Business Structure CRFF MCQ Flashcards
for a corporation to dissolve,
the board of directors votes upon a resolution proposing dissolution and can be approved by a majority of a quorum
All shareholders must be notified of the resolution to dissolve.
Section 10.05 of the Model Business Corporation Act: corporation’s board of directors may adopt amendments to the corporation’s articles of incorporation without shareholder approval if
(4) only one class of shares outstanding: (a) to change each issued and unissued authorized share of the class into a greater number of whole shares of that class; or (b) to increase the number of authorized shares of the class to the extent necessary to permit the issuance of shares as a share dividend;
(5) to change the corporate name by substituting the word “corporation,” “incorporated,” company,” “limited,” or the abbreviation “corp.,” “inc.,” “co.,” or “ltd.,” for a similar word or abbreviation in the name, or by adding, deleting, or changing a geographical attribution for the name.
Model Business Corporation Act:
The articles of incorporation must authorize:
(1) one or more classes or series of shares that together have unlimited voting rights, and
(2) one or more classes or series of shares (which may be the same class or classes as those with voting rights) that together are entitled to receive the net assets of the corporation upon dissolution.
MAY authorize one or more classes or series of shares that have special, conditional, or limited voting rights, or no right to vote
Articles of Incorporation must include
the name of the corporation,
the name and address of a person or entity who is authorized to accept service of process and official notices on behalf of the corporation (registered agent) and
names of the incorporators.
Articles of Incorporation MAY include names of the initial directors, the purpose of the corporation, par value of stock and more.
Business Judgment rule,
officers and directors will not be liable for acts which involve their business judgment as long as they acted in good faith and were not grossly negligent
Model Business Corporation Act permits the authorization of stocks with varying degrees of
dividend rights,
voting rights, and
rights to assets on dissolution
A shareholder of the corporation does not have
a vested property right resulting from any provision in the articles of incorporation,
including provisions relating to management, control, capital structure, dividend entitlement, or purpose or duration of the corporation.
A shareholder may not commence or maintain a derivative proceeding unless the shareholder:
(1) was a shareholder of the corporation at the time of the act or omission complained of or became a shareholder through transfer by operation of law from one who was a shareholder at that time; and,
(2) fairly and adequately represents the interests of the corporation in enforcing the right of the corporation.
No shareholder may commence a derivative proceeding until:
(1) a written demand has been made upon the corporation to take suitable action; and
(2) 90 days have expired from the date the demand was made unless the shareholder has earlier been notified that the demand has been rejected by the corporation or unless irreparable injury to the corporation would result by waiting for the expiration of the 90 day period
Extraordinary transactions between corporations involve three steps.
(mergers, consolidations, sale of all assets)
- board of directors of each corporation meets and decides on the action, then makes a recommendation to shareholders.
- shareholders vote, and unless the article or bylaws of the corporation provide otherwise, the recommended action must be approved by majority vote of the shareholders.
- dissenting shareholders have appraisal rights, meaning that they may demand to be paid the value of their shares immediately prior to the transaction
A corporation must hold a meeting of shareholders
annually at a time stated in or fixed in accordance with the bylaws.
A corporation must notify shareholders of the date, time, and place of each annual and special shareholders’ meeting
no fewer than 10 nor more than 60 days before the meeting date.
Unless the Act or the articles of incorporation require otherwise, the corporation is required to give notice only to shareholders entitled to vote at the meeting.
A shareholder may waive any notice required by the Act, the articles of incorporation, or bylaws before or after the date and time stated in the notice.
The waiver must be in writing, be signed by the shareholder entitled to the notice, and be delivered to the corporation for inclusion in the minutes or filing with the corporate records.
An appointment of a proxy is effective
when a signed appointment form or an electronic transmission of the appointment is received by the inspector of election or the officer or agent of the corporation authorized to tabulate votes.
An appointment is valid for 11 months unless a longer period is expressly provided in the appointment form.
An appointment of a proxy is revocable unless the appointment form or electronic transmission states that it is irrevocable and the appointment is coupled with an interest.
No dividend distribution may be made if, after giving it
(1) the corporation would not be able to pay its debts as they become due in the usual course of business; or
(2) the corporation’s total assets would be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution.
“pierce the corporate veil”
A creditor may hold management of a corporation liable as partners (or as a sole proprietor) if corporation is not sufficiently capitalized.
defendant completely dominated the business to the extent that the corporation had no separate mind, will or existence of its own.
defendant used the control to commit fraud or other wrong or to violate a statutory or other legal duty.
also known as the “alter ego” doctrine
A purchaser of stock which has been assigned a par value
must pay at least par, or be liable to creditors for the difference.
One who purchases stock knowing that par has not been paid will similarly be liable.
A subscription for shares entered into before incorporation
is irrevocable for six months unless the subscription agreement provides a longer or shorter period or all the subscribers agree to revocation.
The board of directors may determine the payment terms of subscription for shares that were entered into before incorporation, unless
the subscription agreement specifies them.
A call for payment by the board of directors must be uniform so far as practicable as to all shares of the same class or series, unless
the subscription agreement specifies otherwise.
If a subscriber defaults in payment of money or property under a subscription agreement,
the corporation may collect the amount owed as any other debt.
limited liability company (LLC) is a form of business offering limited liability to its owners who are usually referred to as
members.
LLCs are organized under
and treated as
“articles of organization, or “the rules of organization” and are generally treated like partnerships for tax purposes.
An operating agreement is used to establish LLC
rules
governing the
membership, management, operation and distribution of income of the company,
LLC income and deductions
attributed to each member and reported on that member’s tax return
A Limited Liability Company (LLC) is a relatively new business structure allowed by
state statute.
LLCs are popular because,
similar to a corporation, owners have limited personal liability for the debts and actions of the LLC.
Other features of LLCs are more like a
partnership, providing management flexibility and the benefit of pass-through taxation.
Ownership of an LLC
members
most states do not restrict ownership
may include individuals, corporations, other LLCs and foreign entities
no maximum number of members
Most states also permit single member LLCs, those having only one owner.
types of businesses that generally cannot be LLCs
banks and insurance companies
Corporations can continue forever, whereas an LLC
may dissolve when a member dies or files for bankruptcy
An LLLP
limited liability limited partnership
a limited partnership (LP) that registers under state law so the general partner will have limited liability, similar to the limited partners
The LLLP form primarily is used to convert an existing limited partnership previously created under state law.
Under section 301 of the Revised Uniform Limited Liability Company Act, a member is
not an agent of a limited liability company solely by reason of being a member.
member’s actual authority to act for an LLC
will depend “fundamentally on the operating agreement” (which is generally in writing, but may be oral).
General agency law is applicable as well.
A newly admitted partner is liable for pre-existing partnership debts
only to the extent of funds contributed by the new partner
An assignee of a partnership interest
is entitled to the assignor’s profits and surplus
but does not become a substitute partner, and
has no right to manage the partnership or to examine its books and records
Under the Revised Uniform Partnership Act, the death of a partner
no longer causes the partnership to automatically dissolve.
The deceased partner’s heirs do not become partners in the partnership
remaining partners may have rights to buy out the deceased partner’s share
Upon dissolution of a partnership,
partners no longer have actual express authority to bind the partnership
except with respect to winding up the business.
Each partner will still possess a residual of apparent authority to bind the partnership.
Exercising such authority to bind the partnership will be wrongful as among the partners, but will be binding on the partners and the partnership as against third parties.
If partners in a partnership have no agreement as to the sharing of losses,
losses will be shared in the same manner as profits.
When a partner in a partnership commits negligence in the course of partnership business,
the partners and the partnership are jointly and severally liable for injuries or damages proximately caused by the negligent conduct
Under Section 302 of the Uniform Limited partnership Act (2001), a limited partner does not have the right or the power as a limited partner
to act for or bind the limited partnership.
Under Section 303, an obligation of a limited partnership, whether arising in contract, tort, or otherwise,
is not the obligation of a limited partner.
A limited partner is not personally liable, directly or indirectly, by way of contribution or otherwise, for an obligation of the limited partnership
solely by reason of being a limited partner.
under Section 305, a limited partner does not have
any fiduciary duty to the limited partnership or to any other partner solely by reason of being a limited partner.
formation of a limited partnership requires compliance with certain statutory formalities, including
- designating and maintaining an agent for service of process,
- annual delivery to the state current reports, and
- delivering to local filing offices of a certificate stating the name of the limited partnership, the name and the street and mailing address of each general partner, including whether the limited partnership is a limited liability limited partnership.
The most recent version of the Uniform Limited partnership Act (2001) permits the use of a limited partner’s name
in the partnership name
The name of a limited partnership
may contain the name of any partner.
The name of a limited partnership that is not a limited liability limited partnership
must contain the phrase “limited partnership” or the abbreviation “L.P.” or “LP” and may not contain the phrase “limited liability limited partnership” or the abbreviation “LLLP” or “L.L.L.P.”.
may not substitute the designation of “Corporation.”
The name of a limited liability limited partnership
must contain the phrase “limited liability limited partnership” or the abbreviation “LLLP” or “L.L.L.P.” and must not contain the abbreviation “L.P.” or “LP.”
may not substitute the designation of “Corporation.”
Section 111 of the Limited Partnership Act (2001), which addresses “Required Information,” provides: A limited partnership shall maintain at its designated office the following information:
(1) a current list showing the full name and last known street and mailing address of each partner, separately identifying the general partners, in alphabetical order, and the limited partners, in alphabetical order;
(2) a copy of the initial certificate of limited partnership and all amendments to and restatements of the certificate, together with signed copies of any powers of attorney under which any certificate, amendment, or restatement has been signed;
(3) a copy of any filed articles of conversion or merger;
(4) a copy of the limited partnership’s federal, state, and local income tax returns and reports, if any, for the three most recent years;
(5) a copy of any partnership agreement made in a record and any amendment made in a record to any partnership agreement.
limited partnership duration
has a perpetual which is a change from previous law.
Pship and corp
Both are subject to federal securities laws
Only corp (not pship)
issues stock
The Uniform Partnership Act, in Section 102, states: A person has notice of a fact if the person:
(1) knows of it;
(2) has received a notification of it; or,
(3) has reason to know it exists from all of the facts known to the person at the time in question.
The Uniform Partnership Act provides that an association of two or more persons who carry on as co-owners a business for profit will be treated as a partnership, whether or not the persons intend to form a partnership. There is no presumption of a partnership in the following instances:
(1) Joint tenancy, tenancy in common, tenancy by the entireties, joint property, common property, or part ownership even if the co-owners share profits made by the use of the property.
(2) A person receives a share of the profits of a business where the profits were received in payment: (i) of a debt by installments or otherwise; (ii) for services as an independent contractor or of wages or other compensation to an employee; (iii) of rent.
In the absence of an agreement among partners on the division of profits,
profits will be divided equally regardless of which partner has contributed more capital, more labor or more expertise
Under the (Revised) Uniform Partnership Act, a partnership agreement may not:
(1) unreasonably restrict the right of access to books and records;
(2) eliminate the duty of loyalty (but, the partnership agreement may identify specific types or categories of activities that do not violate the duty of loyalty, if not unreasonable);
(3) unreasonably reduce the duty of care;
(4) eliminate the obligation of good faith and fair dealing under (but the partnership agreement may prescribe reasonable standards by which the performance of the obligation is to be measured); or,
(5) vary the power to dissociate as a partner under (except to require the notice to be in writing)
Section 204 of the Uniform Partnership Act states: (a) Property is partnership property if acquired in the name of:
(1) the partnership; or
(2) one or more partners with an indication in the instrument transferring title to the property of the person’s capacity as a partner or of the existence of a partnership but without an indication of the name of the partnership.
(b) Property is presumed to be partnership property
if purchased with partnership assets, even if not acquired in the name of the partnership.
(c) Property acquired in the name of one or more of the partners, without an indication in the instrument transferring title to the property of the person’s capacity as a partner or of the existence of a partnership and without use of partnership assets,
is presumed to be separate property, even if used for partnership purposes.
Bankruptcy or death of a partner results in
dissociation, but not necessarily dissolution.
A partnership is dissolved, and its business must be wound up,
upon the occurrence of the partnership’s having notice from a partner of that partner’s express will to withdraw immediately as a partner, or on a later date specified by the partner
In general, a partnership continues after dissolution
only for the purpose of winding up its business.
The partnership is terminated when the winding up of its business is completed.
no filing or other formality is required
At any time after the dissolution of a partnership and before the winding up of its business is completed, all of the partners, including any dissociating partner other than a wrongfully dissociating partner,
may waive the right to have the partnership’s business wound up and the partnership terminated.
In that event the partnership resumes carrying on its business as if dissolution had never occurred, any liability incurred by the partnership or a partner after the dissolution and before the waiver is determined as if dissolution had never occurred.
Dissociation by a partner’s death or bankruptcy
results in a buyout of the partner’s interest rather than automatic dissolution of the partnership.
This is a change from prior law.
A partnership may by agreement
alter the events which, under RUPA, cause automatic dissolution.
RUPA provides default procedures for buyout rights in a dissolved partnership
in the event such procedures are not covered in the partnership agreement.
RUPA has moved toward
the separate entity theory for partnerships,
which is a change from prior law
Under the Uniform Limited Partnership Act (2001) a limited partnership
- is an entity distinct from its partners.
- is the same entity regardless whether its certificate states that the limited partnership is a limited liability limited partnership.
- may be organized under the ULPA for any lawful purpose,
- has a perpetual duration
In a general partnership, against the third party seeking recovery
partners are jointly and severally liable, along with the partnership, for partnership obligations.
any partner could be held liable for 100% of the claim
The Uniform Partnership Act (“Revised Act” or “RUPA”)
gives supremacy to the partnership agreement in most situations.
series of “default rules” that govern the relations among partners in situations they have not addressed in a partnership agreement.
primary focus is the small, informal, partnership
achieve simplicity for state law purposes, particularly in matters concerning title to partnership property.
entity approach, but aggregate approach retained for some purposes, (i.e. partners’ joint and several liability)
violation of “fictitious name” statutes
doing business under a fictitious name without filing with state authorities
(Revised) Uniform Partnership Act basic principles of partnership by estoppel
Estoppel is “Liability of Purported Partner.”
No duty of denial,
not liable unless consent to the representation
repeated failure to object is evidence of consent
assignment is effective
immediately,
binding on the obligor when the obligor has been given notice
assignable even not qualified as negotiable
When a proprietorship or a partnership pays an employee a percentage of profits as part of the employee’s compensation,
this alone is not sufficient to change the employee’s status to that of a partner
Regarding a distribution in kind, SECTION 402 of the Uniform Partnership Act provides:
a partner has NO right to receive, and
may NOT be required to accept,
a distribution in kind
A partnership is dissolved
whenever one of the general partners is changed.
may dissolve partnership simply by withdrawing
A general partnership can be formed
by agreement of the partners
or, in some cases, by simply acting like a partnership.
A limited partnership is formed
by compliance with applicable state laws
In a limited partnership, profits and losses
are divided based on the partners’ capital contributions.
Limited partners’ losses and liabilities are limited
to their capital contributions.
general partner losses and liabilities
are unlimited
when a limited partnership is dissolved
General and limited partners share in the priority for distribution of assets
Limited partners may not withdraw capital contributions if
it would harm the interest of a creditor
joint venture operates similarly to a partnership in many ways,
fiduciary duty among members of the venture,
unlimited liability, and
rights of the joint venturers to participate in management.
A joint venture is not typically required
to file papers or certifications with the state in which it operates.
exception to the similarity between joint ventures and partnerships
no apparent authority or agency relationship among joint venturers, as there is among partners
