Business Organizations Flashcards
To form a corporation, one must file…
Articles of Incorporation.
Where should articles of incorporation be filed?
State Corporation Commission
When one files with the SCC, what must they also do?
pay the registration fee
applies to all entity filings.
Articles of incorporation must include….
- The name of the corporation;
- A designation that it is a corporation;
- The number of authorized shares; and
- The registered agent and office.
To form an LLC, parties must file…
Articles of Organization
Where should one file articles of organization?
State Corporation Commission
Articles of organization must include…
- The name of the LLC;
- An indication that the entity is an LLC;
- The registered agent and office; and
- The principal office of the LLC.
Can an LLC convert into a corporation?
YES
To form a general partnership, what must one file?
NO FILING is required to form a general partnership.
How is a partnership formed?
Parties must intend and operate a business for profit as co-owners.
To form a limited partnership, what must one file?
A certificate of limited partnership.
A certificate of limited partnership must include…
- The name of the limited partnership;
- A designation that it is a limited partnership;
- The name and address of each general partner.
A general partnership may be converted into a limited partnership by…
approval of all partners and filing of a certificate of limited partnership.
In a general partnership, what kind of liability do partners have for the debts of the partnership?
unlimited personal liability
If investors choose to operate their business as a general partnership, they will each be….
jointly and severally liable for the debts of the business.
A limited partnership has two classes of owners, they are…
- Limited partners; and
- General partners
Can all partners in a limited partnership be limited partners?
No – a limited partnership must have at least one general partner and at least one limited partner.
Limited partners enjoy…
limited liability, and are typically notr liable for debts of the partnership.
Unlike limited partners, general partners have…
unlimited personal liability for the debts of the partnership.
In Virginia, can the mandatory general partner, itself, be an LLC?
YES – this can effectively limit all personal liability for business debts for the limited partnership.
In a corporation are shareholders liable for the debts of the corporation?
Generally NO.
When will a shareholder be personally liable for corporate debts?
When the corporate veil is pierced.
When piercing the corporate veil, a court can disregard the corporate entity and hold shareholders personally liable for the debts of the corporation if the shareholders….
fail to observe the separateness of the corporation (i.e., alter ego) and use the corporation to perpetuate fraud or injustice.
To maintain limited liability protection in a corporation, shareholders should…
follow corporate formalities and not engage in fraud.
As with a corporation, members of an LLC can lose limited liability protection if they…
fail to treat the LLC as a separate entity and misuse the limited liability form to perpetrade a fraud or injustice.
Owners/shareholders in a corporation are issued stocks based on…
their percentage of ownership interest in the corporation.
Directors in a corporation may issue…
dividends, generally payable in cash.
Shareholders are issued dividends based on…
the number of shares they hold.
While corporate shareholders do not bear losses directly….
the value of their shares can be affected by corporate losses.
Unless the members in an LLC agree otherwise, profits and losses are allocated according to…
the value of each member’s contributions to the company.
The default rule for profit and loss sharing in a general partnership is that…
partners share profits equally and losses follow profits.
The default rule for profit and loss sharing in a limited partnership is that…
profits and losses are allocated according to the value in each partner’s contributions to the partnership.
What do managers in a manager-managed LLC do?
They have management rights and decision-making authority over day-to-day operations.
In a manager-managed LLC, who owes fiduciary duties?
The manager
Shareholders, directors, and officers are generally not liable for the debts of a corporation or….
for contracts signed as agents of a corporation.
Under Virginia Law, anyone who purports to act on behalf of a corporation while knowing that the entity has not been incorporated is…
personally liable unless the other party also knew that there was no corporation.
Directors of a corporation owe fiduciary duties of…
care and loyalty to the corporation.
The duty of loyalty includes…
the duty not to misappropriate or usurp a corporate opportunity.
In determining whether an opportunity belongs to a corporation and should be offered to the corporation before a director takes it for herself, a court will consider factors such as….
the similarly of the opportunity to the business of the corporation and how the director learned of the opportunity.
The business judgment rule is a….
presumption that the directors manage the corporation in good faith and in the best interests of the corporation and its shareholders.
Directors will not be liable for innocent mistakes of…
business judgment.
Directors are fiduciaries who owe the corporation…
duties of care and loyalty.
While the Virginia Code allows corporations to cap liability of officers and directors in articles of incorporation, such cap does not apply to…
willful misconduct.
A knowing misappropriation of corporate funds is clear….
willful misconduct.
A director’s fiduciary duties are owed to…
the corporation, not individual shareholders.
In Virginia, a cause of action accruing from a director’s breach of fiduciary duty must be brought as a….
shareholder derivative action on behalf of the corporation.
Under Virginia’s Non-Stock Corporations Act, an action by the Board of Directors must be approved by….
a majority of the Directors in a vote taken when a quorum is present.
A conflict of interest transaction is a…
transaction with the corporation in which a director has an interest that precludes him from being a disinterested director.
A conflict of interest transaction is permissible if either:
(1) It is approved by disinterested directors or members after disclosure of material facts, or
(2) It is fair to the corporation.
The sale of substantially all assets outside of the regular course of business is a….
fundamental corporate change.
Fundamental corporate changes must be approved by…
two-thirds of all outstanding shares entitled to vote.
not just those represented in a meeting.
If a property is the only asset a corporation owns outside of the regular course of business, it will constitute a sale of…
substantially all of the corporation’s assets.
The dissociation of a partner by death from a partnership at will….
does not trigger dissolution and winding up of the partnership.
A partnership is considered at will if…
the partners do not agree to a particular term or undertaking.
If a partnership continues after a partner’s dissociation, the partnership…
must buy out the dissociated partner’s interest.
A partner’s buy-out price is the greater of the partnership’s….
(1) Liquidation value, or (2) Going concern value,
on the date of dissociation.
A partner’s dissociation does not discharge the partner’s liability for…
partnership obligations incurred before dissociation.
After a dissociated partner’s interest is bought out by the partnership, the partnership must….
indemnify the dissociated partner for all partnership obligaitons, whether incurred before or after the partner’s dissociation.
Although a dissociated partner is not generally liable for partnership obligations incurred after dissociation, the dissociated partner will be liable to….
3rd parties who transacted business with the partnership within one year of the dissociation and who reasonably believed the dissociated partner was still a partner.
A sale of all, or substantially all, of the assets of a corporation is a….
fundamental corporate change.
Under the Virginia Code, an exception exists that allows for a corporation to not follow procedural steps when effecting a sale of all or substantially of a corporation’s assets if….
all shareholders approve of the sale of assets.
Is purchasing the assets of another corporation a fundamental corporate change?
No.
Who must vote to approve a fundamental corporate change?
Shareholders
2/3 of all of the votes eligible to be cast
Directors are liable for breaches of fiduciary duties only where they…
fail to exercise their good faith business judgment when acting on behalf of the corporation.
A conflict of interest transaction will not be improper if…
the material facts are disclosed to the board and the transaction is approved by a sufficient number of distinerested directors.
Partners in a general partnership have unlimited personal liability for the debts of the partnership, whether such debts arise from…
contract or tort.
Limited liability for shareholders is not absolute, and shareholders may become liable for debts of the corporation if…
the corporate veil is pierced.
A court should peirce the corporate veil of a corporation if shareholders have used the corporation to…
- Evade a personal obligation;
- Pepetuate a fraud or crime;
- Commit an injustice; or
- Gain an unfair advantage.
In Virginia, piercing the corporate veil is a remedy which is…
extraordinary and rarely applied.
Piercing the corporate veil is justified when the unity of interest is such that…
the separate personalities of the corporation and the individual shareholder no longer exist and to adhere to that separateness would work an injustice.
A partnership is liable for the torts of a partner committed within…
the ordinary course of business.
Each partner is jointly and severally liable for the debts of a partnership, but a creditor must seek to recover first from…
the partnership, before pursuing recovery from individual partners.
In a limited liability partnership, partners (are/are not) personally liable for the debts of the business.
are not
(TRUE/FALSE): A tortfeasor is always personally liable for his own negligence.
TRUE.
(TRUE/FALSE): Malpractice is a form of negligence for which an individual partner will always be liable for his own bad act.
TRUE.
(TRUE/FALSE): The Virginia Stock Corporation Act generally applies to Virginia Professional Corporations.
TRUE.
Shareholders of Virginia Stock Corporations have broad latitude to enter into agreements concerning…
corporate governance, distrubutions, and the relationship among shareholders.
An enforceable shareholders’ agreement must be set forth in either….
the articles, bylaws, or in a written agreement signed by all the shareholders.
Corporate shareholder agreements are permitted to have the effect of….
operating a corporation like a partnership.
To obtain judicial dissolution of a corporation, Plaintiff shareholders must prove either….
- Deadlock in the management of the corporation;
- Oppressive or illegal conduct by the majority; or
- Waste of corporate assets.
To bring a shareholder derivative suit, one must….
procedurally
- Meet the standing requirement; and
- Make a written demand.
To meet the standing requirement of a shareholder derivative suit, the shareholder must have….
(1) owned stock at the time of the alleged wrongdoing; and
(2) fairly and adequately represent the interests of the corporation.
Prior to filing a shareholder derivative action, the shareholder must….
make written demand on the corporation.
After making demand, a shareholder seeking to file a derivative suit must wait until the demand is rejected or…
until 90 days pass, unless they can show irreperable harm to the corporation.
If a demand to a corporation for a derivative suit is rejected, the shareholder may file suit only if….
they allege that the demand was not properly rejected by a disinterested decision-maker.
To rebut an officer’s defense of the business judgment rule, a shareholder-plaintiff has the burden of proving that directors…
in reaching the challenged decision, breached a fiduciary duty.
How many votes is a shareholder entitled to vote?
One vote for each outstanding share of stock held, on each coporate matter submitted to a vote.
A shareholder has the right to vote, free of…
duress and intimidation from corporate management.
An employee-at-will may not be terminated for a reason which….
is in violation of public policy.
Shareholders may remove directors at…
a meeting specifically called for that purpose.
Does removal of a director need to be for cause?
NO.
What measure of votes is required to remove a director of a corporation?
A majority vote of the shareholders.
Under the Virginia Code, the court may judicially dissolve a corporation if the Plaintiff-shareholders prove that….
the controlling shareholders are engaging in oppressive conduct.
In a proceeding for judicial dissolution, the corporation or a shareholder can elect to….
purchase the shares of the shareholders seeking judicial dissolution at fair value.
Under the Virginia Nonstock Corporation Act, a member may inspect the minutes of Board meetings and obtain a list of the members, so long as….
the member acts with a proper purpose and gives notice.
Limited partners can lose their limited liability if they participate in…
control of the business, or if the other party reasonably believes the limited partner is a general partner.
HYPO: If a limited partner is put in charge, temporarily, and signs a contract with a third party who knows that he is a limited partner, will the limited partner be personally liable?
No, because the third party knew he was a limited partner.
Can limited partners pursue a derivative action against a general partner for his breach of duties?
Yes.
When a fiduciary breaches his duty, what is generally an appropriate remedy?
Disgorgement of profits
Upon dissolution of a corporation, can the Board of Directors distribute assets to shareholders prior to creditors?
No – creditors should be paid before remaining assets are distributed to shareholders.
If a corporation follows the statuatory procedure for resolving known claims against a dissolved corporation, then directors….
are not liable for distributions to shareholders.
Directors who vote or assent to a distribution that violates the statutory procedure at dissolution are….
liable to the corporation and its creditors for the amount of the improper distribution.
A corporate director is deemed to assent to an action taken at a meeting if the director…
is present and fails to either dissent or abstain.
A creditor may pursue shareholders of a dissolved corporation for…
the corporate assets improperly distributed to them.
The proper action a director may take to re-obtain improperly distributed assets from a shareholder is….
recoupment.
If a director pays a corporate debt from her own personal assets, to the extent that they are all personally liable, she will have a claim against the other directors for….
contribution.
After a corporation has filed its statement of intent to dissolve with the SCC, it must then…
- Immediately notice impending dissolution to each creditor; and
- Cease doing business, except as necessary for winding up.
Although dissociated partners can have lingering liability after their dissociation where the partnership does not dissolve and wind up, the Virginia code does not provide for such lingering liability if…
the partnership dissolves.
Although partners may not compete during the life of a partnership, they may…
prepare to compete.
