Business Entities Flashcards
What is required to form a partnership?
Mutual consent of the parties to a relationship that involves combining resources and efforts in determined proportions to collaborate at mutual risk for their entire common profit or benefit.
What is proper consideration for entering into a partnership?
Proper contribution includes monetary, property, or a promise of monetary contribution which is then enforceable by the partnership.
How can you withdraw from a fixed term partnership?
Neither party is allowed to withdraw from the partnership without the consent of the other partner unless one of the other partners has failed to perform a material obligation.
Can a partner assign their partnership interest?
Yes. A partner may assign or share their partnership interest with a third party non-partner but that does not make the third party a partner without unanimous consent of the other partners.
What type of duties does a partner owe?
A partner owes a duty of loyalty to the partnership to act in the best interest of the partnership.
A partner takes a business opportunity that would have otherwise gone to the partnership. What is the remedy?
A partner who breaches their fiduciary duty to the partnership by taking a business opportunity that rightfully belongs to the partnership must account to the partnership for any profits derived therefrom.
How do you form an LLC?
You need to file
- Articles of Organization: prepared, signed by at least one person, contain the name of the LLC and the purposes for which it was formed
- Initial Report: prepared, signed by at least one person, and filed, containing the location and municipal address of the LLC’s registered office, the full name and municipal address of each of the LLC’s registered agents, a notarized affidavit of acknowledgement and acceptance by each registered agent, and the names of the municipal addresses of the person (member or managers), vested with power to manage the LLC
Can a creditor collect from a promise to contribute to an LLC.
Assuming a third-party creditor cannot recover the assets of the LLC, it may sue to enforce on a promise to contribute, provided that the promise to contribute is set forth in writing by the member making the promise.
Can you contract that members of an LLC get paid in unequal amounts?
Yes, this must be set forth in an operating agreement. All distributions must be equally paid to all the members unless a written operating agreement provides otherwise.
Can you inherit membership into an LLC?
The heir of a deceased LLC member is treated as an assignee of the dead member’s interest. However, as an assignee, the third party does not become a member of the LLC and does not participate in the management of the LLC unless and until the other members unanimously consent to the heir becoming a member.
If the members do not consent within a reasonable time, the heir is entitled to be paid by the LLC the fair market value of the interest at the time of decedent-member’s death.
Can a shareholder demand the annual meeting?
Yes. A single shareholder may demand that the corporate secretary call an annual meeting of the corporation’s shareholders if no annual meeting has been held for 18 months.
How does voting on management decisions in an LLC work?
All management decisions of an LLC are made by a majority vote of the managers (or members vested with management authority) with each member having one vote.
Voting power is one person, one vote, not by membership shares.
Decisions on which members are required to vote as members are also by majority vote. The only exception is that to admit a new member, there must be unanimous written consent of the members.
What matters require a majority vote in an LLC?
Matters requiring a majority vote of members, regardless of the type of management structure are:
-dissolution
-liquidation of assets
-mergers
-extraordinary debt incurrence
-disposal of immovable
-amending the articles of incorporation
Who has the authority to sign contracts on behalf of a partnership?
Unless a partner is expressly denied authority in the partnership agreement or by majority vote of the other partners, every partner is a mandatary of the partnership with respect to all matters in the ordinary course of the partnership’s business except the alienation, lease, or encumbrance of the partnership’s immovable property.
If a lawsuit is brought by a third party against a partner by virtue of their status as a partner, and the partner successfully defended against the suit, would the partner automatically be entitled to reimbursement from the partnership for the reasonable attorneys’ fees incurred to defend the suit?
No. There is no provision in the Civil Code partnership articles providing that a partner who successfully defends a lawsuit Brough against them for conduct undertaken on behalf of the partnership is entitled to have the partnership reimburse her for the cost of defending the suit.
It is possible that Louisiana mandate law would provide such reimbursement.
How does a partner in a partnership lose commendam status?
If they knowingly permit their name to be used in the name of the partnership or in its business dealings
if they participate in the management or administration of the partnership
or if they conduct any business with third parties on behalf of the partnership.
The partner would only be personally liable for any damages to that third party with whom he dealt provided it was reasonably believed the commended partner was a general partner.
How can you form a commend partnership?
There must be a written partnership agreement setting forth the name of the partnership, the fact that it is a commend partnership, the names of the commends partners, and the contribution (and value) of each commended partner has made in order to secure their partnership interest.
This written agreement must then be filed with the Secretary of State.
The contribution may be managerial services - but he value still must be numerical.
Under what circumstances can partners be expelled from a partnership, and by what vote?
A partnership may, by majority vote of the partners, expel a partner for jut cause.
What must be included in an LLC’s annual report?
An LLC’s annual report must include:
- the municipal address of its registered office
-the name and municipal address of its registered agent(s) and
-the name and municipal address of each of its managers (if manager-managed) or members (if member-managed)
What must stock certificates state?
-The name of the corporation and the fact act it is organized under LA law
-The name of the person to whom the stock is issued
-The number and class of shares (and the series, if any) the certificate represents
-each share certificate must be signed, either manually or in facsimile by the President or Secretary or by 2 officers designated in the bylaws or by the BOD
Why might the Secretary of State revoke a certificate of authority for a foreign limited liability company?
[Name 2 reasons]
- The LLC has failed to pay any fees, taxes, or penalties when they are due and payable
- The LLC has failed to maintain a registered office or agent in the state or maintain required records
- The LLC has failed to file a notice that its registered office or agent has changed name or address
- The LLC has failed to file any certificates to name change or amendment of its certificate of authority
- The LLC has made a material misrepresentation of in any required application, report, or otherwise required document
- The LLC has exceeded or abused the authority conferred on it
- The LLC has by its action or inaction surrendered its right to do business
- The LLC has been dissolved
- The LLC is delinquent in filing its annual report
What information should be contained on an application for authority by a foreign limited liability company?
The information that must be contained in an application for a certificate of authority is:
- the name of the LLC and its state of legal organization
-any word, abbreviation or distinguishing term that the LLC will use in LA in order to conform with LA law concerning company names
- the date of organization and period of duration of the LLC
-The address of the LLC’s registered office in the jurisdiction where it is organized, and the address of its principal place of buiness
-the address of the LLC’s principal business address, its registered office, and the name and address of its registered agent in LA
-the nature of the business that the LC proposes to transact in LA and a statement that it is empowered to transact such business under the laws in the jurisdiction in which it is organized and
-any other information necessary for the Louisiana Secretary of State to determine if the LLC is entitled to certificate of authority
Name three activities of a foreign limited liability company that are considered transacting business in Louisiana which then requires the company to obtain a certificate of authority from the Secretary of State
Three types of activities that are considered transacting business in LA are
-selling or offering to sell goods to persons in LA
-providing or offering to provide services to persons in LA
-employing persons to engage regularly in productive activities in LA
[There is no statutory provision defining what constitutes transacting business in LA, only activities that do not constitute transacting business]
What types of contributions are valid to enter into an LLC?
There are no restrictions on what can constitute a valid contribution in the LLC statute since valid contributions can be “cash, property, services rendered, or a promissory note or other binding obligation to contribute cash or property to perform services”
Does a director of a corporation, acting alone, have authority to sign a contract on behalf of the corporation and thereby bind the corporation?
No. A corporate director, acting only as a director, only has a vote when the board of directors acts. Directors, acting as directors, do not have agency authority to transact business with third parties or enter into contracts that bind the corporation. Only officers and other employees of the corporation entrusted with such agency authority may act to bind the corporation.
Under what circumstances may a shareholder inspect the books and records of the company?
To be eligible to demand an inspection of the corporation’s records, a shareholder must have been the holder of record for at least 5% of any class of the corporation’s stock for at least 6 months and give at least 5 days written notice.
Describe the business records a corporation is required to maintain at its office for inspection by the shareholders.
A corporation is required to maintain at a minimum:
-minutes of all SH and board meetings and a record of all actions taken at the meetings or then by a committee in place of a board meeting
-appropriate accounting records
-a record of the corporation’s shareholders in a form that permits preparation of a list of the names and addresses of all shareholders, in alphabetical order by class of shares showing the number and class of shares held by each
What is the minimum information that must be contained on a stock certificate? Which types of business entities are required to issue such certificates?
Stock certificates at a minimum must state:
-the name of the corporation and the fact that it is organized under LA law
-the name of the person to whom the stock is issued
-the number and class of shares and the series if any the certificate represents.
Only corporations are required to issue stock certificates. Even then, a corporation that trades on a public database is not required to issue paper stock certificates.
Under what circumstances can partners be expelled from a partnership and by what vote?
A partnership may, by majority vote of the partners, expel a partner for just cause.
Under what circumstances may the voting approval requirements for a member-managed LLC be changed?
The approval and counting requirements can be changed by the members by amending the articles of incorporation or by including an appropriate provision in a written operating agreement.
What must be included for a contract of a partnership in commendam
It must be in writing
Include a name that clearly identifies it as a partnership in commend and does not suggest that an in commendam partner is a general partner and
Describes the contribution of each in commendam partner and its value or the proposed method of distribution
The contract must be filed with the Secretary of State
What must a stock certificate contain?
The name of the issuing corporation and that it is organized under the laws of this state
The name of the person to whom it is issued
The number and class of shared and the designation f the series, if any the certificate represents.
Certificates must be signed by the President and Secretary, or by two officers designated in the bylaws or but he board of directors.
How can a COI transaction be approved?
Majority of qualified, disinterested BOD approve by vote, majority of qualified shares approves by vote, or be able to prove the fairness if the transaction is challenged
What is needed to form a LLC?
You must file
1. Articles of organization: name, purpose and whether it is low profit LLC, whether electing management
2. Initial Report
3. Affidavit of acceptance by the registered agent
4. Optional Operating Agreement
What is required to form a partnership in commendam?
In addition to the filing requirements, you must have at least one general parter who retains personal liability and is able to conduct business on behalf of the partnership.
What % of stock must one corporation own for the BOD to act on a merger without majority approval?
90%
A resolution to merge the corporation with another corporation whose stock is already 90% owned by the first corporation.
What type of acts must be approved by a majority vote of a corporation’s BOD?
Any fundamental change to the nature of the corporation
What type of vote do you need by the BOD to approve a resolution providing that the corporation will indemnify any director or officer for any liability or penalty incurred for his conduct engaged in on behalf of the corporation in good faith?
Majority vote by the BOD
What type of vote do you need for partners to terminate the partnership?
Unanimous
What type of vote do you need for LLC members to admit an heir of a deceased member’s interest as a new member
A deceased LLC member’s interest ceases and the heir is treated as an assigned. An assignee of an interest in an LLC shall not become a member unless the other members unanimously consent in writing.
What type of vote do you need for the partners to amend the partnership agreement?
Unanimous
What type of vote do you need for LLC members to merge with another LLC or corporation?
Majority Vote of members
What is required in the articles of incorporation for a corporation?
1.The name of the corporation
2. The number of shares the corporation is authorized to issue
3. the street address of the corporation’s registered office and principal office
4. the name and street address of the registered agent
5. A statement whether the corporation wants to limit liability of the BOD and officers
6. The name and address of each incorporator
What is required to create a corporation?
Articles of incorporation and affidavit of the of acceptance by the corporation’s registered agent
If the Company does not issue stock certificates, will this change the rights of the 3 shareholders?
The rights and obligations will generally be unaffected. A person may own shares without possessing a certificate for those shares.
The law entitles the SH to demand that the corporation issue the certificates.
What is the difference between straight and cumulative voting?
Straight voting is where each director’s seat is filled in a. separation election by the candidate receiving a plurality of the votes cast for the specific seat.
Cumulative voting is a method of electing directors where all director seats up for election at one time are filled in one large election with all candidates running on one ballot, where each SH of record has the right to multiply the number of votes by the number of directors to be elected. The SH can use all those votes for one candidate or distribute. The candidate receiving the most votes will fill the vacant seats.
Is straight voting or cumulative voting the default?
Straight voting is the default unless the articles of incorporation provide otherwise.
In an LLC, what requires unanimity?
Admission of new members and the compromise of a member’s contribution obligation
What is involved in an involuntary dissolution of a corporation?
You have to file a lawsuit asking for a court to find the necessary conditions to decree a dissolution.
What is the easiest and cheapest way to dissolve a corporation?
Voluntarily, you can avoid the cost and disruption of a judicial proceeding
How can a corporation voluntarily dissolve?
There must be a majority vote of the shareholder votes entitled to be cast at a special meeting called for the purpose of voting on a proposed dissolution.
Who makes the decision whether or not to distribute money from the corporation’s checking account during dissolution?
The board of directors, each director has one vote.
If the board of directors who are also the SH approves distribution of funds, what is the liability?
There could be personal liability for those dividend distributions if they violate the limitations on payments of dividends.
Distributions may not be declared when the corporation is insolvent.
The directors would seek indemnification from the shareholders who received the unlawful dividend for the amount they received.
What is the business judgment rule and who does it apply to?
The business judgment rule applies to decisions of a corporation’s board of directors and says that they will not be personally liable for their decisions unless they act in a grossly negligent manner.
Is a member of a LLC entitled to reimbursement from the company for reasonable attorney’s fees he incurs in successfully defending a lawsuit brought against him for stealing corporate secrets of a former employer?
No. There is no provision in the LLC statute that is comparable to the indemnification statute of a corporation.
The LLC is not automatically required to reimburse a member or a manager for costs associated with successfully defending a lawsuit brought against her by a third party for her conduct on behalf of the LLC or by her status as a member.
How can a member in an LLC withdraw and what does the member receive for his interest in the company?
Term: a member may withdraw only if they
-get approval of a majority of other members
-there is “just cause” because of someone else’s failure to perform
No Term:
-any time for any reason provided 30 day’s written notice is even to LLC
-immediately without prior notice upon the occurrence of an event that triggers right to withdraw.
A member who withdraws is entitled to continue to receive her share of the profits until the LLC pays the FMV of the membership interest as of the date of the withdrawal. This must be done within a reasonable time.
If a stockholder who is also a director votes against authorizing dividends rendering the company insolvent, will they have any exposure upon accepting their share of the dividend distribution?
Yes. A SH, whether or not he is a director or is liable as a director for unlawful dividend, and whether or not he is aware that it was unlawful, is liable to indemnity to any director who is held liable for the payment of an unlawful divided for the proportionate amount received by the SH.
