Corps and LLC's

Question 1

General Partnerships

Answer 1

Easy to form, don’t need to file anything

All partners are personally liable for partnership debts and liabilities

Question 2

Limited Liability Partnerships (LLP)

Answer 2

file a statement with secretary of state

jurisdictions have either partial-shield or full-shield LLP statutes:

• full: shielded from tortious liability from other members and from debts incurred in regular course of partnership business
• partial: only shielded from tortious liability claims of others

Question 3

LLC’s

Answer 3

• articles of incorp filed with sec of state
• member-manager or third party manager owe duty of loyalty
• dissolved by unanimous vote or court order

Question 4

Derivative vs. Direct claims

Answer 4

two-prong test

1. who is suffering injury? if corp/LLC then this is derivative. if it’s the SH or member then its direct
2. who gets money from judgment? if corp/LLC then this is derivative. if it’s the SH or member then its direct

Question 5

Business Judgment Rule

Answer 5

-whether to declare a dividend falls within the BJR

Question 6

When courts will pierce the corporate veil

Answer 6

1. shareholder completely dominated corp by using corp to further own personal goals (paying personal debts with corp assets)
2. this domination was used to commit constructive fraud or some other wrong (usually against corp or a creditor)
   * minority allow veil to be pierced when corp was undercapitalized when first formed - they will also consider whether the corp was simply created as a shame to defraud

Question 7

“de facto” corporation

Answer 7

when there was a bona fide, colorable attempt to file the articles with the secretary of state

**note: filling out articles in lawyers office but never filing is not “colorable attempt”

Question 8

conflict of laws - internal affairs doctrine

Answer 8

when there’s a conflict - state where corp is incorporated has the greatest interest in having its law applied

Question 9

Corporate Bylaws and Articles of Incorporation

Answer 9

Bylaws - contract b/w shareholders and the corp. directors and shareholders can adopt and amend these. can be made so that only shareholders can

Articles - controls if there is a conflict. only directors can initiate amendments to the articles, which must then be approved by shareholders. parties that deal with corp have constructive notice of these since it is a public doc

Question 10

In order to be binding on new shareholders that join the corp, the following must be put in the articles of incorporation:

**note - putting in bylaws make it only binding on the original ones because bylaws are a K.

Answer 10

BAD CLASP

B - allow on SH to amend/adopt bylaws
A - authorized number of shares and par value
D - corp dissolution by less than majority vote

C - cumulative voting by SH to elect directors
L - limiting personal liability for for officers or directors lack of due care
A - voting agreement by shareholders (number of factors here)
S - supermajority requirement for voting or quorum in SH meetings
P - preemptive rights

Question 11

BD and officers manage corp’s day to day but the following must get approval from SH

Answer 11

• to amend articles to change supermajority or quorum requirement at SH meetings
• amend article to limit liability for directors
• amend articles to abolish/create preemptive rights
• increase number of authorized shares
• voluntary dissolution
• sell/lease substantial amt of corp assets
• merger

Question 12

Appraisal Rights

Answer 12

dissenting SH to some corp action (change to cumulative voting, preemptive rights abolished, merger, sale substantial assets) can have shares appraised and sold to corp so they can exit

Question 13

SH Meetings

Answer 13

• notice must be served personally, email, or mail

- no later than 10 days before, no greater than 60

Question 14

SH derivative action - what shareholder must first do

Answer 14

• make a demand to BD to correct/remedy the action
• can skip this if: (1) majority of the board breached duty of loyalty by participating or benefiting from wrongdoing; (2) majority of board breached fiduciary duty - did not exercise due care to inform themselves of the bad transaction and just rubberstamped it

Question 15

common defense from BD on these SH derivative actions

Answer 15

-no demand made and majority of the board is disinterested and could’ve assesed the conduct challenged - fell within BJR

Question 16

Duties of BD and LLC managers - two types of fiduciary duties

Answer 16

1. duty of care to diligently investigate a proposed corp or LLC transaction
2. duty of undivided loyalty not to benefit personally from a transaction at the expense of the corp/LLC

Question 17

Dividends - general rule, exception

Answer 17

general rule - can’t be paid it corp is insolvent. can only be paid out of surplus (money leftover after creditors paid)

Nimble dividends - exception to surplus requirement. (1) corp has to be solvent; and (2) made a net profit in the current and prior year

Question 18

Business Judgment Rule

Answer 18

• court review of director decisions guided by BJR
• presumes corp decisions were made on an informed basis, in good faith, was within board authority, and in furtherance of corp purpose
• BJR gives DISINTERESTED BD immunity from judicial interference even if bad decision

Question 19

How to overcome presumption of BJR

Answer 19

show fraud, self dealing, lack of due care

Question 20

Judicial review prohibited and directors protected from personal liability if fall within BJR - requirements are GAP

Answer 20

G- GOOD faith
A - actions were in the scope of board’s AUTHORITY
P - done in furtherance of corp’s legit purpose

Question 21

2F - two safe harbors for interested directors - makes decisions they made not voidable. burden of proof to show:

Answer 21

F - transaction was FAIR and reasonable when adopted

F- FULL disclosure of director’s interest