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Critical Bar Rules > Business Associations > Flashcards

Business Associations Flashcards

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1
Q

Corporation

A

is a legal entity that exists separate from its owners thus shielding its owners and managers from personal liability for the actions of the corporation

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2
Q

Formation - de jure

A 
meets all mandatory req's , signed, and filed articles of incorporation with sec of state.  including
authorized number of shares
purpose of corp (any lawful)
agent's name  and address
incorporators' name and address
name of corporation
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3
Q

de facto

A

actual use of corp power and good faith attempt at incorporation
treat corp as ltd liability

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4
Q

by estoppel

A

if you treat a business entity as a corp, then may be estopped form denying corp status. K only

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5
Q

piercing the corp veil

A

generally SH not personally liable for corp liabilities unless SH treat corp as alter ego (corp formalities ignored, funds comminged) or undercapitalized (monetary investment insufficient to cover foreseeable liabilities). also fraud, estoppel (SH personally represents) If pierced, the SH are joint and personally liable

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6
Q

Corporate Powers

u a i

A

ultra vires acts - acts outside business purpose. generally enforceable.
acquire debt - may borrow funds from outside of corporation
issue stock

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7
Q

Stock

A

a contract where a subscriber makes a written promise agreeing to buy a specified number of shares of stock. pre-incorporation agreement is irrevocable for 6 months and must be accepted by the corp
Stock is equity security that gives ownership an interest in the corporation
articles of incorp authorize number, and consideration is required

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8
Q

Pre-Incorporation Actions by Promoter

A

a person acting on behalf of the corporation that is not yet formed. Raises capital and signs contracts for land, etc.
Liability - personally liable unless clear intent otherwise or a novation. right or reimbursement under quasi - K
corp. can be liable if expressly accepts or benefits from K
Duties - has fiduciary duty, can not make secret profit

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9
Q

Corp. Management, directors, officers

A

Corp structure:
director, (at least one)
articles of incorp filed with state - govern corp
bylaws - management provisions
election of B.O,D - by SH
officers appointed by BOD - carry out ops
Officer auth - can act based on agency law principles
removal - dir can be removed with maj. SH vote
officer with BOD
resignation- anytime with notice

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10
Q

Actions of BOD

A

must operate as a Board to take action so actions require a majority to be present at a properly noticed meeting to be valid
quorum- maj must be present
disinterested director - does not count to quorum
dir may withdraw to break quorum
no proxy
no voting agreements

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11
Q

Duties of Directors and Officers

A

a director or officer owes a duty of care, duty of loyalty and a duty of disclosure to the corp

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12
Q

Duty of Care

A

a dir or off owes a duty to act as a reasonably prudent person would act under the circumstances
BJR- standard of care that applies to business judgments and provides the presumption that the dir or off will manage the corporation in good faith and in the best interests of the corporation. Violated when conduct is unreasonable

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13
Q

Duty of Loyalty

A

A dir or off must put the interests of the corporation above his own interests and arises three ways
conflict of interest - self-dealing when he (or family member or own corp) enters into a contract with the corp or has a beneficial financial interest in the contract.
Presumed unfair and voidable unless :
authorized by disinterested BOd after material disclosure
approved by SH after material disclosure
its fair

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14
Q

usurping a corp opportunity

A

may not personally act on a business opportunity without first offering it to the corporation where the corporation would expect to be presented the opportunity UNLESS
good faith rejection by BOD after material disclosure of facts
can require disgorge. ALSO can’t compete unfairly

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15
Q

duty to disclose

A

dir and off have duty to disclose material info relevant to the corp to board members

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16
Q

Rts and Liabilities

A

rt to compensation, indemnification and inspection of corp’s records. No personally liability.

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17
Q

SH

r a s d l

A

rights
mtgs once year unless special
voting - rt to vote BOD and approve fundamental changes to corp structure. comes with stock ownership, common or preferred
proxy - signed writing allowing another to vote for them
quorum - maj of shares must be represented at mtg
fundamental changes require maj of all outstanding shares
inspection with proper purpose
dividends the distribution of cash property or stock the SH may receive from the company

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18
Q

agreements

A

voting trust - may place votes in trust to vote as block

voting agreement - in writing

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19
Q

SH suits

A

direct - breach of fiduciary duty
derivative suit - brought on behalf of the corp for harm done to the corp. the corporation receives the recovery and the plaintiff may be reimbursed for litigation expenses. SH bringing suit must:
own stock at time claim rose and throughout litigation
and make demand to bring suit or redress unless futile

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20
Q

SH Duty

A

generally a SH owes no duty to corporation. modernly. a controlling SH owes a fiduciary duty of care to the corp and a duty of care and loyalty to minority SH. Requires enough voting strength to have a substantial impact on the corp
looter- cannot sell to looter who knows will harm company
premium - can make if fair BUT no personal benefit for the sale of a corporate asset

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21
Q

Federal Security Laws
16(b)
10(b)5

Sarbanes-Oxley

A

16(b)
any short swing trading profits received within a 6 month period by a corp insider must be disgorged to the corp.
req’s:
listed on national exchange or 10 mil assets and 500+SH
insider - off. or dir and SH more than 10%

22
Q

10(b)5

A

disallows insider trading and provides liability for any person who employs fraud or deception in connection with the purchase or sale of securities by means of any instrumentality of interstate commerce
Fraud 6
1. intent to defraud - scienter
2. material misrep - material where there is a substantial likelihood that a reasonable investor would consider it important in making a decision. omission only if duty to disclose
3. reliance -actual reliance on the omission or misrep
4. purchase or sale of securities
5. interstate commerce - use interstate commerce, email, phone, post
6. remedy -difference between actual proceeds and what should have happened. disgorged to company

23
Q

10 (b) 5 violators 4

A

direct trading by insider which req’s
insider - off, dir, SH or holder of non-public corp info who must disclose the material non-public info or refrain from trading. that’s fraud.
tippers - information shared for an improper purpose of direct or indirect gain and that info used by another
tippee - liable only if scienter is present such that the tippee breached a fiduciary duty and the tippee knew the duty had been breached
misappropriators - anyone who obtained private corp info through other means may be in a breach of duty owed to the source

24
Q

sarbanes oxley

A

sets standards for public companies by creating a board that oversees public accounting firms that perform audits and create rules pertaining to corp financial reporting
audit board established
senior exec’s must take personal responsibility for financial reports. if the report is wrong must return any compensation received as a result
criminal penalties for destroying evidence, securities fraud and whistleblowers have protection

25
Q

Fundamental Changes (6)

A

changes must be approved by maj. SH vote. BOd adopts resolution, notice given, all SH may vote.
merger- one corp acquires another. SH approval unless 90%
stock sale - one corp buys another stock
asset sale - one corp sells substantially all assets to another corp
conversion - changes corp form
amendment - change to bylaws BOD and SH approval
dissolution - vol (decide to dissolve, maj vote by dir andSH), admin (admin failures, reports, dues etc) judicial (fraud, ultra vires or defective corp or suit by SH or creditors

26
Q

dissenter

A

SH who dissent from change may force corp to buy their stock if:
notice and intent to demand payment given, vote no, and demand after vote

27
Q

Agency

f d plk plt

A

an agency relationship exists when a principal authorizes an agent to act on her behalf and represent the principal in dealings with third parties

28
Q

formation

A

agreement between both parties that the agent’s conduct must be for the principal’s benefit and the principal has the right to control. independent contractor is different because can not control manner and method. K formalities not necessarily needed

29
Q

duties of principal

A

principal owes the agent all duties imposed by the K, if in breach, agent can terminate the agency, seek K damages, or seek a possessory lien

30
Q

duties of agent 4

A

owes principal:

  1. duties of care - to act as RPP under similar situation, BJR applies act in good faith and best interest of principal
  2. duty of loyalty - agent must put interest of principal above own. No conflicts of interest by self-dealing, usurping principal’s business opp., or making secret profits and no commingling funds
  3. duty of obedience - follow reasonable commands
  4. duty to communicate - relevant info that would affect the principal
31
Q

remedy for breach 5

A

discharge agent
withhold compensation
seek an accounting or contract remedies incl equitable
seek tort damages
seek indemnity for agent’s wrongful actions outside of scope

32
Q

agent is personally liable for K 3

A

liable for K if:
acting with no authority
principal’s id not disclosed
principal’s existence and identity is undisclosed

33
Q

Principal liability for K’s -actual auth.

A

the agent’s actions will bind the principal if the agent was acting under the actual or apparent authority of the principal
actual authority - is specifically granted to the agent by the principal. writing only necessary if SOF applies
actual implied authority - agent reasonably believes the principal because of necessity, custom or prior dealings

34
Q

Termination of Agent Authority 6

BLO CHUnks

A

breach of fiduciary duties
lapse of stated period
operation of law - death, incap, or bankruptcy
changed circumstances- clear agent’s services are no longer needed
happening of specified event
unilateral termination by either party

35
Q

principal liability for K’s - apparent authority

A

agent’s actions will bind the principal when the principal has provided the agent with appearance of authority on which a third party reasonably relies. third party relationship
notice requirement - when actual auth. has terminated, agent has apparent auth with previously transacted third parties unless they have received actual or constructive notice
written authority - agent will have “lingering authority” where an agent’s actual authority has terminated unless rely on written authority of the agent the agent’s actual authority is not terminated. death kills all authorities
agent exceeds actual authority - principal may still be bound if agent is in a position that would normally allow the agent to take such action

36
Q

ratification

A

principal engages in conduct that approves

req’s all material facts, capacity, and accepts agent’s transactions.

37
Q

no authority

A

no liability for principal and agent is liable

38
Q

Principal Liability for Agent’s Torts

A

a principal is liable for an agent’s torts if committed within the scope of the relationship.
conduct agent was hired to perform, the tort occurred on the job and was being done to benefit principal
no liability if frolic as opposed to mere detour
intentional tort liability only if specifically authorized by the principal, natural result of nature of emplyment, motivated by desire to serve the principal

39
Q

Partnership

g ltd llp llc

A

a partnership is the association of two or more people who are carrying on as co-owners of a business for profit, whether or not there is intent to form

40
Q

formation

A

there are no formalities required to form a general partnership so a partnership is found based on the intent of the parties to carry on a business as co-owners. Intent established by:
contribution in exchange for profit - creates presumption. must include profit not just rent or payment for services
common ownership of property is an indication

41
Q

RUPA

A

Most jurisdictions provide that partners have a fiduciary, agency-like relation and therefore are bound by contracts entered into with authority by their partners and liable for torts within the scope of the partnership

42
Q

assets under RUPA

A

assumed partner asset if
titled under partnership or documents make mention of relationship
purchased with partnership funds
if separate prop and the title docs dont mention partnership it will be presumed to be separate property even if used for partnership business
untitled : will be presumed to partnership asset if purchased with partner funds, close relation between property and partnership business activities or mentioned as partnership asset

43
Q

partnership rights and duties

o t c u p i

A

ownership - property acquired by the partnership is property of the partnership itself and not of the partners individually
transferability- not a co-owner cannot transfer interest
control - each partner is entitled to control and management and receives no salary for services
use of property - partnership prop can only be used for the benefit of the partnership
profits and losses - profits and losses are shared in the same proportion as any agreement regarding profits
indemnity - a partner may be indemnified for liabilities and expenses incurred by the partner

44
Q

Fiduciary Duties

A

duty of care - must act as a RPP in similar situation. BJR applies
duty of loyalty - must put partnership’s interest above own. no conflicts of interest: self=dealing, usurpation, or secret profits, or competing with the partnership.
duty of disclosure - all material facts
duty to account - can bring actions against other partners for losses caused by breach and may disgorge a breaching partner of profits

45
Q

relations with third parties

A

partners are generally personally liable for the debts of the partnership

46
Q

Contract Liability

A

each partner is an agent of the partnership for the purpose of conducting its business. The partners authority to bind when dealing with third parties follow agency principles
actual authority - where the partner reasonably believes that he has authority to act based on the partnership agreement voted on then the partnership will be bound
apparent authority - any partner may carry out the ordinary partnership business and bind the partnership
BUT»>the partner had no authority to act and the third party actually new or received proper notice
estoppel - third party relies on representation of a partner that a general partnership exists, then it does

47
Q

tort liability

A

partners are joint and severally liable for torts committed by a partner in the scope of the partnership

48
Q

Ltd Partnership

A

a limited partnership is a partnership that has at least one general partner and at least one limited partner which creates a two-tiered system with differing rights duties and liabilities. The limited partner is only liable for his capital contributions and and is not entitled to manage or control the partnership.
REq’s
must file certificate with state
must have name containing limited partnership
names and address of agent
maintain records within an office

49
Q

rights and duties of ltd partnership

A

general partners have same duties but ltd partners have no fiduciary duties to partnership, rt to accounting and access to the books

50
Q

LLP

A

no personal responsibility but must file

owe fiduciary duties

51
Q

LLC

A

a business entity that has the limited liability of a corporation combined with the tax benefits of a partnership. not personally liable beyond personal contributions

Critical Bar Rules (12 decks)

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