership tax treatment

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39
Q

LLC Formation

A

(1) registered agent SOP
(2) name of entity + LLC
(3) address LLC office

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40
Q

Operating Agreement

A

detail operation and governance
managed by all LLC members unless otherwise agreed
majority vote for ordinary business decisions; unanimous for extraordinary

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41
Q

LLC Membership Types

A

Membership Managed (the owners all manage)
Manager Managed (owners have no management rights, give decisions to delegates)

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42
Q

LLC Liability

A

no personal liability but can lose initial investment and retain liability for own torts and debts

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43
Q

LLC Fiduciary Duties

A

BJR + Duty of Loyalty
(only for those w management powers)

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44
Q

Rights under Member Managed LLC

A

all members owe duties of care and loyalty to each other and members
Member has right to inspect and copy any record concerning LLC activity/financial record;
(1) automatically furnish info if material to exercise member rights and duties unless reasonably believe requesting member already knows
(2) must furnish other info on demand unless unreasonable or improper

45
Q

Manager-Managed Rights LLC

A

only managers owe duties of care and loyalty to LLC and members
managers same right to infor and duty to furnish info as members would in member-managed
Members have right to inspect and copy if (1) seeks for proepr purpose (2) directly related to membership interest (3) describes with particularity

46
Q

Dissolution LLC

A

(1) event of circumstance that the operating agreement states causes dissolution
(2) by consent of all members
(3) passage of 90 consecutive days during which the LLC has no members
(4) judicial dissolution (see factors)
(5) adminstrative dissolution by sec. of state for failure to submit fee or report (can apply for re-instatement)

47
Q

Judicial Dissolution of LLC

A

(1) conduct substantially unlawful
(2) controlling members acting or willing to act illegally/fraudulently
(3) not reasonably practicable to carry on company’s activities in conformity with operating agreement or certificate organization
(4) controlling members oppressive and directly harmful to member applying for dissolution

48
Q

LLC Taxes

A

pass through basis not at entity level - may pay phantom tax even if they never actually distribute the cash

49
Q

Formation of Corporation

A

(1) file w secretary of state
(2) name of entity + Corp
(3) registered agent for SOP + address
(4) name of incorporator
(5) info re authorized stock

50
Q

bylaws

A

operating maual for corporation not filed w state; if ever in conflict w articles of incorporation, the articles win

51
Q

Benefit Corp

A

formed for profit but to pursue some broader benefit - must state beneficial purpose in the articles and file an annual benefit report

52
Q

To Avoid Double Taxation as Corp + Factors

A

S - Corp
(1) fewer than 100 (all human) members
(2) US citizens or residents
(3) no stock preferences/levels
(4) not publicly traded

53
Q

De-Facto Corporation

A

(1) relevant incorporation statute - always met
(2) parties made a good faith colorable attempt to form corporation
(3) some exercise of corporate privilege
treated like a corporation unless state comes after you

54
Q

Corporation by estoppel

A

someone who treats you like a corporation is estopped from denying corporation statue (Except tort)

55
Q

Pre-Incorporation

A

Promoter - remains liable on any contracts even after corporation formed (they’re just both liable) until novation
Corporation liable on pre-incorporation K only if it adopted the contract

56
Q

Foreign Corps

A

if not properly registered then civil fine and can’t file suit there, but can defend there
not just sporadic activity or owning property there - have to register if you’re doing intrastate business

57
Q

Issuance Definition

A

when corporation sells its own stock

58
Q

Subscription Definition

A

written offers to purchase stock
Pre-incorporation - irrevocable for 6 moths (unless otherwise agreed)
Post-Incorporation - revocable until corp has accepted

59
Q

Treasury Stock

A

corporation issues stock and then reacquires it

60
Q

Watered Stock

A

up to board to put price on stock - conclusive if in good faith
recover for lower value stock - directors are liable if they knowingly authorized the issuance (!!!!!)
Whoever buys the watered stock is also liable
third party liable for watered stock if not purchased in good faith

61
Q

Pre-emptive right

A

does not exist unless expressly written
grants stock holders right to maintain % ownership interest by buying stock any time there’s a new issuance of stock with money

62
Q

Directors requirements

A

(1) adult natural person
(2) one or more
(3) initial directors named in articles or voted in at organization meeting
(4) subsequently elected by SH

63
Q

Director Removal

A

Removable for any reason (with or without cause) unless staggered board in some states, then need cause

64
Q

Board Acts by

A

(1) unanimous agreement in writing OR
(2) at a meeting satisfying quorum and voting

CANNOT agree to take action without either of these unless later ratified

individual director not an agent and cannot bind

65
Q

BOD Meetings

A

Regular meeting - no notice req
Special meeting - at least 2 days notice but no need to state purpose (failure to alert nullifies action taken at meeting unless director attends meeting and doesn’t object or later ratifies)

66
Q

BOD Meeting Voting

A

Quorum = majority of all directors (can break if people leave)
passing resolution requires majority of all those PRESENT

67
Q

BOD Committess

A

cannot issue dividend
fill board vacancy
or recommend fundamental change to SH

68
Q

Director Fiduciary Duties

A

Directors must discharge their duties in good faith and with reasonable belief that their actions are in the best interest of the corporation (Duty of Loyalty). Directors must also act with the reasonable care that a reasonable person in like circumstances would reasonably believe appropriate under the circumstances (Duty of care)

69
Q

Self-Dealing Corporations

A

any deal between the corporation and director or relative of direct is set aside unless
(1) D shows deal with fair to corp when entered
OR
(2) that interests were disclosed and ratified by a majority of disinterested members of the board OR majority disinterested SH

PLUS general showing of fairness

70
Q

Usurping Corporate Opportunity/Expectancy

A

Director cannot usurp corporate opportunity unless
(1) tells the board about it and
(2) waits for board to reject

Corporate opportunity = something corp reasonably interested in or something D found using corp time/resources

financial inability to pay is irrelevant

remedies - D sells to corp or gives profit

71
Q

Director Liable for:

A

improper distributions
improper loans
breaches of fiduciary duties

directors are presumed to consent unless (1) written - not oral - objection or (2) absent from meeting or (3) good faith reliance on info/professional presented

72
Q

Officer Indemnification

A

Category 1: cannot indemnify if D/O held liable to corporation or received improper benefit (need HOLDING)

Category 2: corp MUST D/O if they were successful in defending on the merits (not a settlement)

Category 3: corp MAY indemnify D/O if they acted in good faith with reasonable belief in corp’s best interest

73
Q

Eligibility for Indemnification Determined by

A

(1) independent legal counsel
(2) disinterested board
(3) disinterested SH

74
Q

Closely Held Corp

A

few shareholders, not traded publicly - SH can manage directly or set up different management/eliminate BOD or appt. manager

75
Q

Professional Corporation/Association (defined, requirements, and liability)

A

article must state that the purpose is this profession; directors must be licensed professionals, may employ nonprofessionals but not to perform the profession

always liable for own malpractice and torts but the shareholders are not liable for other professional’s malpractice

76
Q

Piercing the Corporate Veil Test

A

hold shareholders personally liable if
(1) shareholders have abused the privilege of incorporating
AND
(2) fairness requires

LOOK FOR: (1) alter ego - commingling of assets and failure to pay bills OR (2) underutilization (failed to invest enough to cover prospective liabilities

77
Q

Direct Suit

A

regular litigation - forcing dividends or oppression in CHC

78
Q

Derivative Suit

A

shareholder is suing to enforce corporation’s claim - if the corporation could’ve brought it (See breach of fiduciary duties)

if shareholder wins - recovered money distributed to corporation and recover cost and fees; if sue without reasonable cause and lose, liable for own attorney’s fees and everyone’s barred from trying that claim again

79
Q

How to Bring Derivative Suit

A

(1) own stock at the time of grievance and continue to hold it throughout
(2) adequate representation of corporate interest
(3) written demand on corporation unless futile (i.e. problem is with directors themselves)
(4) join corporation as D
(5) can only settle or dismiss with court approval - court may give notice/input SH

80
Q

Standard to Dismiss Derivative Suit

A

(1) independent investigation by independent directors or special litigation committee
(2) concluding suit is not in corp’s best interest

81
Q

Who Votes in SH

A

Assume each outstanding stock has a vote
(1) Record shareholder
(2) on the record date (unless reacquired by the corp or SH dies, then executor votes it)

82
Q

SH Proxy Voting

A

11 month lifespan, directed to secretary of corp
can revoke (1) in writing OR (2) by showing up and voting yourself
never irrevocable unless coupled w an interest in shares

83
Q

Voting Trust

A

10 years, written trust agreement controlling, give copy to corporation, transfer legal title to voting trustee, OG shareholders trust certificates

84
Q

Voting Agreements

A

must be signed, in writing, majority enforceable

85
Q

SH Meeting Types

A

Required Annual - can petition the court to call one if you haven’t had one in 15 months

Special - need 10-60 days notice and state special purpose (that’s all you can talk about); failure to notify nullifies meeting action (unless waiver by ratification or showing up and not objecting); can be called by board, president, or at least 10% of outstanding SH or whatever the bylaws state

86
Q

What can SH Vote on

A

electing and removing directors
fundamental corporate changes
whatever the BOD asks them to vote on

87
Q

SH Quorum requirements

A

need majority of outstanding shares (not people)
need plurality unless Fundamental corporate change

88
Q

Cumulative Voting

A

typically only CHC - doesn’t exist unless stated in articles
only for electing directors
one at large election - multiply number of shares x directors to be elected

89
Q

Straight Voting

A

separate elections for each seat selected

90
Q

Stock Transfers

A

restrictions okay as long as no absolute restraint on alienation or undue restrictions (right of first refusal doesn’t count)

91
Q

Right of First Refusal

A

offer it first to the corporation; can be enforced against the transferee if:
(1) conspicuously noted on stock certificate
OR
(2) transferee had actual knowledge of the restriction

92
Q

SH Right to Inspect

A

SH has a right to inspect corproation’s books and records on written demand

noncontroversial: 5 business days in advance and no need to state a purpose (SH meeting minutes, addresses or names or directors)

Controversial: state a proper purpose related to interest as a SH (i.e. excerpts of board meeting minutes, accounting records, record of SH)

93
Q

Distribution Limitations

A

corp cannot make any distribution if it’s insolvent or if making the distribution would render it insolvent

94
Q

Improper Distributions

A

directors are jointly and severally liable but good faith reliance defends
SH liable only if they knew it was improper when they received it

95
Q

Redemption

A

forced sale to corporation at price set in the articles

96
Q

Force a Distribution

A

need strong showing of abuse of discretion (Direct suit)

97
Q

How to Accomplish Fundamental Corporate Change

A

(1) Board votes
(2) written notice of resolution SH
(3) SH Votes (BY MAJORITY ENTITLED to vote, not majority of those voting)
(4) notice to secretary of state

98
Q

Right of Appraisal

A

dissenting SH in fundamental corporate change can force corporation to buy back stock at fair market value (if they can’t agree, then corp hires an independent appraiser)

99
Q

Which events trigger right of appraisal

A

merging/consolidating
transferring
acquired in stock exchange
conversion
NO appraisal is more than 2000 SH (so just CHC allowed)

100
Q

To perfect right of appraisal

A

(1) written notice w corp or dissent and intent to demand payment
(2) SH must abstain or vote against change
(3) make written demand to be bought out and deposit your stock
(4) corp will hire independent appraiser if can’t agree fair market value

101
Q

Amending Articles

A

(1) requires majority of shares entitled to vote
(2) if approved, deliver amended articles to sec of state
(3) no right of appraisal

102
Q

Merger/Consolidation Definitions

A

Merger: one corporation is absolved into another
Consolidation: two corporations become one new corporation

103
Q

How Merger/Consolidation

A

(1) SH approval from both corporations
(2) Short form merger - no SH approval required if 90% owned subsidiary being merged into parent
(3) deliver to secretary of state
(4) right of appraisal for any merger/consolidation even the subsidiary

104
Q

Transfer of all or substantially all assets

A

Rule: transfer at least 75% of the assets. this is a fundamental change only for the corp selling not buying

(1) BOD from both corp’s approve and tell Selling SH
(2) approval by SH by majority of entitled votes
(3) deliver articles
(4) no successor liability for assets unless “mere continuation of seller” or disguised/de facto merger
(5) right or appraisal for selling corp only

105
Q

Conversion

A

(1) BOD approval
(2) notice to SH
(3) SH approval by majority entitled to vote
(4) Deliver to secretary of state
(5) Right of Appraisal

106
Q

voluntary corporation dissolution

A

(1) board action
(2) SH approval
(3) notice of intent to dissolve w secretary state
(4) corporation exists to wind up
(5) notify creditors so they can make their claims

107
Q

Involuntary Dissolution Corproation

A

court ordered
SH can petition if: (1) abuse (2) waste of assets (3) misconduct or (4) director deadlock or failure to fill BOD vacancy

Creditor can petition if (1) corporation is insolvent AND (2) creditor has an unsatisfied judgement against them OR (3) corporation admits debt in writing

108
Q

How to Wind up for Corporate Dissolution

A

(1) written notice to known creditors and publish notice in PPB
(2) gather all assets
(3) liquidate assets (turn to cash)
(4) pay creditor (first in line)
(5) distribute remaining sums to shareholders pro rate by share unless liquidation preference

Bar Exam Study (11 decks)

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