Business Structures Flashcards
Must have two or more partners. Must intend to engage in business for profit. Life of partnership is of limited duration in most cases. Agency/fiduciary relationship is created. Partnership interest is always considered personal property.
Business Structures
Yes; corporations and other partnerships can become partners of a partnership
Business Structures
Agreement can be very informal - either ORAL; IMPLIED or WRITTEN
Intent is to make a profit
Business Structures
Must be WRITTEN if partnership activity falls within Statute of Frauds:
A. Can’t be completed in 1 year
B. Even if partners reside in different states; not necessary unless within Statute of Frauds
C. Neither dollar amount of transactions nor purchasing of real estate has bearing on whether partnership agreement must be in writing
Business Structures
Profit sharing is equal by default
A. Unless partnership agreement says otherwise
B. Unless specified; sharing of losses follows same pattern as sharing of profits
Business Structures
Joint Liability - Partners are collectively liable for debts/torts
Several Liability - Partners are individually liable for debts/torts
Business Structures
Creditors must go after partnership assets first before suing partners individually
Business Structures
General Partners have joint control over the management of the partnership and its affairs
Unanimous vote needed to change the structure of the partnership
Each partner has full right to inspect partnership accounting and business
Partner has the authority to assign their interest to another partner
Business Structures
- Other party gets that partner’s share of the profits and/or capital contribution.
- Does NOT give assignee authority to vote on partnership business
- Assignee does NOT have right to inspect partnership books
- Assignor still maintains liability
- Partner does NOT have the right to assign their interest in partnership property or allow partner’s creditors to attach a lien.
Business Structures
Has authority to bind the partners to a contract.
Business Structures
A third party reasonably believes partner has authority to bind partnership to contract
Cannot use apparent authority to add a new partner
Cannot use apparent authority to sell or bind partnership assets
Business Structures
Partner not liable assuming notice given.
Notice must be given to nullify apparent authority
People who had knowledge of their role must be personally notified
Public must be notified
Business Structures
Old partners: Jointly and severally liable unless creditors grant novation
New partners: Only capital account at risk on preceding debts. For subsequent debts; they are joint and severally liable.
Business Structures
Partner’s estate gets share of partnership profits and capital account
Estate does NOT get any partnership assets
Remainder of partners own partnership assets
Heirs of decedent are not added as partners unless remaining partners unanimously agree
Business Structures
- Creditors get paid; Partners can also be creditors
- Distributions in arrears get paid
- Partners get return of Capital accounts
- Any remaining distributions
Note: NO documents need to be filed with state to dissolve general partnership.
Business Structures
Governed by state L.P. laws
Must file L.P. certificate with Sec. of State
Only General Partners must be listed
Future additions or subtractions of G.P. require certificate to be updated with state
Business Structures
Unlike G.P.; L.P. profits/losses are split according to capital contributions by default
Business Structures
True.
A Limited Partner; however; cannot also be a General Partner and maintain limited liability.
Business Structures
No. Limited Partners are do not have a fiduciary responsibility to Limited Partnership
Business Structures
- Right to inspect records of the business.
- Can still vote on partnership business without losing limited liability
- Can consult and advise partnership without losing limited liability (assuming they don’t actually make the decisions)
Business Structures
- They have no authority as an agent to bind the partnership
- They can’t participate in management decisions and maintain limited liability.
Business Structures
Limited partners are liable to the extent of their capital contributions only
Exception - A Limited Partner (who cannot participate in management decisions) becomes involved with management decisions
Becomes liable to third parties IF they knew of their involvement
Business Structures
Automatically happens
- Once final General Partner leaves
- Time specified in certificate lapses
- Event specified in certificate happens
- Unanimous consent by partners
- Illegal activity
Business Structures
- Majority vote required to form LLP
- Articles of LLP filed with Secretary of State
- Governed by laws of that State
- Limited Liability Partnership must be in name
- No General Partners - each LLP partner has limited liability - Exception: Negligence of partner or those under partner’s supervision
Business Structures
Members can participate in management and retain limited liability
Members don’t own any interest in LLC property
Members can assign interest; but not transfer it
Members divide profits equally unless otherwise stated
Business Structures
Similar to a General Partnership; except generally; a JV is for a single business activity
Example: two companies promote a concert
Ability to bind other JV partners is limited
JV partners still have a fiduciary responsibility to JV
No state filings or paperwork necessary
Business Structures
Shareholders have limited liability to the extent of their capital contribution
C Corporations have a perpetual life and continue even after shareholder death
Corporations are a separate legal entity from their owners and can own property; sue; be sued
Corporations must file Articles of Incorporation in state of governance
Business Structures
Ability to raise capital
Limited liability - unless actions occur that pierce the veil
Ease of ownership transfer
Business Structures
Commingling of assets
Fraud
Under-capitalization
Business Structures
Board adopts Corporate Bylaws to govern company business
Business Structures
Name; purpose; powers of Corporation
Name of registered agent & incorporators
Stock share classes authorized; par values
Name of corporate officers NOT required
Business Structures
Double taxation
Business Structures
Promoter issues prospectus; arranges capital; and is a fiduciary of the corporation.
A promoter may profit from work performed if the corporation is aware of it.
Business Structures
Promoter personally liable unless third party agrees to a novation and releases Promoter
from liability; UNLESS the corporation adopts.
Business Structures
Corporations are only incorporated in one state
Become adomestic corp. in that state
Become aforeign corp. in any other state they do business in
Business Structures
Dividends are NOT a shareholder right
Once declared; dividends become a liability to corporation
Business Structures
No voting rights
Get first rights to dividends and liquidation
Cumulative Preferred Stock dividends that go undeclared accumulate and Corporation must pay it before issuing dividends to Common Stockholders
Participating Preferred Stock gives shareholder right to dividends in addition to what they get as Preferred Stockholders
Business Structures
Valid consideration must be given for shares
Cash; property; or prior services performed
No promises to pay or perform services
Business Structures
No Gain/Loss recognized on Treasury stock
Have no voting rights
Can be re-purchased below par
Cannot produce dividends
Business Structures
An offer to buy shares of stock
Must be accepted by corporation to be valid
Offer cannot be revoked for 6 months
Subscriber becomes liable once accepted
Business Structures
If committed within the normal scope of the employee’s job
Even if they were disobeying orders
Per respondeat superior
Business Structures
Appointed by the Board of Directors
Act as Agents
Owe a fiduciary duty to the corporation
Can have legal fees paid by corporation for defense in lawsuit brought on them from carrying out their normal duties (exception- suit brought against officers by shareholders)
Business Structures
Elected by shareholders
Owe fiduciary duty to corporation
Must act in good faith to avoid being liable for bad judgment
Good faith is NOT a defense for negligence
Business Structures
Corporation management acting beyond what the Articles of Incorporation allow
Shareholders can sue for Ultra Vires
Business Structures
Shareholders can inspect Board minutes and records only if request is in good faith
Business Structures
Boards must approve
Shareholders must approve by Majority
Disapproving shareholders can get an appraisal and get their stock back at current market price
Merger does NOT need creditor approval
Business Structures
Shares owned only by licensed professionals (CPAs; attorneys; etc.)
Limited Liability for debts
Personal Liability for negligence
Business Structures
CAN be owned by Estates; Trusts; and Individuals
CANNOT be owned by a C-Corporation
Business Structures
Avoidance of Double Taxation
Business Structures
No more than 100 shareholders allowed
One class of stock allowed
Shareholders must be US Citizens/Residents
Business Structures
