Corporations and LLC's Flashcards
Partnership
A partnership is defined as “the association of two or more persons to carry on as co-owners a business for profit . . . whether or not the persons intend to form a partnership.” RUPA § 202(a) (1997, as amended 2013). A partnership may be formed by individuals, as well as by legal or commercial entities. RUPA § 102(14) (definition of “person” includes an individual or “legal or commercial entity”). Thus, whether the business dealings between two limited liability companies (LLCs) create a “partnership” turns on whether they “carry on as co-owners a business for profit.” Consistent with the common law and the earlier version of the UPA (1914), “co-ownership” involves the sharing of control over the business and a right to share in the profits of the co-owned business. See RUPA § 202(c)(3) (“A person who receives a share of the profits of a business is presumed to be a partner in the business”).
LLC
Under the [Revised] Uniform Limited Liability Company Act (2006), an LLC can be bound to agreements with third parties under general principles of agency law. See Comment, RULLCA (2006) § 301 (“Under this Act, other law—most especially the law of agency—will handle power-to-bind questions.”). Thus, the question is whether Parent is bound to the agreement with VanCo under agency law principles on the basis of Greta’s signature on the agreement.
Piercing the company veil
RULLCA, like most LLC statutes, provides that neither members nor managers are personally liable for the obligations of an LLC “solely by reason of being or acting as a member.” RULLCA (2006) § 304(a)(2). Under the RULLCA, this is true even if the members or managers of the LLC have failed to observe “particular formalities relating to the exercise of [the LLC’s] powers or management of its activities.” Id. § 304(b). Although “disregard of corporate formalities” is a key factor in corporate piercing cases, the “factor is inappropriate [in LLC piercing cases], because informality of organization and operation is both common and desired [in an LLC].” Id., § 304, comment to Subsection (b).
Veil-piercing test
“The most common veil-piercing test requires a plaintiff to demonstrate that a corporation was an ‘alter ego’ or ‘mere instrumentality,’ as evidenced by complete control and domination, of a shareholder used to perpetuate a fraud, wrong, or injustice that has proximately caused unjust loss or injury to the plaintiff.” Peter R. Oh, Veil-Piercing, 89 Tex. L. Rev. 81, 84 (2010) (collecting and analyzing 2,908 corporate veil-piercing cases from 1658 to 2006). In addition, courts have referred to various factors that are generally thought to weigh in favor of piercing the corporate veil: close (versus public) corporation, corporate (versus individual) defendant, tort (versus contract) plaintiff, misrepresentation by defendant, intertwining of business activities, commingling of assets, overlap in corporate officials/employees, and failure to follow corporate formalities. See also Robert B. Thompson, Piercing the Corporate Veil: An Empirical Study, 76 Cornell L. Rev. 1036 (1991) (collecting and analyzing 1,600 cases from 1930 to 1985).
