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Regulation > Business_Structures > Flashcards

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
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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

• Intent to operate a business as co-owner for PROFIT
• Agreement can be very informal - because unlimited liability
► ORAL
► IMPLIED or
►WRITTEN only when state of fraud GROSS

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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:
GROSS
→ Sale of Goods worth ≥ $500
→ Real estate sale
→ Over 1 year required to perform a contract
→ Suretyship (guarantee debt of other)
→ Statement in consideration of marriage

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5
Q

How are profits/losses shared in a partnership?

A
  • Profits are shared equal by default unless partnership agreement says otherwise
  • Sharing of losses follows same pattern as sharing of profits unless specified
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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/contract
  • Several Liability - Partners are individually liable for debts/torts/contract
  • Not liable for crime
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7
Q

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

A

Creditors must first go after partnership assets , 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
  • 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
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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?

AGAST

A

• A third party reasonably believes partner has authority to bind partnership to contract
• CANNOT use apparent authority to AGAST - consent of all partner
→ Admit a new partner
→ Guarantee the debt of 1/3 party
→ Admit or submit a legal claim in court or to arbitration
→ Sale or pledge partnership property
→ Third parties are notified of a limit to partner actual authority

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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
    • Actual notice =personal notice to 1/3 party
    • constructive notice =public notice
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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:
    • **Preceding debts Only capital account at risk **
    • 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 remainder is given to partner as profit

** 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
  • Must file L.P. certificate with Sec. of State - Governed by state L.P. laws
  • At least one Limited Partners must be listed
  • At least one 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 share in a Limited Partnership?

A

in LP profits/losses are split according to _capital contribution_s by default (unlike GP)

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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. General Partner can also be a Limited Partner

However, a Limited Partner 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
  • 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)
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21
Q

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

A
  • They have no authority as an agent to bind the partnership in constract
  • 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 - once final General Partner leaves, dies, files for bankruptcy
  • Time specified in certificate lapses
  • Event specified in certificate happens
  • Unanimous consent by partners
  • Court decision
24
Q

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

A
  • 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
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 in proportion of their capital contribution unless otherwise stated
  • ** limited life **
  • fiduciary duties: care and loyalty
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

  • liability is unlimited and each JV is personally liable for debts of the JV
  • each JV has to right participate in management
  • JV partners still have a fiduciary responsibility to JV
  • No state filings or paperwork necessary
  • death will not dissolve JV
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

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 of ownership transfer
29
Q

What actions can pierce the veil of a corporation?

A

Actions can pierce the veil of a corporation ⇒ corporation is disregarded and shareholder personally liable

  • Commingling of assets: shareholder are treating corporate asset as if they were personal assets
  • the corporation is under-capitalization at the time of formation
  • Corporation was formed to defraud creditors
  • Direct action: the shareholders are running the business directly without election of a BoD or board meeting
30
Q

How is a corporation governed?

A

Board adopts Corporate Bylaws to govern company business

31
Q

What must be included in the Articles of Incorporation?

A
  • Name of the Corp
  • Purpose of the Corp
  • Name & Address of registered agent - person who may be serve if Corp is sued
  • Name & Address of incorporators
  • Number of shares classes authorized to be issued - no par values required
32
Q

What is the biggest disadvantage of a corporation?

A

Double taxation

33
Q

How are corporations formed by promoters?

A
  • Prior to the formation of Corp, Promoter may act on behalf of the Corp
  • Promoter is NOT an agent
    • → Contract signed by promoter are not binding for Corp
    • → Promoter liable to 1/3 party unless granted novation
    • → no special right of compensation
  • Promoter has a fiduciary duty to act loyally and good faith
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
  • the corporation adopts the contract.
35
Q

In how many states must a corporation incorporate?

A

Corporations are only incorporated in one state ⇒ a domestic corp. in that state

Become a foreign corp ⇒ in any other state they do business in - must obtain approval to operate in the other state

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; → shareholder = unsecured creditor

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 Corp 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 prior services performed
  • No promises to pay or perform services
39
Q

What are the key aspects of Treasury Stock?

A

Treasury stock is stock that is authorized, issued, but no longer outstanding

  • 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
  • *•** May be entitled to indemnification
  • *•** 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 for any proper purpose 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; certain 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 requirements of an S-Corporation?

A
  • Domestic corporation
  • Shareholder must be individual, estate or certain trust - NOT Corp
  • < 100 shareholders allowed
  • Only one class of stock allowed
  • Shareholders must be US Citizens/Residents
51
Q

**Basic Partner Rights **

A

♦ Participation in management - each partner have this right
♦ Sharing profits & losses
• % may be specified in partnership agreement
• equal sharing of profits and losses when not specified
• Transferable/assignable without need of approval of other partners
♦ Property rights

52
Q

**Fiduciary duties of partners **

A
  • Duty of loyalty
  • Duty of care
  • Partner refrain from competing with the partnership
  • Duty of good faith and fair dealing in the discharge of all their duties
53
Q

LLC keys points

A
  • **Formal creation
  • at least 1 person**
  • **Limited Liability for Contract and debts
  • Unlimited Liability for Malpractices and Negligence**
  • **Agents/Members
  • Taxed as a P/S **
54
Q

LLP keys points

A
  • Formal creation
  • at least 2 persons (accounting, doctor, lawyers)
  • **Limited Liability for Malpractices and Negligence
  • Unlimited Liability for Contract and debts**
  • Agents
  • Taxed as a P/S
55
Q

Actions that constitute dissociation from a partnership

A
  • Partner withdraws from partnership
  • Partner engages in conduct that interferes with the ability of partnership to conduct business
  • Death of a partner
  • Incapacity of partner

NOTE After dissociation occurs the partnership will either **commence dissolution and liquidation/winding up ** OR **continue the partnership business **

56
Q

Dissolution of Partnership can occurs by

A
  • Partnership agreement
  • Agreement of partners
  • By decree of court

Regulation (21 decks)

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