Business Structure Flashcards
Business Judgement Rule
if acting in good faith, it’s assumed officers/directors will not breach fiduciary care by making poor business decisions - A breach will stem from negligent action
C Corporation
Assumed corporate statust unless S-election made
- typical form for large public companies
- Subject to double taxation
- No personal iability for shareholders
Derivative Action
Shareholder(s) sues director/officer on behalf of corporation for damages caused to the corp
Dissociation
When a partner is no longer affiliated with a partnership - remaining partners must decide whether to continue partnership within 90 days of dissociation
Notice must be provided to remove apparent authority of a dissociated partner (actual notice to existing creditors, SOC 90 filing)
- partner withdraws (voluntarily or by force) (in accordance or in violation of partnership agreement)
- partner engages in conduct interfering with partnerships ability to conduct business
- bankruptcy of partner
- death of partner
- incapacity of partner
Dissolution
The process of ending a partnership
General Partnership
association of two or more persons to carry on a for-profit business as co-owners
- partners have unlimited personal liability
- does not require formal procedures to create
- unless otherwise stated, profits are evenly shared amongst partners
Joint Venture
association of two or more persons/entities engaged in a business for a specific purpose
- each joint venturer is not necessarily an agent of other joint venturers
- death of joint venturer does not automatically dissolve joint venture
Unlimited liability
Limited liability company
business entity run primarily like a general partnership
- limited life
- all owners have limited liability (typically maintained even if partners fail to follow usual formalities in conducting business) and membership rights (rights to manage affairs, vote, etc)
- if converted from a partnership, partners retain same liaiblity they had before. new limited liability applys only to transactions after date of conversion
- unless stated otherwise in partnership agreement, most states require profits & losses be divided by % cap cont. RULLCA divides profits equally
- may be member-managed or manager-managed
- sepereate legal entity apart from owners
Limited liability partnerhsip
operates as a general partnership but partners have limited liability from actions of the other partners
- requires one general partner (unlimited liability), one limited partner (no personal liability)
- majority vote by members can create an LLP
- unless otherwise stated, profits are shared based on percentages of capital contributions
- requires state compliance to create (certificate w/ SOC)
a. name and address of partnership
b. name and address of agent
c. latest date the partnership is to dissolve
d. names of general partners (not limited) - Partnership will dissolve after the death or bankruptcy of a general partner
Limited partner
partner w/ no personal liability (in a limited partnership)
-not allowed to participate in the running of the business or they will maintain liability of a general partner
Can: (a) act as an agent (b) consult w/ and advise general partners (c) approve/disapprove partnership agreement amendments (d) vote on dissolution, loans, change in nature of business, removal of general partner (e) bring derivative lawsuit
- can be a limited and general partner at the same time
- cannot withdraw capital contribution if it impairs creditors
Partnership Agreement
rules by which the partnership is run
Revise Uniform Partnership Act will apply when partnership agreement is silent on a particular rule
must be in writing if its purpose cannot be acheived in under a year
Partnership Interest
Partners right to profits
- freely transferable (vs ownership interest which can only be transferred with consent of all partners) may be assigned to secure a loan
- considered personal property
- does not automatically transfer to estate heirs (unless stated in the partnership agreement)
S-corporation
corporation taxed like a partnership
- partners have no personal liability
- S-election must be made
- corp must have only one class of stock and less than 100 shares
- foreign ownership not allowed
Sole proprietorship
one-owner business
unlimited liability
Ultra vires
action that goes beyond the authority of a coporation
-violates the fiduciary duty of obedience
Winding up
liquidation of a partnership
Parthership
association of two or more persons to carry on a for-profit business as co-owners
- does not include passive co-ownership of property
- agreement to share profits (not gross receipts) implies partnership
Partnership Management
- Partners have a right inspect books, act as an agent of the partnership, share profits and losses and to participate equally in management
- ordinary business decision made by majority vote
- funadmental changes (admitting new partners, actions outside scope of normal business, action contrary to the partnership agreement) require unanimous vote
Partners
may be
- Silent - does not help manage but still has unlimted personal liability
- Creditors of the partnership
- have no right to salary for work (partners may agree to pay salaries though)
- Jointly and severally liable for all debts
- New partners are liabile for existing debts only to the extent of their capital contribution
- Withdrawing partners must post notice to avoid liability for subsequent debt (90 day filing with SOC)
Fiduciary Duty (partnerships)
each partner owes a fiduciary duty to other partners
- must act in best interest of others
- general partners owe fiduciary duty to limited partners, limited partners do not owe duty because they are not involved in management
Continuation Agreement
Clause in the partnerhip agreement stating partnership will continue after the dissociation of a partner
Corporation
- limited liaibility for shareholders
- ownership interest is transferrable
- continuous life (not ended by death of a shareholder)
- if a corp does not follow corporate formalities, the corporate veil can be pierced, exposing shareholders to personal liability
LLC Manager
Fiduciary duties:
- dty of loyalty and care to LLC (trustee of company property, refrain from competing with the company)
Foregin Partnership
-doing business in a state other than where incorporated
does not include: (a) defending a lawsuit (b) holding a bank account (c) using mail to solicit orders (d) collecting debts (e) using independent contractors to make sales
- may need to obtain certification from state operating in
Professional Corporation
- shares may be owend only by licensed professionals
- retain personal liability for professional acts
- limited liability for corporate debts
Close Corporation
- can operate without some of the formalities of a regular corp.
a. for corps with less than 50 shareholders
b. two-thirds of each share-class must approve “close” classification
c. all share certificates and articles must state corp is “close”
De facto corporation
corporation has been formed but has not properly under the law
- usually defective because of small error
- filing by Secretary of State of Articles of Incorporation is deemed conclusive proof of incorporation
- De jure corporation has been formed correctly
Promoters
- persons who form coporations (arrange capitalization)
- issues prospectus, promotes stock subscriptions, draws up corporate charter
- has fiduciary relationship with corporation but not an agent of the corp
- agreements made by promoter are not binding on the future corporation unelss formally adopted
- promoter may be personal liabile for agreements made
Ultra vires
Corporate action beyond the scope of the corporate powers
- state attorney general may dissolve corporation for ultra vires acts
