Corporation Flashcards
Kitner factors test is used for
determining if a firm is LLC or GP.
if an LLC possesses two or more partnership characteristics, it will be taxed as a partnership.
however, law has changed and now every LLC needs to file if they are LLC.
GP and Corporation difference
GP: Decentralized management
Corporation: Centralized management
GP: easy to terminate
C:perpetual
What is the difference between LLC and C-Corp
C-Corporation:
- Owners are shareholders
- Equity issued as shares of the corporation
- Managed by Board of Directors
- Subject to double taxation
- more reocrd keeping requirements and corporate formalities
- Well-developed case law and failiarity from institutions/investors
LLC:
- Owners are members
- Equity issued as membership interest
- Managed by members or a mangement team
- Pass-through tax entity
- Less record keeping requirements and corporate formalities
- Less-developed case law and familiarity from institutions/investors
What is corporation by estoppel doctrine?
One who transacts with a corporation may not gain advantage or avoid obligation by later challenging the validity of the corporation’s organization.
However, an exception to this is that if the corporation uses fraud to deal with business, then the company’s organization can be challenged.
Owners of LLC are called?
Members
Unless otherwise provided in a limited liability company agreement, the management of a LLC shall be vested in its members in proportion to the then current percentage of profits of the limited liability company owned.
True
For LLC to switch from a member-managed to manager managed LLC it requires?
Amending the operating agreement that requires unanimous approval, unless operating agreement specifies otherwise.
When there is a material conflict of interest between members can member do something without disclosing it?
No. The law prohibits members with a material conflict of interest from acting in a manner that constitutes a willful failure to deal fairly with the LLC or its other members.
Members with a material conflict of interest may not willfully act or fail to act in a manner that will have the effect of injuring the LLC or its other members.
When two statutes conflict….
the provision more specific in application governs the more general provision.
T or F: Members of an LLC are never personally liable for any obligation of the LLC?
False There are exceptions to the general rule of no personal liability.
- Members are responsible for their own act.
- Members are responsible for contractual obligations they undertake
- Piercing the veil doctrine.
Piercing the Corporate Veil Doctrine
If a member treats the company’s assets as their own, the courts will treat the company’s liabilities as theirs too.
In the corporate context, failure to maintain formalities is key evidence that the corporation is a mere instrumentality or alter ego of its owner
Ex. Not having Board of Directors meetings, filing other required forms, etc.
But in the LLC context, there are few formalities that must be maintained. So failure to observe corporate formalities, like not having board meetings, is not a basis for piercing the veil.
How to determine if there is piercing the corporate veil?
We applied a two-prong alter -ego test:
- Do the company and the owner operate as a single economic entity?
- Is there a overall element of injustice or unfairness?
Membdr-managed LLC v Manager-managed LLC
Members of a member-managed LLC OWE FIDUCIARY DUTIES TO THE LLC AND THE OTHER MEMBERS OF THE LLC.
Members of a manager-managed LLC DO NOT OWE ANY FIDUCIARY DUTIES JUST BECAUSE THEY ARE A MEMBER. MANAGER owe fiduciary duties to the LLC and its members.
Fiduciary duties can be eliminated in the LLC operating agreement under DELLCA
True. An operating agreement may expand, restrict, or eliminate fiduciary duties provided that the agreement may not eliminate the implied covenant of good faith and fair dealing.
Must be explicitly stated in the agreement.
