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Charleston Law 2L > Business Organizations > Flashcards

Business Organizations Flashcards

1
Q

Business types:

Pros:
Owner in complete control
Owner gets all profits

Cons:
Owners personal finances and business finances the same

A

Sole proprietorship

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2
Q

Two types of partners in a limited partnership?

A
  1. Limited
  2. General
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3
Q

Limited partnerships:
________ partner: No involvement, no daily responsibilities, and no liability.

A

Limited partner

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4
Q

Limited partnerships:

______ partner: Oversees daily company activity and responsible for it. Full liability.

A

General Partner

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5
Q

T/F) Both limited & general partners, in a limited partnership, own part of the company.

A

True

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6
Q

This course covers 4 entity types. What are they?

A
  1. Partnership
  2. Limited Partnership
  3. Corporation
  4. LLC
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7
Q

________: An artificial legal person that can own property, owe debts, sue, and be sued.

A

Entity

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8
Q

Owners of corporation?

A

Investors/Shareholders

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9
Q

Owners of an LLC?

A

Members

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10
Q

Owners of a partnership?

A

Partners

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11
Q

_____ rule: A rule of law that requires or prohibits some act.

“A director SHALL be a natural person.”

A

Mandatory rule

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12
Q

______ rule: A rule that applies only when the K among the parties does not provide otherwise.

A

Default rules

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13
Q

________ rule: A rule of law that enables or entitles an entity to do something they could not do in its absence. “Stunts”

“Any 2 or more corporations of this state MAY merge into a single corporation.”

A

Enabling rule

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14
Q

Stunts:
1st
2nd
3rd
4th

A
  1. Form.
  2. Get investors, elect managers, buy assets
  3. Parent-subsidiary relationship
  4. Merger
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15
Q

What happens if parent entity distributes the subsidiary stock to investors?

A

Investors of entity A now own entity B directly.

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16
Q

Stock dividend, where Entity A distributes entity B stock to original investors is known as….

A

Spin off . The investors separate into owners of A and B shares.

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17
Q

When Entity A merges with Entity B, all shareholders receive entity ____ shares.

A

Entity C

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18
Q

Who votes on merger?

A

Investors of the two entities

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19
Q

After merger, entities file a certificate of _____ with the SOS.

A

Certificate of merger

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20
Q

A wants to merge. B refuses. What can A do?

A

Buy B investors shares and elect managers who want to merge.

“tender offer”

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21
Q

When Entity A makes offer to buy majority shares of Entity. B. This is a ____ offer.

A

Tender offer

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22
Q

The ________ deal: The deal by which the investors and managers associate. Contained in the statutes and fundamental documents.

A

Business deal

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23
Q

4 main issues of a business deal?

A
  1. Money
  2. Decision making
  3. Transfers
  4. Fiduciary duties
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24
Q

What is the only entity that requires 2 or more persons to form?

A

Partnership

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25
Q

T/F) The business itself is not an entity.

A

True

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26
Q

____ can own property, owe debts, enter Ks. A ____ can do none of this.

A

Entity v. Business

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27
Q

_____ owns the business that sells the food.

A

Entity

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28
Q

3 roles of individuals in an entity? “IMO”

A

Investors, Managers, Officers

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29
Q

IMO:

Who makes the entity’s decisions?

Who puts the decisions into effect?

A

Managers
Officers

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30
Q

The legal term for roles in a company is ______. The same person can participate in an entity in several _______.

A

Capacities

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31
Q

____________: This contains the fundamental documents for a corporation.

A

Articles of incorporation

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32
Q

Fundamental docs:

  1. Corporation = Articles of Incorporation
  2. LLC =
  3. LP =
A
  1. Operating agreement
  2. Certificate of LP
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33
Q

Fundamental doc for LLC?

A

Operating agreement

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34
Q

Fundamental doc for LP?

A

Certificate of LP

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35
Q

Shares of stock enable shareholders to vote on what?

A

Election of directors [managers]

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36
Q

Fundamental docs for partnership?

A

Partnership agreement

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37
Q

______ _____ doctrine: Is a conflict of laws rule that provides that the law of the formation state applies.

A

Internal affairs doctrine

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38
Q

_____ ordering: The default rule is that a corporation is governed by a Board of Directors. But, may be governed by anyone or anything it chooses.

A

Private ordering

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39
Q

_________ companies: are entities whose debt or equity securities are publicly traded on stock exchanges or other public platforms. Public companies are usually corporate groups.

A

Public companies

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40
Q

Formation:

Where does an entity start?

A

File articles of corporation [corp], or operating agreement [LLC] or Certificate of LP [LP] or Partnership agreement [P]

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41
Q

__________ : The persons who formally initiate a corporation.

A

Incorporators

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42
Q

Articles of Incorporation typically name directors. What if it does not?

A

Incorporators may select them.

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43
Q

Roles of directors /managers in a corporation?

A
  1. Issue stock for investments
  2. Adopt bylaws
  3. Hire officers [employees]
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44
Q

Case name?
“A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law.”

A

Dartmouth v. Woodward

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45
Q

T/F) Sole Proprietorship does not met the definition of an entity. If T, why?

A

True. The single owner is not distinguishable from the business. Pass through tax/liability to the owner.

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46
Q

T/F) SP is pass through. Meaning, taxes & profits reported on personal income of the single owner.

A

True

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47
Q

T/F) In a partnership, not all persons wear equal ownership hats.

A

True. You have LP and GPs.

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48
Q

T/F) Both SP and Partnerships are pass through.

A

True, so is an LLC.

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49
Q

Difference between LP and GP in a partnership?

A

GP puts it all on the line. [You must have one of each] GP has unlimited liability and oversees daily operations of the company.

50
Q

While LPs have limited liability, they have full control, like a GP, of the company. [T/F]

A

False. Limited liability = limited control.

51
Q

Corporations are proper for those pursuing a “_______” model. They are meant to grow, get big.

A

Growth model

52
Q

T/F) Some owners in a corporation benefit from Limited liability.

A

False. All owners benefit.

53
Q

Who are the owners of a corporation?

A

Shareholders/Investors

54
Q

LLCs default tax structure?

A

Pass through

55
Q

LLCs: Do the owners have limited liability?

A

Yes, it is in the name.

56
Q

T/F) Entities may choose their own terminology.

A

True

57
Q

________ are contract rights entitling investors to participate in entities decision making in specified ways, receive dividends, etc.

A

Shares

58
Q

___________ doctrine: Is a conflict of laws rule that the formation state applies to entity internal affairs. [States choose where they form]

A

Internal affairs doctrine

59
Q

Entity law = _____ law

A

State law

60
Q

T/F) SP does not met definition of entity.

A

True

61
Q

Owners of LLC called?

A

Members

62
Q

__________: Termination of an entity’s existence.

A

Dissolution

63
Q

Under the default rules, how may a partner dissolve a partnership?

A

Giving notice to the partnership

64
Q

___________: Is a process in which a dissolved entity sells its assets, pays its debts, and distributes proceeds to investors.

A

Winding up

65
Q

________ : The process by which an Entity can acquire another by buying the majority shares.

A

Acquisition

66
Q

The agreement of co-owners in the “fundamental documents” is also known as what?

A

The Business Deal

67
Q

What if co-owners don’t have Business deal / fundamental documents?

A

Default rules apply

68
Q

Business deal addresses 4 issues.

A
  1. Decision making
  2. Fiduciary duties
  3. Transferability of investor shares
  4. Resources investors contribute and receive
69
Q

Voting:
Alice 60 shares [Vote A]
Bob has 20 shares [Vote B]
Joe has 30 shares [Vote B]

Who wins by person? Assume Bob and Joe vote together.
Who wins by share?

A

Person = Bob and Joe
Shares = Alice

70
Q

Example of an enabling rule?

A

Mergers

71
Q

How does a company get shareholders?

A

Selling shares / receiving investments

72
Q

Who elects the managers of a company?

A

Investors / Shareholders

73
Q

Entity finances:
Investors make ___ ____ as equity into the company.

A

Capital contributions

74
Q

When investors make their CCs, they can receive what?

A

Shares
Interests [percent]
or Units

75
Q

T/F) Debt has absolute priority over equity.

A

True

76
Q

Entity owes 80 debt and has 100 for distribution. Where does it go?

A

80 > Debt
20 > Equity

77
Q

Preferred vs commons shares. Which has preference?

A

Preferred, it is in the name.

78
Q

Two preference share types?

A
  1. Annual: Specified dividend each yr.
  2. On Dissolution: First payout on dissolution.
79
Q

Joe can give 70 shares to 3 candidates of his choice. Cannot stack his shares though.

What voting system?

A

Straight voting

80
Q

Joe can add up his 3 votes of 70 into one big vote.

What voting system?

A

Cumalative voting

81
Q

What tells us if an investor can sell / transfer their shares to another?

A

Fundamental documents

82
Q

Managers have important fiduciary duties to the Entity and managers. What are they?

A
  1. Duty of loyalty,
  2. Duty of care, and
  3. Good faith
83
Q

_____ relationship: Legal arrangement where one person [principal] authorizes another person [agent] to act on their behalf.

A

Agency relationship

84
Q

T/F) Whether parties label the relationship “agency” is not controlling.

A

True

85
Q

3 types of agent authority?

A
  1. Actual
  2. Apparent
  3. Inherent
86
Q

______ authority is the authority principal confers on agent. May be express or implied. Actions are binding & have legal consequences for the principal.

A

Actual authority

87
Q

_________ authority: is authority agent purported to have b/c agent appears to 3rd party to have it. Assessed from 3rd party POV.

A

Apparent authority

88
Q

T/F) Apparent authority needs to be shown by the principal, not the agent.

A

True

89
Q

______ authority is the authority to do acts that usually accompany or are incidental to transactions agent is authorized to conduct.

IE: Law School Dean has ____ authority to do incidental things such as negotiating terms on faculty hiring.

A

Inherent authority

90
Q

When agent acts on behalf of principal w/o authority but later, the principal affirms the act, ______ occurs. Is now binding.

A

Ratification

91
Q

3 types of principals?

A
  1. Disclosed
  2. Undisclosed
  3. Unidentified
92
Q

____ principal: One whose existence and identity are known to 3rd party at time of transaction.

A

Disclosed principal

93
Q

_____ principal: One whose existence is not known to 3rd party at time of transaction.

A

Undisclosed principal

94
Q

____ principal: One whose existence, but not the identity, is known to 3rd party at time of transaction.

A

Unidentified principal

95
Q

A person who purports [agent] to enter K on behalf of principal, warrants the person’s authority to do so.

What does this mean?

A

If the purported principal is not bound by K, agent may be liable to 3rd party for damages. Agent beware.

96
Q

When do fiduciary duties rise between Principal and agent? IE: When does relationship start?

A

Principal manifests assent to agent and agent manifests assent to do so.

97
Q
  1. Interview at law firm. Is there a binding contract for over the phone offer?
  2. What about for DOJ?
A
  1. Maybe. If person “reasonably believes” person has authority [apparent] to make that offer then yes.
  2. No one has apparent authority to act for the US gov.
98
Q

Is SubK contracts with VP of company [Verizon] and VP backs out. Is Verizon liable? [You don’t know what the actual authority level is.]

A

Without knowing actual, it is apparent authority to K which requires that the principal must be the one to convey that level of authority on VP from SubK POV.

IE: VP can’t just say she has been vested by Principal with the app. authority to act.

99
Q

Can an agent of company just tell a subK that they have been vested with app. authority?

A

No. This must be conveyed by Principal > agent from 3rd party POV.

100
Q

_____ of authority: A person who purports to enter a contract on behalf of a principal warrants the person’s authority to do so. Restatement (Third) of Agency §6.10. If the purported principal is not bound by the contract and does not ratify it, the agent is liable to the third party for damages, including loss of the benefits expected from the contract.

A

Warrant of authority

101
Q

Under what theory can you sue Principal if the agent of Principal makes a deal, then disappears leaving 3rd party in shit? [3rd party is unaware of Principal existence]

A

Undisclosed Principal Theory

102
Q

2 times agent is liable to 3rd party?

A
  1. Unidentified Principal
  2. Breach of warranty [SL]
103
Q

Agent fiduciary duties?

A
  1. No secret income
  2. No competing
  3. Don’t help competition
  4. Loyalty / Confidentiality
104
Q

Principal fiduciary duties

A
  1. Indemnify for loss [compensate]
  2. Deal w/ agent in GF
105
Q

Generally, who has “managerial” capacities in an entity?

A

Directors, Officers

106
Q

Who has authority to act for a Corporation? What type of rule is this?

A

BODs. Mandatory.

107
Q

T/F) Individual members of a board have no authority, the authority rests with the Bd acting together.

A

True

108
Q

Can board members wear multiple hats? IE: Director + employee of corp.

A

Yup.

109
Q

T/F) General rule for board members is that they can take action without formal meeting.

A

False.

110
Q

T/F) If not a legal board meeting, then the corporation may still be bound depending on specific circumstances.

A

False, must be a legal board meeting.

111
Q

Can the Board authority be delegated?

A

Only if noted in the articles of incorporation. [Fundamental documents]

112
Q

3 ways Bd can delegate decision making authority? [Meta Bd > CEO Mark]

A
  1. Bylaws
  2. Resolution
  3. Articles of Incorporation
113
Q

If you see “CEO” in a hypo, what argument should you make, authority wise?

A
  1. Apparent authority binds the corporation.
  2. See if authority has been delegated from Bd > CEO.
114
Q

T/F) Only some partners can bind a partnership as an agent.

A

False. All partners.
Partner = BINDING

115
Q

In a limited partnership, who are the binding agents?

A

GPs only

116
Q

2 types of “managed” LLCs?

A
  1. Member managed
  2. Manager managed
117
Q

How do members of LLC bind the LLC?

A

Making decisions as a group. Individually, default entity laws for LLC say one member is not an agent soley be reason of being member.

118
Q

T/F) Default entity laws for LLC say one member is not an agent only because of them being member. Exceptions if true?

A
  1. True. Group of members must make decisions together to bind the LLC. [Default rule]
  2. Single manager of manager managed LLC has actual authority to bind.
119
Q

T/F) In contrast to the default rule, a single manager of “Manager-managed” LLC can bind the LLC.

A

True.

120
Q
A

Charleston Law 2L (27 decks)

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