Corporations/Partnerships/Agency Flashcards
shareholders agreement
allows shareholders to manage corporation absent a board of directors. Agreement must be signed by all shareholders. President cannot sign the shareholders’ agreement on behalf of corporation
Scope of Shareholders’ agreement
shareholders may enter into an agreement concerning the management of corporation. They may (1) eliminate the board of directors; (2) authorize who will manage the corporation; and (3) establish who will serve as director or officer
agreement remain in effect for 10 years unless otherwise provided in the agreement
shareholder inspection
shareholder owning stock for at least six months or owning 5% or more of stock, upon written demand stating proper purpose, may inspect and copy books and records at reasonable time.
This right extends to the inspection by the shareholder’s agent
Partnership Agency
every partner is an agent of the partnership.
Act of one partner apparently carrying on ordinary course of partnership bounds the partnership unless (1) partner has no authority to act AND (2) person has knowledge partner lacks authority
partnership liability
all partners are liable jointly and severally for all debts and obligations of partnership unless otherwise agreed or provided by law
Incoming partners are not liable for debts incurred before their admission
jointly and severally liable for torts committed by another partner or partnership employee in the course of the partnership business or with authority
Partner compensation
Generally, a partner is not entitle to compensation for services performed for partnership. The partners’ agreement may provide for salaries and the right to compensation may be implied b course of dealing among the parties
Partner contributions
each partner is entitled to repayment for his/her contribution. Partners may agree to share profits other than equally, but the default is equal split of profits.
limited partner liability
generally, limited partners are not liable for debts of the partnership. LPs are liable for limited partnership obligations if the limited partner participates in the control of the business and person dealing with LP did not know that the partner was a LP
partnership property
partner is not co-owner; property belongs only to the partnership. partner has no power to transfer an interest in partnership property for debts not related to the business of the partnership.
partner can transfer his right to receive profits and losses
incorporation requirements
(1) complete and submit a certificate of formation with the Secretary of State; (2) SOS will issue an acknowledgment of filing
issuance of stock
initial directors must hold organizational meeting to adopt bylaws, elect directors, and transact other business
Consideration required to purchase stock is fixed by the board
Share transfer restriction
may be imposed in the articles, bylaws, or a written shareholder agreement. To be enforced, restriction must be reasonable and conspicuously noted on the share certificate OR transferee has actual knowledge
Director Indemnification
directors may authorize a provision allowing the corporation to indemnify a director, and may be adopted by the director at a special meeting called for the purpose. Can only indemnify if acted in good faith
piercing the corporate veil
shareholders are shielded from personal liability for corporate obligations UNLESS creditor demonstrates that a shareholder used corporation to perpetrate a fraud on the creditor. Failure to maintain corporate formalities is not sufficient basis
certificate of formation
must contain: (1) corporation’s name, including “corporation,” “company,” or “incorporated”; (2) name and address of each organizer; (3) name and address of initial directors; (4) address of registered office and name of agent; (5) purpose of corporation; (6) duration of corporation; and (7) capital structure
Director’s Meeting
initial directors must hold organizational meeting to adopt bylaws, elect directors, and transact other business.
Notice of special meeting must state the time and place of the meeting, but the purpose is not required unless required by bylaws.
Quorum must be present for directors to take action. Director who is present is presumed to concur with decision unless files a dissent in the record and minutes
Derivative Suit
brought by shareholder on behalf of corporation for harm the corporation suffered.
(1) must have owned shares when the challenged act occurs; (2) must fairly and adequately represent the corporation’s interest; (3) before initiating, must make a demand on the board to take suitable action and wait 90 days for a response
apparent authority
when an agent, although without express authority, performs a transaction with a third party that has a reasonable belief that it has authority by representations previously made by the partnership
tort liability
employer is vicariously liable for the tort committed by an employee within the scope of his employment. Employee is a servant if employer had the right to control the employee when the tort occurred
corporation
separate legal entity; can sue and be sued; can hold property; limited liability; formalities must be observed; double taxation (corporate and shareholders’ dividends); complex management
must hold directors’ and shareholders’ meetings, maintain minutes, books and records, and follow policies for taking action
General Partnership
Association of two or more persons to carry on a business for profit.
no formalities required; partners can allocate management by agreement; single taxation; jointly and severally liable (no limited liability)
do not have to create a governing document and nothing is filed with the Secretary of State
P’ship income deemed to “flow through to each partner” and taxed only once at the individual level
can freely transfer interest, but transferor will remain a partner and transferee will not have rights of partner, unless admitted to partnership by other partners
Partners share profits and losses equally (unless otherwise agreed)
Limited Liability Company
(1) members can manage and avoid formalities through the certificate of formation; (2) members are not vicariously liable for firm’s obligations; (3) pass-through taxation unless LLC elects to be taxed like a corporation; (4) limited liability (only liable for own acts)
similar to corporation, in that unless agreed otherwise, must follow formalities and complexities and formalities of management, such as: regular board and shareholder meetings, minutes, books and records
LLC membership interest
can be assigned in whole or in part. Assignee has the right to (1) receive the income or distribution; (2) make reasonable inspection of the company’s books and records; and (3) require reasonable information or account of the company’s transactions for any proper purpose
assignee of membership interest may become member upon approval of all existing members
assigning interest can be limited through operating agreement, formation certificate, bylaws, or membership agreement
Professional Limited Liability Company / PC
professional entity may render only one kind of professional service. Only members who are licensed may be admitted
agency authority
principal is bound by a contract executed by an agent acting with authority. An agent who is authorized to bind the principal is not liable on a contract he enters on the principal’s behalf
Partnership wrongful withdrawal
if partner withdraws before the period of duration expires, but partner will be liable to partnership for any damages resulting from a wrongful withdrawal
withdrawing partner’s liability
for one year after withdrawal, partner can bind P’ship to a transaction that would have bound the p’ship had it occurred before withdrawal if (1) party did not have notice; (2) had done business with the p’ship within one year before withdrawal; and (3) reasonably believed the withdrawn partner was still a partner
partnership agreement
governs relations of the partners and between partners and the partnership. it cannot unreasonably restrict right to access books.
Can eliminate liability UNLESS partner is found (1) liable for breach of duty of loyalty; (2) receipt of an improper personal benefit; (3) intentional misconduct or knowingly violates the law; or (4) an act for which liability is provided by statute
Partner admittance
only on unanimous consent UNLESS partners agree to a different arrangement
preemptive rights
allows existing shareholders to acquire the unissued shares in proportional amounts. It must be in the certificate of formation.
The amount is equal to the current amount of ownership in the shares already issued. They do not apply to stock being issued as compensation.
Shareholder’s right of dissent
(1) fundamental change; (2) before vote, or within 20 days, must send written notice to president and secretary of dissent; (3) must vote no; (4) must give appraisal of fair value of shares and request a buyout; (5) 20 days after notice, must send certificates representing his shares to the corporation
no right of dissent if more than 2,000 shareholders of record or corporation is listed on the national securities exchange
