Business Entities Flashcards
Explain cumulative voting and under what terms is it available to shareholders of a corporation.
Cumulative voting is a method for electing corporate directors (or in theory LLC managers) with the following characteristics: (i) all of the directors’ seats up for election at any given time are determined from a single slate of all candidates running for the board of directors, (ii) each share of stock is entitled to a number of votes equal to the number of board seats up for election at that time, (iii) a SH may cast all of the votes he holds for his shares for one candidate or distribute those votes among any two or more of the candidates in whatever manner he wishes (i.e. he may if he chooses cumulate his votes for a candidate), and (iv) when all the votes are counted, the candidate are ranked according to the number of votes they received and the top vote-getters, up to the number of seats to be elected, are then elected. However, cumulative voting is only available if that method is expressly provided for in the articles of incorporation because the statute provides that directors are to be elected by plurality vote with each seat voted on separately (by so called straight voting) unless the articles expressly provide for cumulative voting.
Corporate Directors
Unlike partners or LLC members/managers, a corporate director, in his capacity as a director, has no authority to act on behalf of the corporation as its mandatary or agent, and thus a director acting alone as a director does not have the authority to sign contracts on behalf of the corporation and thereby bind the corporation. Only duly authorized officers or employees have such authority, although ordinarily nothing precludes a director from also being an officer or employee in which capacity they can then sign contracts and bind the corporation as to matters within their authority.
Unlawful Dividends Issued by a Corporation
All directors who knowingly or without due care vote in favor of an unlawful dividend are jointly and severally liable to the corporation for the amount of the dividend that was paid unlawfully. Any director who is held liable for an amount of an unlawfully paid dividend may then seek to be repaid (indemnified) that amount from the shareholders who received the unlawful dividend, whether they received it knowing it was unlawful or not, for the proportionate amount of the unlawful dividend received by each shareholder.
Alienation, Lease, or Encumbrance of Immovable Property
May only be authorized by a majority vote of the members whether or not the LLC is member-managed or manager-managed.
Voting Trust
A voting trust is a trust created by one or more shareholders of a corporation into which shares of stock in the corporation are donated. The ownership of the shares (both certificates and record title) are transferred to a trustee who exercises all of the rights of a shareholder (right to vote, right to inspect the corporate books, right to petition for a special shareholders’ meeting, dissenters’ rights, preemptive rights, right to bring a derivative suit, etc.). When dividends are distributed, the trustee receives them and then distributes them to the one or more beneficial owners of the trust shares in accordance with the trust document. Thus, the legal and beneficial owners of the trust shares are separated. A voting trust entered into before Jan 1 2015 is valid for 15 years from the date of creation or for any other period stated in provision permitting the trust creator(s) by majority vote to extend the trust beyond its original term, beyond the fifteenth year up to an additional 10 years. A voting trust created after 2014 is not subject to these durational limitations. The purpose of such a voting trust is to separate the management of shares from the beneficial ownership, invariably because the trust creator(s) believe, for any reason, that the person they want to derive the benefit of the shares are not in the best position to make decisions relating to stock.
Business Records (Corporations)
-article of incorporation - bylaws - board resolutions creating or defining rights of classes of stock - three years worth of minutes of shareholders meetings - three years worth of written communications from the corporation to the shareholders - the names and addresses of the members of the board of directors - the companys most recent annual report - any unanimous governance agreements
General Partnerships
If two or more persons enter into a relationship, whether orally or in writing, to combine their efforts and/or resources in agreed-upon proportions, and to collaborated at mutual risk for common profit or commercial benefit, they have formed, intentionally or inadvertently, a general partnership.
Registered Limited Liability Partnership (RLLP)
An RLLP can only be formed by converting an existing partnership, almost invariable a general partnership, by filing an application with the Secretary of State stating the name of the RLLP, the address of its principal office, the number of partners, and a brief statement of the business of the RLLP. The application must be signed by partners holding a majority in interest in the RLLP, must accompany a registration fee, and must be refiled within 12 months of the precious filing since the registration is effective for only one year.
Right to Inspect Records of a Corporation
In order to be able to exercise the right to inspect the records of a corporation, a shareholder that has been the shareholder of record of at least 5 percent of all outstanding shares of any class of the corporation’s stock for at least 6 months must give to the corporation at least 5 days’ written notice.
General Partner/Limited Partner Liability Debts
A general partner is secondarily liable after the partnership itself for her virile share of all partnership debts, although a partner sued individually for such liability may plead discussion of the partnerships assets, meaning the partner can require the creditor to seize specifically identified partnership assets to satisfy the partnership debts before seizing the partner’s personal assets.
A limited partner generally is not personally liable for the debts of the partnership unless she allows her name to be used in the business dealings of the partnership or if she participates in the management or administration of the partnership or if she conducts business with third parties on behalf of the partnership.
Transacting Before Corporation in Existence
In the corporate context, when a corporate promoter enters into a transaction in the name of the corporation prior to its officially coming into existence, the promoter is personally liable on that contract. When the corporation does subsequently come into existence, it only becomes liable on that contract if it formally ratifies the contract or de facto ratifies it by accepting the benefit of the bargain, or if either the de facto corporation or corporation by estoppel doctrines apply.
Member-Managed LLC’s - Contracts
Partners are equal in managing the business of the LLC.
-Each one has mandatary authority to act for the company with respect to any matters in the ordinary course of the companys business except matters involving the alienation, lease, or encumbrance of the LLC’s immovables.
Members Managed LLC
A member-managed LLC is one managed directly by all of the members of the LLC (unless the articles or an operating agreement provides that one or more of the members will not act as someone with mandatary or management authority). If the articles do not provide otherwise, this is the management form that will apply. Each member is a mandatary of the LLC for all matters in the ordinary course of the LLC’s business, except for dispositions (alienation, lease, or encumbrance) of the LLC’s immovable property, and each member received one vote on matters brought before the members.
LLC Formation
In order to properly form an LLC in Louisiana, the promoter(s) must file with the Secretary of State both articles of organization and an initial report. At a minimum, the articles of organization must state (a) the name of the LLC, and (b) the purposes for which the LLC is formed. The articles must be written in English and signed by one person. The initial report shall be signed by each person who signed the articles and must contain (a) the location and municipal address, if any of the LLC’s registered office, (b) the full name and municipal address of each of the LLC’s registered agents, (c) a notarized affidavit of acknowledgment and acceptance signed by each registered agent, and (d) the names and municipal addresses of the first managers (manager-managed) or members (member-managed), if they have been identified when the articles are filed.
Manager-Managed LLC
A manager managed LLC is one managed by managers.The managers consist of one or more persons elected by the members who may be, but need not be, members. The same mandatary authority and voting power are held by the managers rather than members, except for the few decisions that require unanimous approval by members and certain important matters such as merger or an amendment to the articles or operating agreement, which require approval by a majority of the members.
Directors and Officers Duty to a Corporation
Preemptive Rights
Partner’s authority - Partnerships
Partnership - Withdrawal
Partnership in Commendam
In order to form a commendamn partnership there must be a written partnership agreement setting forth the name of the partnership, the fact that it is a commendam partnership, the name(s) of the commendam partner(s), and the contribution each commendam partner has made in order to obtain his partnership interest. This written agreement must then be filed with the Secretary of State.
Formation Requirements for Foreign LLC
Revocation of Certificate of Authority for Foreign LLC
