Business Associations Flashcards
Business Judgment Rule (3)
Director’s decision may not be challenged if:
(1) good faith
(2) with care that an ordinarily prudent person would exercise in a like position (informed)
(3) in a manner reasonably believed to be in the best interest of the corporation (rational basis)
Right of appraisal
SHs who dissent from fundamental corp change can force corp to purchase their shares at fair price if:
(1) file an objection to transfer before or after Sh meeting
(2) did not vote in favor of the plan
(3) send corp written demand for fair value of shares
(4) deposit shares with corp as directed.
Promoter
A person who procures commitments for capital and instrumentalities on behalf of a corporation to be formed. Personally liable unless the agreement expressly provides they won’t be bound.
Inspection rights
SHs generally have right to inspect their corporation’s books and records for a proper purpose (a purpose related to SH status).
Partnership
Association of two or more persons who are carrying on as co-owners of a business for profit
Sharing of profits
Creates a presumption that a general partnership exists
Partnership liability
Each partner is liable for (1) debts of partnership, (2) partners’ torts in scope of business, (3) partners’ authorized contracts
Dissociating partner’s liability
Liable for future partnership debts until actual notice of dissociation is given to creditors or 90 days after filing notice with state
Test for partnership property v. partner property
Whose money was used
Partner management
Absent agreement, each partner is entitled to equal control
Partner salary
Absent agreement, no salary (except for winding up expenses)
Partner profits and losses
Absent agreement, profits shared equally and losses shared like profits
Dissociation
In the absence of an agreement that sets forth events of dissolution, a general partnership dissolves upon notice of express will of any general partner to dissociate
Priority of distribution in wind up (3)
(1) creditors
(2) partner capital contributions
(3) profits
Formation of limited partnership
Must file certificate with state that includes names of all general partners
General partners
Liable for all obligations and have right of control
Limited partners
Limited liability. Traditionally could not manage, but no with RULPA, can manage
Control of LLCs
Can be member-managed or manager-managed
Formation of LLCs
File articles of organization and adopt operating agreement
Dissolution of LLC
On unanimous consent of members or as provided in operating agreement
Rights and duties of partners
Duty of loyalty, right of action for accounting
De facto corporation (3)
(1) relevant incorporation statute
(2) parties made good faith, colorable attempt to comply
(3) some exercise of corporate privileges
Duty of care
A director owes the corporation a duty of care. She must act in good faith and do what a prudent person would do with regard to her own business
Duty of loyalty
A director owes the corporation a duty of loyalty. She must act in good faith and with a reasonable belief that what she does is in the corporation’s best interest.
