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REGULATION > Business Structures, Contract > Flashcards

Business Structures, Contract 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.

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2
Q

Can corporations and other partnerships become partners in a partnership?

A

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

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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

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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

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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

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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

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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

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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

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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.
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10
Q

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

A

Has authority to bind the partners to a contract.

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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

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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

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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.

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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

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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.

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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

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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

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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.

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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

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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)
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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.
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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

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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
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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
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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

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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

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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

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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

29
Q

What actions can pierce the veil of a corporation?

A

Commingling of assets

Fraud

Under-capitalization

30
Q

How is a corporation governed?

A

Board adopts Corporate Bylaws to govern company business

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

32
Q

What is the biggest disadvantage of a corporation?

A

Double taxation

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.

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.

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

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

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

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

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

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

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

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)

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

44
Q

What is Ultra Vires?

A

Corporation management acting beyond what the Articles of Incorporation allow

Shareholders can sue for Ultra Vires

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

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

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

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

49
Q

What is the primary advantage of an S-Corporation?

A

Avoidance of Double Taxation

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

51
Q

What must a contract contain?

A

Offer, Acceptance, Consideration, Proper form (oral or written), Legal subject matter, 2 Competent parties

52
Q

What forms may acceptance of a contract take?

A

Can be written or oral

Must be in the form/method required by offeror

Must be mirror image - i.e. no changes in terms

53
Q

Who can accept an offer?

A

Must be accepted by intended party (offeree)

Acceptance can only be made by a party who knows an offer has been made and has all of the facts - AKA a meeting of the minds

They must intend to accept

54
Q

What happens if an offeree accepts a contract but puts added stipulations?

A

It is not acceptance; but instead becomes a counter-offer and the original offeror is now the offeree

55
Q

When is an offeror bound by a contract?

A

When they RECEIVE the acceptance.

If the offeree rejects; then accepts - whatever gets to the offeror first is what is binding.

56
Q

What will void an offer?

A

If offeror dies or becomes insane before acceptance; offer is void.

Contract is binding if acceptance occurs before death/insanity.

57
Q

What actions or circumstances will revoke a contract?

A

Offeror revokes and offeree receives revocation

Offeree finds out prior to acceptance that offeror has sold the item

In the case of an Option; offeror cannot revoke until the time of the option has elapsed

Initial rejection by offeree doesn’t void the option.

58
Q

What is an Option?

A

Some amount of consideration (like money) is put forth by offeror to keep the offer open for a
stated period of time

59
Q

What is a Requirements Contract? How are they limited?

A

These are contracts where someone becomes the exclusive provider of something in exchange for
consideration

Companies can’t get locked in to one and then have market conditions force them to sell something at
what has become an unreasonable price

60
Q

What is promissory estoppel?

A

Promises to donate are legally enforceable

Basically; you can’t tell a charity; Hey; if you buy this
$100;000 piece of land; I’ll pay for the building that
will go on it; and then renege on your promise

61
Q

What can make a contract VOID?

A

Fraud in the execution

Formed under extreme duress - extreme

Illegal

62
Q

What can make a contract VOIDABLE?

A

Fraud in the inducement

Party not competent to contract

Formed under SIMPLE duress

Undue influence

63
Q

What is the result of a clerical error in a contract?

A

The contract is unenforceable.

Example: Person signs a contract to pay $500.00 to have
their lawn re-seeded but due to clerical error; it actually reads $5000.00

64
Q

Contracts under the Statute of Frauds must be in what form to be valid?

A

They must be in writing.

65
Q

What makes a contract subject to the Statute of Frauds?

A

o Cannot be completed within one year
o Involves the purchase of real estate
o $500+ Sale of Goods
o Co-signing and guaranteeing the debt of another

66
Q

What is the parol evidence rule?

A

Prevents one party to a written contract from coming in after the fact and claiming that a certain
conversation took place that conflicts with what is agreed upon in the written contract

It also prevents using an oral argument to read into the meaning of what is written on paper

If it’s on paper; it trumps what was agreed-upon orally prior to the written contract

Note: does not negate oral agreements made AFTER the contract or disallow oral words from clarifying ambiguous contract language.

67
Q

What are the requirements for the assignment of a contract?

A

Contracts are assignable to a third party beneficiary; but must be done so in good faith

Obligations may be assignable- Assignor is still liable

Assignor may be released from liability if other party grants a novation

68
Q

When can contracts be discharged by law?

A

Party under contract is bankrupt

Party under contract dies or is incapacitated

Party cannot physically complete the contract (i.e. They are in prison so can’t finish building your house)

REGULATION (17 decks)

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