Business Structures Flashcards

1
Q

What are the key elements of a valid Partnership?

A

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.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Can corporations and other partnerships become partners in a partnership?

A

Yes; corporations and other partnerships can become partners of a partnership

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Name the Basics of Partnership Formation - Form of agreement and intent

A

Agreement can be very informal - either ORAL; IMPLIED or WRITTEN

Intent is to make a profit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

When must a partnership agreement be in writing?

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

How are profits shared in a partnership?

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the Liability of General Partners in a partnership?

A

Joint Liability - Partners are collectively liable for debts/torts

Several Liability - Partners are individually liable for debts/torts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Which assets may creditors of a partnership go after; and in which order?

A

Creditors must go after partnership assets first before suing partners individually

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are the rights of a General Partner in a partnership?

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What does and does NOT happen when a General Partner assigns their partnership interest to someone else?

A
  1. Other party gets that partner’s share of the profits and/or capital contribution.
  2. Does NOT give assignee authority to vote on partnership business
  3. Assignee does NOT have right to inspect partnership books
  4. Assignor still maintains liability
  5. Partner does NOT have the right to assign their interest in partnership property or allow partner’s creditors to attach a lien.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is the actual authority of a partner in a partnership?

A

Has authority to bind the partners to a contract.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is the APPARENT authority of a partner in a partnership?

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

With respect to liability on subsequent debts; what happens when a partner withdraws from a partnership?

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

With respect to PRECEDING debts; what is the liability of a partner in a partnership?

A

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.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What happens upon the death of a partner in a partnership?

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What happens during the winding up of a partnership and in what order?

A
  1. Creditors get paid; Partners can also be creditors
  2. Distributions in arrears get paid
  3. Partners get return of Capital accounts
  4. Any remaining distributions

Note: NO documents need to be filed with state to dissolve general partnership.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are the requirements to form a Limited Partnership?

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

How are profits and losses split in a Limited Partnership?

A

Unlike G.P.; L.P. profits/losses are split according to capital contributions by default

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

True or False: In a Limited Partnership; a General Partner can also be a Limited Partner at
the same time.

A

True.

A Limited Partner; however; cannot also be a General Partner and maintain limited liability.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Do limited partners have a fiduciary responsibility to a Limited Partnership?

A

No. Limited Partners are do not have a fiduciary responsibility to Limited Partnership

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What authority does a limited partner have under a Limited Partnership?

A
  1. Right to inspect records of the business.
  2. Can still vote on partnership business without losing limited liability
  3. Can consult and advise partnership without losing limited liability (assuming they don’t actually make the decisions)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What limitations does a limited partner have in a Limited Partnership?

A
  1. They have no authority as an agent to bind the partnership
  2. They can’t participate in management decisions and maintain limited liability.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What is the liability of a limited partner in a Limited Partnership?

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

When does the dissolution of a Limited Partnership occur?

A

Automatically happens

  1. Once final General Partner leaves
  2. Time specified in certificate lapses
  3. Event specified in certificate happens
  4. Unanimous consent by partners
  5. Illegal activity
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What is required to form a Limited Liability Partnership (LLP)?

A
  1. Majority vote required to form LLP
  2. Articles of LLP filed with Secretary of State
  3. Governed by laws of that State
  4. Limited Liability Partnership must be in name
  5. No General Partners - each LLP partner has limited liability - Exception: Negligence of partner or those under partner’s supervision
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What are the key aspects of a Limited Liability Company (LLC)?

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

What are the key aspects of Joint Ventures (JV)?

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What are the key aspects of a corporation?

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

What are some of the advantages of a corporation?

A

Ability to raise capital

Limited liability - unless actions occur that pierce the veil

Ease of ownership transfer

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

What actions can pierce the veil of a corporation?

A

Commingling of assets

Fraud

Under-capitalization

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

How is a corporation governed?

A

Board adopts Corporate Bylaws to govern company business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

What items are required in a corporations Articles of Incorporation?

A

Name; purpose; powers of Corporation

Name of registered agent & incorporators

Stock share classes authorized; par values

Name of corporate officers NOT required

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

What is the biggest disadvantage of a corporation?

A

Double taxation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

How are corporations formed by promoters?

A

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.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

When is a corporation liable for pre-incorporation actions taken by a Promoter?

A

Promoter personally liable unless third party agrees to a novation and releases Promoter
from liability; UNLESS the corporation adopts.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

In how many states must a corporation incorporate?

A

Corporations are only incorporated in one state

Become adomestic corp. in that state

Become aforeign corp. in any other state they do business in

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

Describe Common Stock dividends and their rights/liabilities in relation to shareholders/corporations.

A

Dividends are NOT a shareholder right

Once declared; dividends become a liability to corporation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

What are key aspects related to the holding of Preferred Stock?

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

What aspects are related to all classes of corporate stock?

A

Valid consideration must be given for shares

Cash; property; or services performed

No promises to pay or perform services

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

What are the key aspects of Treasury Stock?

A

No Gain/Loss recognized on Treasury stock

Have no voting rights

Can be re-purchased below par

Cannot produce dividends

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

What is a stock subscription and what is required for it to be valid?

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

When is a corporation liable for torts by employees?

A

If committed within the normal scope of the employee’s job

Even if they were disobeying orders

Per respondeat superior

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

What are the key aspects of a corporate officer?

A

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)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

What are the key aspects of a corporation’s board of directors (BOD)?

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

What is Ultra Vires?

A

Corporation management acting beyond what the Articles of Incorporation allow

Shareholders can sue for Ultra Vires

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q

When is inspecting Board minutes the right of a shareholder?

A

Shareholders can inspect Board minutes and records only if request is in good faith

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
46
Q

Who must approve mergers and consolidations?

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
47
Q

What characterizes a Professional Corporation?

A

Shares owned only by licensed professionals (CPAs; attorneys; etc.)

Limited Liability for debts

Personal Liability for negligence

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
48
Q

Who can and cannot own an S-Corporation?

A

CAN be owned by Estates; Trusts; and Individuals

CANNOT be owned by a C-Corporation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
49
Q

What is the primary advantage of an S-Corporation?

A

Avoidance of Double Taxation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
50
Q

What are the disadvantages of an S-Corporation?

A

No more than 100 shareholders allowed

One class of stock allowed

Shareholders must be US Citizens/Residents

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
51
Q

What are the key elements of a valid Partnership?

A

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.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
52
Q

Can corporations and other partnerships become partners in a partnership?

A

Yes; corporations and other partnerships can become partners of a partnership

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
53
Q

Name the Basics of Partnership Formation - Form of agreement and intent

A

Agreement can be very informal - either ORAL; IMPLIED or WRITTEN

Intent is to make a profit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
54
Q

When must a partnership agreement be in writing?

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
55
Q

How are profits shared in a partnership?

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
56
Q

What is the Liability of General Partners in a partnership?

A

Joint Liability - Partners are collectively liable for debts/torts

Several Liability - Partners are individually liable for debts/torts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
57
Q

Which assets may creditors of a partnership go after; and in which order?

A

Creditors must go after partnership assets first before suing partners individually

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
58
Q

What are the rights of a General Partner in a partnership?

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
59
Q

What does and does NOT happen when a General Partner assigns their partnership interest to someone else?

A
  1. Other party gets that partner’s share of the profits and/or capital contribution.
  2. Does NOT give assignee authority to vote on partnership business
  3. Assignee does NOT have right to inspect partnership books
  4. Assignor still maintains liability
  5. Partner does NOT have the right to assign their interest in partnership property or allow partner’s creditors to attach a lien.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
60
Q

What is the actual authority of a partner in a partnership?

A

Has authority to bind the partners to a contract.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
61
Q

What is the APPARENT authority of a partner in a partnership?

A

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

62
Q

With respect to liability on subsequent debts; what happens when a partner withdraws from a partnership?

A

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

63
Q

With respect to PRECEDING debts; what is the liability of a partner in a partnership?

A

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.

64
Q

What happens upon the death of a partner in a partnership?

A

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

65
Q

What happens during the winding up of a partnership and in what order?

A
  1. Creditors get paid; Partners can also be creditors
  2. Distributions in arrears get paid
  3. Partners get return of Capital accounts
  4. Any remaining distributions

Note: NO documents need to be filed with state to dissolve general partnership.

66
Q

What are the requirements to form a Limited Partnership?

A

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

67
Q

How are profits and losses split in a Limited Partnership?

A

Unlike G.P.; L.P. profits/losses are split according to capital contributions by default

68
Q

True or False: In a Limited Partnership; a General Partner can also be a Limited Partner at
the same time.

A

True.

A Limited Partner; however; cannot also be a General Partner and maintain limited liability.

69
Q

Do limited partners have a fiduciary responsibility to a Limited Partnership?

A

No. Limited Partners are do not have a fiduciary responsibility to Limited Partnership

70
Q

What authority does a limited partner have under a Limited Partnership?

A
  1. Right to inspect records of the business.
  2. Can still vote on partnership business without losing limited liability
  3. Can consult and advise partnership without losing limited liability (assuming they don’t actually make the decisions)
71
Q

What limitations does a limited partner have in a Limited Partnership?

A
  1. They have no authority as an agent to bind the partnership
  2. They can’t participate in management decisions and maintain limited liability.
72
Q

What is the liability of a limited partner in a Limited Partnership?

A

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

73
Q

When does the dissolution of a Limited Partnership occur?

A

Automatically happens

  1. Once final General Partner leaves
  2. Time specified in certificate lapses
  3. Event specified in certificate happens
  4. Unanimous consent by partners
  5. Illegal activity
74
Q

What is required to form a Limited Liability Partnership (LLP)?

A
  1. Majority vote required to form LLP
  2. Articles of LLP filed with Secretary of State
  3. Governed by laws of that State
  4. Limited Liability Partnership must be in name
  5. No General Partners - each LLP partner has limited liability - Exception: Negligence of partner or those under partner’s supervision
75
Q

What are the key aspects of a Limited Liability Company (LLC)?

A

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

76
Q

What are the key aspects of Joint Ventures (JV)?

A

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

77
Q

What are the key aspects of a corporation?

A

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

78
Q

What are some of the advantages of a corporation?

A

Ability to raise capital

Limited liability - unless actions occur that pierce the veil

Ease of ownership transfer

79
Q

What actions can pierce the veil of a corporation?

A

Commingling of assets

Fraud

Under-capitalization

80
Q

How is a corporation governed?

A

Board adopts Corporate Bylaws to govern company business

81
Q

What items are required in a corporations Articles of Incorporation?

A

Name; purpose; powers of Corporation

Name of registered agent & incorporators

Stock share classes authorized; par values

Name of corporate officers NOT required

82
Q

What is the biggest disadvantage of a corporation?

A

Double taxation

83
Q

How are corporations formed by promoters?

A

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.

84
Q

When is a corporation liable for pre-incorporation actions taken by a Promoter?

A

Promoter personally liable unless third party agrees to a novation and releases Promoter
from liability; UNLESS the corporation adopts.

85
Q

In how many states must a corporation incorporate?

A

Corporations are only incorporated in one state

Become adomestic corp. in that state

Become aforeign corp. in any other state they do business in

86
Q

Describe Common Stock dividends and their rights/liabilities in relation to shareholders/corporations.

A

Dividends are NOT a shareholder right

Once declared; dividends become a liability to corporation

87
Q

What are key aspects related to the holding of Preferred Stock?

A

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

88
Q

What aspects are related to all classes of corporate stock?

A

Valid consideration must be given for shares

Cash; property; or services performed

No promises to pay or perform services

89
Q

What are the key aspects of Treasury Stock?

A

No Gain/Loss recognized on Treasury stock

Have no voting rights

Can be re-purchased below par

Cannot produce dividends

90
Q

What is a stock subscription and what is required for it to be valid?

A

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

91
Q

When is a corporation liable for torts by employees?

A

If committed within the normal scope of the employee’s job

Even if they were disobeying orders

Per respondeat superior

92
Q

What are the key aspects of a corporate officer?

A

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)

93
Q

What are the key aspects of a corporation’s board of directors (BOD)?

A

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

94
Q

What is Ultra Vires?

A

Corporation management acting beyond what the Articles of Incorporation allow

Shareholders can sue for Ultra Vires

95
Q

When is inspecting Board minutes the right of a shareholder?

A

Shareholders can inspect Board minutes and records only if request is in good faith

96
Q

Who must approve mergers and consolidations?

A

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

97
Q

What characterizes a Professional Corporation?

A

Shares owned only by licensed professionals (CPAs; attorneys; etc.)

Limited Liability for debts

Personal Liability for negligence

98
Q

Who can and cannot own an S-Corporation?

A

CAN be owned by Estates; Trusts; and Individuals

CANNOT be owned by a C-Corporation

99
Q

What is the primary advantage of an S-Corporation?

A

Avoidance of Double Taxation

100
Q

What are the disadvantages of an S-Corporation?

A

No more than 100 shareholders allowed

One class of stock allowed

Shareholders must be US Citizens/Residents

101
Q

What are the key elements of a valid Partnership?

A

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.

102
Q

Can corporations and other partnerships become partners in a partnership?

A

Yes; corporations and other partnerships can become partners of a partnership

103
Q

Name the Basics of Partnership Formation - Form of agreement and intent

A

Agreement can be very informal - either ORAL; IMPLIED or WRITTEN

Intent is to make a profit

104
Q

When must a partnership agreement be in writing?

A

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

105
Q

How are profits shared in a partnership?

A

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

106
Q

What is the Liability of General Partners in a partnership?

A

Joint Liability - Partners are collectively liable for debts/torts

Several Liability - Partners are individually liable for debts/torts

107
Q

Which assets may creditors of a partnership go after; and in which order?

A

Creditors must go after partnership assets first before suing partners individually

108
Q

What are the rights of a General Partner in a partnership?

A

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

109
Q

What does and does NOT happen when a General Partner assigns their partnership interest to someone else?

A
  1. Other party gets that partner’s share of the profits and/or capital contribution.
  2. Does NOT give assignee authority to vote on partnership business
  3. Assignee does NOT have right to inspect partnership books
  4. Assignor still maintains liability
  5. Partner does NOT have the right to assign their interest in partnership property or allow partner’s creditors to attach a lien.
110
Q

What is the actual authority of a partner in a partnership?

A

Has authority to bind the partners to a contract.

111
Q

What is the APPARENT authority of a partner in a partnership?

A

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

112
Q

With respect to liability on subsequent debts; what happens when a partner withdraws from a partnership?

A

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

113
Q

With respect to PRECEDING debts; what is the liability of a partner in a partnership?

A

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.

114
Q

What happens upon the death of a partner in a partnership?

A

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

115
Q

What happens during the winding up of a partnership and in what order?

A
  1. Creditors get paid; Partners can also be creditors
  2. Distributions in arrears get paid
  3. Partners get return of Capital accounts
  4. Any remaining distributions

Note: NO documents need to be filed with state to dissolve general partnership.

116
Q

What are the requirements to form a Limited Partnership?

A

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

117
Q

How are profits and losses split in a Limited Partnership?

A

Unlike G.P.; L.P. profits/losses are split according to capital contributions by default

118
Q

True or False: In a Limited Partnership; a General Partner can also be a Limited Partner at
the same time.

A

True.

A Limited Partner; however; cannot also be a General Partner and maintain limited liability.

119
Q

Do limited partners have a fiduciary responsibility to a Limited Partnership?

A

No. Limited Partners are do not have a fiduciary responsibility to Limited Partnership

120
Q

What authority does a limited partner have under a Limited Partnership?

A
  1. Right to inspect records of the business.
  2. Can still vote on partnership business without losing limited liability
  3. Can consult and advise partnership without losing limited liability (assuming they don’t actually make the decisions)
121
Q

What limitations does a limited partner have in a Limited Partnership?

A
  1. They have no authority as an agent to bind the partnership
  2. They can’t participate in management decisions and maintain limited liability.
122
Q

What is the liability of a limited partner in a Limited Partnership?

A

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

123
Q

When does the dissolution of a Limited Partnership occur?

A

Automatically happens

  1. Once final General Partner leaves
  2. Time specified in certificate lapses
  3. Event specified in certificate happens
  4. Unanimous consent by partners
  5. Illegal activity
124
Q

What is required to form a Limited Liability Partnership (LLP)?

A
  1. Majority vote required to form LLP
  2. Articles of LLP filed with Secretary of State
  3. Governed by laws of that State
  4. Limited Liability Partnership must be in name
  5. No General Partners - each LLP partner has limited liability - Exception: Negligence of partner or those under partner’s supervision
125
Q

What are the key aspects of a Limited Liability Company (LLC)?

A

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

126
Q

What are the key aspects of Joint Ventures (JV)?

A

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

127
Q

What are the key aspects of a corporation?

A

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

128
Q

What are some of the advantages of a corporation?

A

Ability to raise capital

Limited liability - unless actions occur that pierce the veil

Ease of ownership transfer

129
Q

What actions can pierce the veil of a corporation?

A

Commingling of assets

Fraud

Under-capitalization

130
Q

How is a corporation governed?

A

Board adopts Corporate Bylaws to govern company business

131
Q

What items are required in a corporations Articles of Incorporation?

A

Name; purpose; powers of Corporation

Name of registered agent & incorporators

Stock share classes authorized; par values

Name of corporate officers NOT required

132
Q

What is the biggest disadvantage of a corporation?

A

Double taxation

133
Q

How are corporations formed by promoters?

A

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.

134
Q

When is a corporation liable for pre-incorporation actions taken by a Promoter?

A

Promoter personally liable unless third party agrees to a novation and releases Promoter
from liability; UNLESS the corporation adopts.

135
Q

In how many states must a corporation incorporate?

A

Corporations are only incorporated in one state

Become adomestic corp. in that state

Become aforeign corp. in any other state they do business in

136
Q

Describe Common Stock dividends and their rights/liabilities in relation to shareholders/corporations.

A

Dividends are NOT a shareholder right

Once declared; dividends become a liability to corporation

137
Q

What are key aspects related to the holding of Preferred Stock?

A

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

138
Q

What aspects are related to all classes of corporate stock?

A

Valid consideration must be given for shares

Cash; property; or services performed

No promises to pay or perform services

139
Q

What are the key aspects of Treasury Stock?

A

No Gain/Loss recognized on Treasury stock

Have no voting rights

Can be re-purchased below par

Cannot produce dividends

140
Q

What is a stock subscription and what is required for it to be valid?

A

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

141
Q

When is a corporation liable for torts by employees?

A

If committed within the normal scope of the employee’s job

Even if they were disobeying orders

Per respondeat superior

142
Q

What are the key aspects of a corporate officer?

A

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)

143
Q

What are the key aspects of a corporation’s board of directors (BOD)?

A

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

144
Q

What is Ultra Vires?

A

Corporation management acting beyond what the Articles of Incorporation allow

Shareholders can sue for Ultra Vires

145
Q

When is inspecting Board minutes the right of a shareholder?

A

Shareholders can inspect Board minutes and records only if request is in good faith

146
Q

Who must approve mergers and consolidations?

A

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

147
Q

What characterizes a Professional Corporation?

A

Shares owned only by licensed professionals (CPAs; attorneys; etc.)

Limited Liability for debts

Personal Liability for negligence

148
Q

Who can and cannot own an S-Corporation?

A

CAN be owned by Estates; Trusts; and Individuals

CANNOT be owned by a C-Corporation

149
Q

What is the primary advantage of an S-Corporation?

A

Avoidance of Double Taxation

150
Q

What are the disadvantages of an S-Corporation?

A

No more than 100 shareholders allowed

One class of stock allowed

Shareholders must be US Citizens/Residents