Business Structures

Question 1

3 basic partner rights

Answer 1

Interest- share of profits and loss; personal and transferable/assignable without need of approval
Property- not transferable/assignable
Participation- management right, inspect books, vote, make contracts; not transferable/assignable

Question 2

Types of authority

Answer 2

Actual- p/s intends to give partner power to contract (express, explicitly stated; implied, necessary to get job done)
Apparent- p/s creates impression partner has authority (good faith TP reasonably assumes)
Unauthorized action- not liable unless ratify (p/s can ratify after contract made if OK with them; must know details before TP withdraws)

Question 3

Exceptions to a partners apparent authority

Answer 3

Unanimous consent required [AGAST]:
Admitting a new partner
Guaranteeing debts of TP (part of statute of frauds so need written by other partners)
Admitting/submitting legal claim
Sale or pledge of p/s property (does have apparent authority to sell inventory)
Third parties are notified of limit to partner’s actual authority

Question 4

Authority on admitting or retiring partners

Answer 4

Admit- old, only up to capital contributed; new, unlimited
Retire- old, unlimited (unless novation); new, liable on apparent authority (liable if proper notice isn’t given; actual notice TP’d directly informed, constructive notice public notice to TP’s)

Question 5

Order of distributions made to partners

Answer 5

1. Amounts owed to partners for loans to p/s
2. Partners’ capital accounts
3. Amounts owed to partners for profits

Question 6

What does the Certificate of Limited Partnership have to include?

Answer 6

Name/signatures of all general partners
Name/address of LP
Name/address of agent
Latest date LP is expected to terminate
* Does not require name of LP's

Question 7

How are profits and losses allocated for general and limited partnerships?

Answer 7

If not in agreement,
GP- equally based on # of partners
LP- based on proportion of LP’s capital accounts

Question 8

Limited liability for LLC, LLP, and LLLP

Answer 8

LLC- limited for contracts/debts, unlimited for malpractice/negligence
LLP- unlimited for contracts/debts, limited for negligence
LLLP- limited for all partners (GP and LP)

Question 9

Principles associated with Board of Directors

Answer 9

Act as group
Not agents
Adopt bylaws
Select officers (who are agents)
Reacquire treasury stock
Declare dividends

Question 10

Other shareholder rights

Answer 10

Transfer of shares
Preemptive rights (prevent dilution)
Derivative lawsuits (sue on behalf of corp)
Loans to directors

Question 11

LLP can avoid negligence of other partners provided..

Answer 11

the partner was not personally negligent.
the negligent individual was not supervised by the partner.
the partner was not knowledgeable of another partner’s negligence.
the partner did not fail to take appropriate action to stop or mitigate the negligence if and when that individual became aware of the negligent act.