Business Organizations Flashcards
True or False.
A corporation is liable for actions beyond its powers.
TRUE.
A corporation is liable for actions beyond its powers (also know as “ultra vires”).
True or False.
A limited partner who permits their name to be used in the name of the partnership or in connection with the business is liable to creditors who give credit without actual knowledge that they are not a general partner.
TRUE.
Note: Limited partnership interests are considered to be securities and must be registered with the SEC unless an exemption applies.
WHAT is a type of right a corporate shareholder is entitled to?
THE approving of dissolution
i.e. Shareholders rights include: (1) approving charter amendments, (2) disposition of all or substantially all of the corporation’s assets, (3) mergers and consolidations, and (4) dissolutions
Note: Shareholders’ do not have the right to manage the corporation or its business
WHAT contacts must an LLC maintain in the state where it was formed?
(A) An agent for service of process
(B) An office
Note: These requirements are the same as for limited partnerships and corporations
WHAT is a required action for a contract between a director and a corporation to be considered a valid contract?
The director MUST disclose the interest to the independent members of the board and refrain from voting
i.e. This protects the corporation against self-dealing
NOTE: Conflicting-interest transactions are permissible in many cases
True or False.
General partners may admit additional general partners without the unanimous consent of the limited partners.
FALSE.
General partners may NOT admit additional general partners without the unanimous consent of the limited partners.
i.e. General partners may NOT do so without unanimous written consent or ratification by the limited partners
True or False.
A person may be a general and limited partner in the same partnership at the same time.
TRUE.
i.e. A person may own a limited partnership interest in the same partnership in which they are a general partner
WHAT may a limited partner provide as “capital contribution” to a Limited Partnership?
Cash, other property, or services
i.e. this results in the limited partner having an intangible personal property right
WHEN may a promoter be relieved of personal liability on contracts entered into while engaged in forming a corporation formation?
WHEN the third party, the corporation, and the promoter enter into an agreement to substitute the corporation for the promoter
True or False.
A stock split is considered a distribution from assets or capital
FALSE
A stock split is NOT considered an asset or capital distributions
HOW long is a partner liable for post-dissociation contracts?
Up to 2 years if third parties reasonably believe that they are still a partner
Note: A partner has the power, but not necessarily the right, to dissociate at any time, subject to payment of damages if the dissociation is wrongful
WHO has the right to inspect partnership books and records under the Revised Uniform Partnership Act (RUPA)?
Inactive partners
WHAT is a Partnership “At-Will?”
Partnership entered into by agreement; however the agreement was silent as to the duration of the partnership or its purposes
WHAT is considered a “necessary conditions” for a corporation to achieve a successful voluntary dissolution?
A recommendation of dissolution by the board of directors and approval by a majority of all shareholders entitled to vote
Note: Dissolution is effective when filed with the secretary of state
True or False.
Unless the partnership agreement states otherwise, profits and losses are shared in proportion to their relative capital contributions
FALSE.
Unless the partnership agreement states otherwise, profits and losses are shared equally
Note: Unless agreed otherwise, losses are also shared in the same proportion as profits
True or False.
Debt holders have an ownership interest in a corporation.
FALSE.
Common shares represent an ownership interest in the corporation; however Debt holders have NO ownership interest in a corporation (they have claims on the corporation’s assets)
WHAT is a “Respondeat superior?”
A doctrine under which a corporation is made liable for the torts of its employees, committed within the scope of their employment
i.e. Respondeat superior = Latin for “let the master answer”
Note: For this doctrine to apply, the wrongs must be committed within the scope of the agency
WHAT act would cause a court to pierce the corporate veil?
Using corporate assets for the owner’s personal purposes
True or False.
Treasury stock may be distributed as a stock dividend.
TRUE
Treasury stock may be distributed as a stock dividend
i.e. Treasury stock have the status of authorized but unissued shares that may be used for stock dividends
WHAT is the order of settlement for partnership accounts?
A. Creditors (including all partner-creditors)
B. Partners for unpaid distributions (i.e., declared but not paid)
C. Partners for the return of their contributions
D. Partners for remaining assets (i.e., undistributed profits) in the proportions in which they share distributions
WHAT is the primary tax purpose of the fictitious name statutes?
TO protect creditors
Note: It has little effect on the creation or operation of a partnership other than the imposition of a fine or other minor penalty for noncompliance
