Business Entities Flashcards
(143 cards)
1
Q
What is required to form a partnership?
A
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.
2
Q
What is proper consideration for entering into a partnership?
A
Proper contribution includes monetary, property, or a promise of monetary contribution which is then enforceable by the partnership.
3
Q
How can you withdraw from a fixed term partnership?
A
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.
4
Q
Can a partner assign their partnership interest?
A
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.
5
Q
What type of duties does a partner owe?
A
A partner owes a duty of loyalty to the partnership to act in the best interest of the partnership.
6
Q
A partner takes a business opportunity that would have otherwise gone to the partnership. What is the remedy?
A
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.
7
Q
How do you form an LLC?
A
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
8
Q
Can a creditor collect from a promise to contribute to an LLC.
A
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.
9
Q
Can you contract that members of an LLC get paid in unequal amounts?
A
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.
10
Q
Can you inherit membership into an LLC?
A
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.
11
Q
Can a shareholder demand the annual meeting?
A
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.
12
Q
How does voting on management decisions in an LLC work?
A
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.
13
Q
What matters require a majority vote in an LLC?
A
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
14
Q
Who has the authority to sign contracts on behalf of a partnership?
A
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.
15
Q
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?
A
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.
16
Q
How does a partner in a partnership lose commendam status?
A
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.
17
Q
How can you form a commend partnership?
A
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.
18
Q
Under what circumstances can partners be expelled from a partnership, and by what vote?
A
A partnership may, by majority vote of the partners, expel a partner for jut cause.
19
Q
What must be included in an LLC’s annual report?
A
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)
20
Q
What must stock certificates state?
A
-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
21
Q
Why might the Secretary of State revoke a certificate of authority for a foreign limited liability company?
[Name 2 reasons]
A
- 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
22
Q
What information should be contained on an application for authority by a foreign limited liability company?
A
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
23
Q
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
A
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]
24
Q
What types of contributions are valid to enter into an LLC?
A
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”
25
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.
26
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.
27
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
28
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.
29
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.
30
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.
31
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
32
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.
33
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
34
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
35
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.
36
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.
37
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
38
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
39
What type of vote do you need for partners to terminate the partnership?
Unanimous
40
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.
41
What type of vote do you need for the partners to amend the partnership agreement?
Unanimous
42
What type of vote do you need for LLC members to merge with another LLC or corporation?
Majority Vote of members
43
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
44
What is required to create a corporation?
Articles of incorporation and affidavit of the of acceptance by the corporation's registered agent
45
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.
46
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.
47
Is straight voting or cumulative voting the default?
Straight voting is the default unless the articles of incorporation provide otherwise.
48
In an LLC, what requires unanimity?
Admission of new members and the compromise of a member's contribution obligation
49
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.
50
What is the easiest and cheapest way to dissolve a corporation?
Voluntarily, you can avoid the cost and disruption of a judicial proceeding
51
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.
52
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.
53
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.
54
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.
55
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.
56
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.
57
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.
58
In a four-member LLC engaged in landscape, what % of the members must vote in favor of selling lawn equipment, vehicles, and other assets? How is the voting calculated
This question presumes that selling the laws equipment would constitute a disposal of all or substantially all of the LLC's assets. Thus a majority of the members must approve.
Each member has one vote.
59
Can partners be expelled from a partnership, and, if so, under what circumstances and by what vote?
A partnership may, by majority vote of the partners, expel a partner for just cause.
60
What is a voting trust? When would it be used by shareholders?
A voting trust is created by one or more SH of a corp. into which the shares are donated.
The ownership is transferred to a trustee who exercises all of the rights of a SH.
When dividends are distributed, the trustee receives them and distributes them to one or more beneficiaries according to the trust documents.
61
Who can file a SH derivative action and under what circumstances?
Any SH who ownes at least one share of stock at the time a liability to the corporation arose (or acquired by will, inheritance or operation of law) and still owns the share at the time the lawsuit was filed.
You can bring it against anyone the corporation has a legitimate cause of action against, provided the corp. is unwilling to bring the claim itself.
62
Discuss the legal duty owed by members of an LLC to the company and its members.
Members when acting in capacity as members have no legal duty.
Members who are entrusted with management authority stand in a fiduciary relationship to the LLC when exercising management authority. They must:
-act in good faith with the diligence, care, judgment, and skill that an ordinary prudent person in a like position would exercise
-and act in a manner reasonably believed to be in the best interest of the LLC
63
When is a SH allowed to inspect the company's books and records?
A SH or SH collectively must have been the holder of record of at least 5% of any class of stock for at least 6 months.
Then, you must give the corporation 5 day's notice.
64
How can you properly reschedule a SH meeting?
Generally, the same rules for scheduling a meeting apply to rescheduling a meeting.
You may not have to give a second notice if the rescheduling happens at a meeting already convened.
65
How can SH waive the requirement of notice of annual and special meetings?
By doing so before or after the meeting, or by showing up and not objecting to lack of proper notice
66
How can a SH vote by proxy?
The proxy must be executed in writing or via electronic transmission by the SH.
An appointment is valid for 11 mo. unless a longer period is otherwise expressly provided
67
Is the appointment of a proxy revocable or irrevocable?
Generally, it is revocable.
A proxy will be irrevocable only if the appointment form conspicuously states that it is irrevocable and the appointment is coupled with an interest.
68
How do you revoke a proxy?
Revocation is accomplished in writing, by the SH presence at the meeting to vote, or by subsequent appointment of another proxy.
69
How can you withdraw for a partnership?
Term:
Unanimous consent of the other partners
-unless one partner has failed to perform a material obligation
Without a term:
a partner may withdraw at any time of their choosing, so long as you give notice
-in good faith
-at a time not unfavorable to the partnership
70
How do you create a voting trust?
One or more SH must sign a written contract stipulating the terms of the trust and then must transfer ownership of their shares to the trustee of the trust.
A copy of the trust agreement and the names and addresses of the beneficiaries must be given to the corporation.
71
What is the effect shareholder oppression?
If a corporation engages in oppression of a SH, the SH can withdraw from the corporation and require the corp. to buy all her shares for FMV.
72
How can you exercise shareholder oppression rights?
You give the corp. notice of election to withdraw which acts as an offer to sell the shares to the corporation.
The corporation has 60 days from the effective date of notice to accept and negotiate a FMV.
73
What is shareholder oppression?
A corporation engages in oppression of a SH if the corporation's distribution, compensation, governance, and other practices considered as a whole over an appropriate period of time, are plainly incompatible with genuine effort on the part of the corporation to deal fairly and in good faith with the SH.
74
What is required to reduce the number of directors?
Reducing the number requires a vote of the SH at a duly authorized meeting where a quorum is present and for which notice has been given.
75
When does an LLC's existence begin?
When the Secretary of State issues a certificate of organization.
76
Under the LCBA, how and when are the directors at a corporation elected and by what vote? How are the officers elected and by what vote?
Directors: default rule is that they are elected at each annual SH meeting by a plurality. You can alter these rules in the articles of incorporation by dividing into classes os only 1/2 or 1/3 of board is up for election at any one meeting. You can also alter voting method so that directors are voted by cumulative voting, or that a majority of votes in favor of electing are required.
Officers: not elected at a particular time or by a particular vote - they are appointed by the board. The only corporate officer required is the secretary. Corporations can have other officers in their discretion.
To the extent that a "vote" is required, it would be approval by the majority of the directors present at a duly called meeting of the board.
77
Under LCBA, with respect to an action proposed to be taken by a corporations board of directors, what in general are the qualifications a director must have to be considered a qualified director?
In general, a qualified director is one who:
-is not a party to a transaction with the corporation,
-does not have a material interest in the transaction, --does not have a material relationship with someone who does
78
What are the six circumstances where a vote of the members is required to approve an action, regardless of whether management is vested?
1. Dissolution and winding up of LLC
2. Sale, exchange, lease, mortgage, pledge, or other transfer of all or substantially all the assets in an LLC
3. The merger or consolidation of the LLC
4. The incurrence of indebtedness other than ordinary course of business
5. The alienation, lease, or encumbrance of immovables
6. An amendment to the articles of organization or operating agreement
79
What are the required votes and procedures for a corporation to voluntarily dissolve?
1. The board must propose and recommend voluntary dissolution to the SH which requires an affirmative vote of the majority of directors present
-If the board cannot make a recc. it can still proceed with proposal if they have a communication for basis of declining recommendation.
2. Board must notify each SH of the proposed meeting to consider the dissolution proposal (regardless of whether they can vote_
3. At meeting, SH must approve the proposal by a majority of votes entitled to be cast (unless articles say otherwise)
80
What legal duties do directors and officers owe to a corporation?
Fiduciary duties of:
1. Loyalty-act in the best interest of the corporation and put the interest in corporation before own interests
2. Reasonable care- discharge the duties of the position with the diligence, care, judgment, and skill which an ordinary prudent person would exercise in similar circumstances in a like position
*Director or officer will not have violated this duty unless they acted with gross negligence or worse
*officer is also a mandatary and owes duties of a mandatary
81
What are the requirements of a derivative suit?
You must make the demand on the board before filing suit
A committee of qualified directors can dismiss the suit
82
What are the characteristics of cumulative voting?
I. all directors seats up for election at a given time are determined from a single slate of all candidates running for the BOD
ii. each share of stock is entitled to a number of votes = to the number of board seats up for election at that time
iii. a SH may cast all the votes he holds for his shares for one candidate or distribute the votes among any two or more candidates in whatever manner they wish
iv. When votes are counted, candidates are ranked according to number of votes they received and top vote-getters, up to number of seats to be elected, are elected.
83
When is cumulative voting available?
When expressly provided for in articles of incorporation. Otherwise, plurality (straight) voting
84
When would a SH want cumulative voting?
If they owned a significant minority stake in the corporation. In straight voting, the SH would not be able to elect anyone under default plurality, but would be entitled to some board representation under cumulative voting
85
What minimum information must be included in a partnership agreement to establish a partnership in commendam?
The contract must be in writing and filed with the Secretary of State. It must, at a minimum, include
-name of partnership which identifies it as a commendam partnership
-names of commendam partners
-what each commendam is to contribute, and its value, in exchange for the partnership interest
The contribution cannot be managerial services or else the commendam partner loses protection from personal liability
86
What is piercing the corporate veil?
The LBCA states that SH are not personally liable for the debts of the corporation.
Piercing the corporate veil is a doctrine by which courts depart from this rule, disregard the corporate entity, and impose personal liability on SH for corporate debts.
87
What re the necessary elements to establish entitlement to piercing of the veil?
Courts use a multi-factor balancing test to determine whether UNDER THE TOTALITY OF THE CIRCUMSTANCES, whether it is appropriate to pierce the corporate veil
1. Corporation owes a debt
2. Circumstances exist that would make it fair and just to hold SH personally responsible for the debt.
Factors: failure to follow corporate formalities, commingling of funds, under-capitalization, use of corporate assets as SH personal property
88
What are the elements of forming a partnership?
1. Mutually consent to a relationship
2. That involved combining resources and efforts in determined proportions
4. To collaborate at mutual risk for common profit or benefit
89
Is a promise for future cash contribution valid to create a partnership?
Yes, they are valid and enforceable by the partnership
90
When can you leave a fixed term partnership?
Generally, neither partner can withdraw without the consent of the other partners unless one of the other partners has failed to perform a material obligation.
91
When one partner withdraws, can they assign a new business partner?
A partner may assign their partnership interest with a third party non-partner, but that does not make the third parter a partner without unanimous consent of the other partners
92
If a partnership is liable for a debt, what are the individual partners liable for?
Their virile share. If 2 partners, 50%
But, if a partner breaches their duty of loyalty to the partnership to act in the best interest of the partnership, they may be held personally liable for the full debt.
93
Can a creditor recover a promised contribution to a partnership?
Yes. A partner is liable to the partnership for any amount that they agreed to contribute, the courts have consistently held that a 3p creditor of the partnership that cannot collect from existing partnership assets may sue to enforce/collect unpaid contribution.
94
Can a creditor recover funds deposited into a partner's personal bank account?
Yes, it is a partnership asset because a partner who breaches their fiduciary duty by taking a business opportunity that rightfully belongs to he partnership must account to the partnership for any profits derived therefrom.
95
What are elements of a de facto corporation
Even though they are not a corporation because of filing issues, a business may still be treated as a corporation if
1. Good faith effort to incorporate
2. Exercised only corporate authority in binding the entity
96
When does the corporation by estoppel doctrine apply?
IF the seller relied only on the name and assets of the corporation when entering the agreement
97
When does a corporation ratify a contract created by promoters before they were established?
A corporation is a distinct juridical person that comes into being upon the effectiveness of the filing of proper incorporation documents with the Secretary of State.
Ratification can be done explicit by the board adopting a resolution agreeing to be bound by the agreement. Ratification can also be implied through conduct by accepting benefits of an agreement.
98
What are the 3 ways a corporation could be liable for a contract after it comes into existence?
1. Ratification (implied or express)
2. De facto doctrine
3. Corporation by estoppel
99
How can you ratify a contract?
Implied ratification can be through conduct, by specifically accepting the benefits of the agreement
Explicitly: Board adopting a resolution agreeing to be bound by a contract
100
What are the two duties a director owes to a corporation?
Duty of loyalty and care (gross negligence)
101
What happens when a director breaches the duty of loyalty?
They will not receive deference under the business judgment rule. The director must prove the proposed transaction is fair.
Must disclose what you know, whether you are benefiting, whether it is to companies detriment, FMV analysis
102
What records are any SH of a corporation allowed to inspect?
-Articles or restated articles of incorporation, all amendments currently in effect, notices to SH
-Bylaws or restated bylaws and all amendments in effect
-Resolutions adopted by BOD creating classes of shares, rights, preferences, limitations of shares outstanding
-Minutes of SH meetings, records of actions taken by SH without a meeting for the past 3 years
-All written communications to SH within last 3 years
-A list of names and business addresses of current directors and officers
-most recent annual report to Secretary of State
-any unanimous governance agreements
103
What may a Sh that has at least 5% for 6 months inspect?
Books, papers, accounting records, and Sh records.
To exercise the right, SH must give 5 days written notice of request, stating proper rpurpose of the inspection
104
A partner does not contribute their promised funds within promised time. Lack of funds caused partnership to breach construction contract with a developer. Can one partner form their own company to take over contract?
Withdraw
Because of the duty of loyalty, partner must first withdraw from partnership. If no term, must withdraw in writing and in good faith at a time not unfavorable to partnership.
Once no longer a partner, may set up competition business. However, cannot violate fiduciary duties to the partnership incurred while in partnership. Seeing an opportunity would constitute breach of duty of loyalty. However, if partner can argue that the partnership would be unable to exploit the opportunity, they can argue that the opportunity ceased for the partnership.
105
What does an assignment of rights grant?
An assignee is entitled to receive distributions that the assignor would have been entitled to, but it is not granted other rights like the right to inspect books, authority to bind company, or participate in voting.
106
What are the requirements of purchasing an assignee's rights if they inherited them?
1. Reasonable time
2. FMV, calculated at time of decedent's death
107
If 3 people form a corp. and they are all directors and SH, do any of them acting alone have authority to sign contracts on behalf of the corporation and thereby bind the corporation?
No. Neither the SH nor directors acting alone have authority to sign contracts on behalf of the corporation.
The board of directors, acting collectively, may manage the affairs of the corporation.
SH can elect a board of only one director.
Directors then point individuals to act as mandatories on behalf of the company, those individuals have authority to sign contracts.
108
Under what circumstances may a person be expelled as a SH from their corporation?
No mechanism to expel SH.
109
An annual meeting has not been held for 18 months, who can call the meeting?
Any of the SH can individually demand that the corporate secretary call the meeting.
110
What are the differences between forming a member-managed LLC and a manager-managed LLC?
Default rule is member-managed
Under member-managed
-every member is mandatary
-majority of members determine LLC action
Manager-managed
-state in articles of incorporation
-authority to bind is vested in managers
-managers may, but do not need to be, members
111
What are some factors that influence whether the LLC should be member or manager managed
1. Do all the members which to be involved in the management of the affairs of the business?
2. Do all the members want every other member capable of binding an entity?
112
Does a partner have individual ability to lease, alienate, or encumber the immovable property of the partnership?
Not with regular mandatary authority. Even if it is in the regular course of business.
113
What activities may a partner in commendam perform without impacting their liability?
Consulting with and advising partnership on business matters
Acting as surety
Approving or disapproving amendments to the agreement
Voting on important matters like alienation of substantial assets
Changing the nature of the business partnership
Admitting or expelling members
114
What must you show in a shareholder oppression action?
1. Corporation's distributions, compensation, governance, and other practices
2. considered as a whole over an appropriate period of time,
3. are plainly incompatible with a genuine effort on the part of the corporation to
-deal fairly
-in good faith with the shareholder
115
As a general rule, isolated instances of disloyalty or lack of governance attention do not lead to a finding of ________________.
Shareholder oppression
116
What is required to bring a derivative action?
1. SH must be a SH at the time of the act or omission that gave rise to the lawsuit
2. SH must fairly and adequately represent the corp's interest in proceeding with the litigation
Demand must be made 90 days prior to following the suit, unless it can be shown that an earlier demand was reject or that irreparable injury would result
117
What are the origins of a direct or derivative suit?
Violation of a fiduciary duty
118
Who can an aggrieved SH bring an action against?
the corporation
the board of directors
an officer of the corporation
119
When can a derivative action be dismissed?
By a majority (at least 2) of the directors that have no personal interest in the dispute if they vote in good faith and after a reasonable inquiry, that the lawsuit is not in the best interest of the corporation
120
What must you prove if you're bringing a claim about a conflict of interest transaction?
1. not approved by a disinterested and qualified SH or directors
2. Corporation was harmed by the act and that the harm was proximately caused by the officer's conduct
121
What must you prove if you're bringing a claim about a breach of the duty of care?
1. Board failed to devote sufficient attention to the ongoing overusing of affairs on a sustained basis
2. Corporation was harmed
122
Do SH have a right to withdraw from their ownership and be paid FMV?
Generally, no. Unless shareholder oppression.
123
Is notice required for an annual meeting?
Yes, notice must contain date, time, place.
Annual meeting does not require the purpose of the meeting
Special meeting requires purpose of the meeting
124
If notice is not proper, what is the effect?
The meeting and any decisions made at the meeting can be voided
125
How can shareholders waive the requirement of notice of annual and special meetings?
By showing up at the meeting and not objecting to the lack of purpose, or in writing before or after the meeting
126
When is a proxy appoinment effective?
When it s received by the inspector of elections, the secretary, or any other officer or agent authorized to tabulate votes.
If the name signed on a proxy appointment corresponds to that of a SH, the corporation is entitled to accept the vote of said proxy, provided that the corporation is acting in good faith.
127
Is appointment of a proxy usually revocable or irrevocable?
It is revocable.
A proxy will be irrevocable only if the appointment form conspicuously states that it is irrevocable and the appointment is coupled with an interest
128
When may a partner leave a partnership without a term?
Anytime provided that you give notice
-in good faith (acting in the best interest of the partnership)
-at time not unfavorable to the partnership (within a reasonable time, not immediate)
129
What can a partnership recover from a partner who breached their fiduciary duties?
Damages for harm from the entity suffered
Any profits the pattern acquired from their wrongdoing
130
Does each partner in a real estate investment general partnership have the authority to bind the partnership in borrowing money from banks for purchasing property?
No. Each partner is a mandatary of the partnership for all matters in the ordinary course of business.
One must have express authority from the principal to contract a loan or promissory note or acquire property
131
What happens when a partner properly withdraws from a partnership?
They are entitled to be immediately paid the full value of the interest in teh partnership .
If partnership continues, must be paid in money. If does not continue, will get some assets in partition.
132
What can a SH do if the board is going to vote on something they protest?
A suit seeking an injunction to prevent the board from voting on the matter.
The basis would be that the corporation is acting outside their narrow purpose stated in the articles of incorporation
133
When is a corporation acting ultra vires?
When they are acting outside the scope of their stated purpose
A court can set aside an ultra vires act if doing so is equitable
134
What is a unanimous governance agreement?
SH generally have no right to directly control the day-to-day management of the corporation. However, a SH may enter a "unanimous governance agreement" concerning the governing of the corporation, including the agreement to vest the powers that the board would ordinarily have in one or more SH.
Agreements are valid for 20 years unless otherwise provided, but will terminate if the shares become listed publicly.
135
What is the difference between express and implied authority for an agent?
Generally, a principal may confer on a mandatary authority to do whatever is appropriate under the circumstances.
A mandatary can do any acts that are either incidental or necessary for the performance of the mandate. This is implied authority.
Acts that the principal has specifically authorized the mandatary to undertake create express authority.
136
Does Louisiana law limit director's personal liability for money damages?
Yes.
Director's personal liability for money damages to the corporation or shareholders for action taken, or failure to take action is eliminated
Nevertheless, a director will be liable for
-the amount of a financial benefit received by the director to which they are not entitled
-an intentionally inflicted harm on the corporation and the SH
-unlawful corporate distributions or
-an intentional violation of criminal law
137
What is the demand requirement before a derivative action can be filed?
P must make a demand on teh corporation to take a suitable action to correct or remedy the issue at least 90 days prior to filing suit
Unless it can be shown that an earlier demand was rejected or that irreparable injury would result from waiting
138
When can a conflict of interest transaction be validated
1. the transaction was approved by a majority of the directors (but at least 2)
2. the transaction was approved by a majority of the votes entitled to be cast by shareholders without a conflicting interest in the transaction after all material facts have been disclosed to teh shareholders or
3. The transaction, judged according to circumstances at the time of commitment, was fair the the corporation
139
Can a LLC member review financial records?
Each member may inspect and copy "any LLC record" upon a reasonable request during ordinary business hours, provided that they do so at their own expense.
Additionally, the law provides that each member may obtain, upon reasonable demand, a copy of the company's federal and state income tax return for each year, as well as true and complete information regarding the state of the business and financial decisions of the LLC
140
What is the definition of shareholder opression
A corporation engages in SH oppression if the corporation's distribution, compensation, governance, and other practices, considered as a whole over an appropriate period of time are plainly incompatible with a genuine effort on the part of the corporation to deal fairly and in good faith with the SH.
141
What contracts does a single partner, acting alone, have the authority to enter into on behalf of the partnership?
Under the law of mandate, the mandanatary can act under a general authority, but there are certain acts that require express authority from the principal
-acquiring, alienating, encumbering or leasing partnership property
-making interviews donation
-accepting or renouncing succession
-contracting a loan or acknowledging or remitting a debt
-becoming a surety
-making or endorsing a promissory note
-entering into a compromise or agreeing to arbitrate
-health care decision
142
How could a partner recover litigation costs under a mandatary theory?
If the costs of defending the suit could be characterized as a loss suffered by the partner, without their fault, as mandatary of the partnership
143
For manager-managed LLC, list 4 types of decisions that require the vote of membership
1. dissolution and winding up of LLC
2. disposal or encumbrance of all or substantially all of the LLC's assets
3. Merger or consolidation
4. Incurrence of debt other than in the ordinary course of business
5. Alienation, lease, or encumbrance of any immovables
6. amendment to the articles or operating agreement
