FL Bus Orgs Flashcards
What do participating preferred shareholders get?
Receive the dividends granted to all preferred shareholders + a BONUS
- BONUS = after preferred & common shareholders receive their dividend, participating preferred also receive a dividend equal to that granted to common shares
When is a corporation considered closely held?
Corporation with 100 or fewer shareholders at time of shareholder agreement
Can a closely held corporation eliminate or restrict the discretion or powers of board?
Yes
When can the board amend the articles without shareholder approval?
- corporation has NOT issued shares; AND
- directors vote for amendment in the majority
Explain section 16(b) of securities exchange act?
- narrowly aimed at “short-swing” profit insiders
- establishes rule providing for recovery by corporation of any profits realized by insiders from any purchase or sale, or sale & repurchase, or coporations securities within 6 month period
- intended to prevent short-swing trading by insiders through its application to all such trading
- imposes liability without fraud or negligence
De facto merger doctrine entitles shareholders to what?
Entitles the shareholders of a corporation purchasing assets of another to:
1. voting; AND
2. appraisal rights
Who is liable for the debts of a business trust in FL?
Trustee primarily, & trust couples derivatively
FL’s control share acquisition applies to who?
Any issuing public corporation (target corporation) having:
1. 100 or more shareholders
2. PPB or office or substantial assets in FL; AND
3. either 1000 shareholders or move or more than 10% of its shareholders resident in FL
corporations can opt out, if before takeover
When are appraisal rights NOT available?
- shares traded on a national securities exchange; OR
- shares have at least 2000 shareholders & the outstanding shares of the class or series has a market value of $20 million or more
What is an appraisal right?
Right of shareholder to compel the corporation to buy their shares at a fair value if they are dissatisfied with terms of a fundamental corporate change
What must a shareholder do if they wanna exercise their appraisal rights?
- MUST deliver written notice of intent to demand payment for their shares if proposed action taken (must be done before vote takes place); AND
- cannot vote in favor of the proposed action
When can a corporation amend its articles or bylaws?
at any time
An amendment to bylaws or articles may include what provisions?
ANY provision that would be lawful and proper to include in original articles at time of making the amendment
Who is required to vote to approve amendments to bylaws or articles?
1- First Step
- amendment MUST be adopted by board
2 - Second Step
- board recommends to shareholders (unless conflict of interest)
3 - Third Step
- amendment MUST be approved by (a) an absolute majority of the total shares entitled to role, and (b) if amendment adversely affects a particular class of shareholders, they must vote too (absolute majority)
What is a short form merger?
The majority of an 80% or more owned subsidiary into a parent or another subsidiary the parent owns
no board or shareholder approval required
How is voluntary dissolution accomplished?
Either with:
1. approval of board & absolute majority of shares; OR
2. written consent of an absolute majority of shares
What are reasons for involuntary dissolution?
- deadlock of directors AND (1) the corporation is threatened with irreparable injury, OR (2) corporations business & affairs CANNOT be conducted to the advantage of shareholders because of deadlock;
- shareholders deadlocked in voting power & unable to elect successor directors;
- waste or misappropriation of corporation assets
- director or those involved in control of corporation are acting, will act, or have acted ilegally or fraudulently
If a party successfully argues one ground for involuntary dissolution, is court required to dissolve?
NO! Discretionary for court to decide
Who can seek administrative dissolution, & for what reason?
STATE
1. corporation fraud, ilegallity, or abuse of corporation powers; OR
2. failure to file an annual report
Can a non-profit pay dividends?
NO
CAN loan money to directors
How is a corporation ordinarily created?
- delivering articles of incorporation to secretary of state
- file with state articles of incorporation
- pay filing fee
Where do you file the articles of incorporation?
Department of State
When does corporate existence begin?
When department of state files articles
What must the articles of incorporation include?
- corporation name - must have “corp,” comp,” or “inc”
- Corporations street & mailing address
- number of shares the corporation is authorized to issue
- address of corporations initial registered office
- name of registered agent
- name & addy of each incorporator
What meeting do incorporators hold when creating corporation?
Notice?
ORGANIZATIONAL MEETING held to elect directors
- then elect officers & bylaws
2 day notice
Who elects officers or adopt bylaws?
Incorporators OR the new directors
If a registered agent dies, who must a party serve?
FL Secretary of State
How are corporations taxed?
Corporations are taxed as entities, separte & apart from their shareholders
Can you use “ltd” to connotate a corporation?
NO!
used for LLC
When does the Ultra Vires Acts get triggered in a MCQ?
When the corporation is given a limited purpose
- acting outisde, is violation of ultra vires
beyond corporate purpose
What must corporations, that are qualified to do business in FL, file annually?
An annual report with the department of state disclosing:
1. corporation name & state/county of incorporation
2. date of incorporation
3. address of principal office
4. federal employee ID number
5. names & business street address of principal office & director
6. address of registered office & name
What happens when a corportion fails to file the annual report?
- they may NOT bring an action in FL court (until filed)
- risks administrative dissolution
What can serve as a safety net if there is something that causes a defect in the formation of the corporation?
- de facto corporation
- corporation by estoppel
When can a party use the de facto corporation as a defense to a defect in the formation of the corporation?
De Facto Corporation may be found to exist even if there is a substantial defect in formation, IF:
1. there has been a good faith effort to incorporate
2. colorable compliance with law
3. actual use of corporation status (an act on corporations behalf)
CANNOT be used if D knew of incorporation (jointly/severally liable)
What’s a corporation by estoppel?
An equitable doctrine that may be applied when persons have dealt with a defectively formed corporation as if it were a legal corporation
estopped from later arguing that its NOT a corporation
What type of claims does corporation by estoppel protect shareholders against?
Contract Claims
NOT tort claims
Who can amend the bylaws?
Directors or shareholders
- UNLESS power reserved to shareholders in articles of incorporation
Can shareholders adopt the initial bylaws?
ONLY IF power is reserved in articles of incorporation
it’s usually incorporator(s) or directors
If bylaws & Articles of Incorporation conflict, what controls?
Articles of incorporation
Who & what can a party seek if a corporation acts beyond the corporations purposes or powers?
Shareholders of state (department of legal affairs)
Can seek an injunction
Can officers and/or directors be personally liable in a direct or derivative action by the corporation?
YES!
- both officers & directors can be held personally liable
For what things can a corporation be liable?
- liable for contracts
- liable for torts committed by their agents
- liable for punitive damages
When can a corporation be liable for punitive damages?
Liable IF:
1. an employee or agent engages in intentional misconduct or is grossly negligent; AND
2. corporation participates in or condones the conduct or is itsefl grossly negligent
Who is a promoter?
One who undertakes to form a corporation & to procure the necessary capital & other items
Who is NOT considered a promoter?
Attorney’s acting in a professional capacity
Who is an incorporator of a corporation?
One who signs the articles of incorporation
may or may not be promoter
Is a corporation liable on a contract made by a promoter?
NO! Unless corporation adopts contract as its own either:
1. expressly (board passes a resolution adopting contract)
2. impliedly (corporation knowingly accepts the benefit of contract)
Is a promoter liable on a preincorporation contract?
YES, always!
- UNLESS there’s a novation (all parties agree)
Who do promoters owe a fiduciary duty to?
Corporation
can’t make secret profit in dealing and MUST act in good faith
What must foreign corporations do when transacting business in FL?
MUST qualify to do business in FL
How does a foreign corporation qualify to do business in FL
requirements?
They MUST get a certificate of authority from Department of state
_
MUST provide:
1. information from articles of incorporation; AND
2. be in good standing in home state
What does it mean to transact business in FL?
Engaging in intrastate transactions in FL on a regular basis
What happens if a foreign corporation transacts business in FL without authority?
- They are NOT permitted to sue in FL court (they CAN be sued)
- state CAN sue to recover the amount of all fees & taxes that would have been due upon qualification + a forfeiture of $500-$1000 per year in which corporation failed to qualify
What are shares?
Shares or Stocks:
- represent ownership interests
- may be transferred freely UNLESS otherwise specified in the articles of incorporation
What are long-term debts?
BONDS (represent creditor interests)
What is an issuance?
An issuance is when a corporation sells its own shares
What are issued and outstanding shares?
1 - Issued Shares
- shares a corporation actually sells
2 - Outstanding Shares
- issued shares corporation has NOT reacquired - still in hands of shareholders
Who can authorize the issuance of stocks?
1 - Board of directors
2 - Shareholders
- if provided by articles of incorporation
Explain each category of stock
1 - Common Stock
- right to vote
2 - Preferred Stock
- rights to distribution of dividends or assets preferential to those assigned to common shares
What is a subscription contract?
A contract under which the subscriber agrees to purchase a certain number of shares from the corporation at a specified price
How long are preincoporation subscription agreements irrevocable for?
6 months
UNLESS agreement provides otherwise
Are post-incorporation subscriptions revocable?
Yes
UNTIL the board accepts them
When is a subscription enforceable?
once board accepts it
When can the corporation sue or sell the shares to someone else when subscriber doesn’t make payment?
If payment is NOT made within 20 days after the corporation makes a written demand
What is “par value”?
minimum issuance price
Is there a mandatory “par value”?
Not in Florida!
but a corporation may elect to have a par value for its shares
When does watered stock result?
When someone pays LESS than par value for the shares bought
What can a corporation do if stock is sold for less than par value?
They can get the remaining money to meet par value from:
1. person who bought shares; OR
2. directors, if they accepted less than par value
What is treasury stock?
Previously outstanding stock that is brought back from stockholders by the issuing company
-
may be cancelled or resold for any price because par value does NOT apply to this type of stock
What are preemptive rights?
Rights that entitle shareholder to purchase a number of shares of new stock or treasury shares that are being issued, sufficient to maintain their relative voting strength (trying to keep same % of shares)
protects against dilution!
How are preemptive rights granted?
If granted by articles of incorporation
only applicable if new shares issued for money
Can a shareholder waive his preemptive right? Is it revocable?
Yes, shareholder can waive!
CANNOT revoke if waiver is written
Who can be a director?
any NATURAL PERSON 18+ years of age
What is the minimum number of directors a corporation must have?
ONE
Who elects directors?
Shareholders @ the annual meeting
Who can remove directors?
Shareholders can remove:
- at any time
- with or without cause (unless articles of incorporation say it must be for cause)
If directors were elected by a certain class of stock, who can remove them?
They may be removed by said class of stock that elected them (by vote)
How is a vacancy on the board of directors filled?
By either:
1. remaining directors; OR
2. shareholders
UNLESS AoI provide otherwise
When are directors NOT required to meet & act as a board?
when ALL directors consent in writing
Explain notice requirements for Board of director meetings
No notice needed for regular meetings
- 2 day written notice for special meetings (doesn’t need to state purpose)
What is a Quorum?
board of directors
Number of directors needed to take action – usually by majority UNLESS:
1. quorum mandated by AoI or byalws
2. CANNOT be less than 1/3 votes
number needed at time of vote !!!
When directors vote, can they vote by proxy or by agreement?
No, it is prohibited
What does the board of directors do? Powers?
manage corporate affairs, and their powers include:
1. power to elect & remove officers (w/ or w/out cause)
2. power to issue or buy back shares
3. right to inspect books
4. power to issue dividends
5. set broad oversight, exercise oversight
Can individual directors bind corporation in contract?
NO! not agents
only board as a whole can bind corporation in K
Can directors delegate their powers?
Yes
ex: delegate to committee
What powers held by directors CANNOT be delegated to a committee?
- amending bylaws
- fill vacancies on board or committee
- authorize the reacquisition of shares (except w/in limits set by board)
What duties do directors owe to corporations?
1 - Duty of Care
- exercise care & skill an ordinarily prudent person in a like position would reasonably believe appropriate in like circumstances
2 - Duty of Loyalty
- act in good faith & w/ a reasonable belief that what they do is in corporations best interest
What are instances that result in a director breaching their duty of care?
- Nonfeasance –> when director does nothing (director consistently fails to attend meetings)
- Misfeasance –> when director does something that causes the corporation loss
What is a defense a director can use when he is being sued for breaching duty of care?
BUSINESS JUDGMENT RULE!
-
courts will not second guess decisions director takes that:
1. rational
2. informed
3. made in good faith
4. reasonable persons could have differed
When does the duty of loyalty come into play?
Whenever director has personal stake in action taken by the board:
1. interest director transaction
2. competing venture
3. corporate opportunity
When does an interested director transaction occur & what must interested director do?
Occurs when a director is on both sides of transaction
-
Director must:
1. make full & fair disclosure of conflict of interest to tother members of the board; AND
2. act in best interests of corporation
When is a contract in which a director is financially interest, NOT voidable by corporation?
- if the only reason for voiding it is because of directors relationship or interest; AND
- if contract fair to corporation
Explain the burden for interested director transactions
Burden is on director to show fairness
-
if transaction is approved or ratified by disinterested majority of board or majority of disinterested shares BURDEN SHIFTS to P to show transaction unfair to corporation
What does the corporate opportunity doctrine provide?
when can director usurp?
Under this doctrine, director & officers MUST inform the corporation of business opportunities of which it might wish to take advantage
- director CANNOT usurp an opportunity the corporation might be interested in without full disclosure & board approval
When are loans to directors allowed?
If board reasonably expects the corporation to benefit
treated as interested director transaction
What happens when a director votes for or assents to any improper distribution?
Shareholder liable?
Director is liable to corporation for amount of the distribution in excess of the amount legally available
-
- even if director unaware dividend is improper
- shareholder MUST return dividend if they knew it was improper
What are some limits on a directors liability for breach of a fiduciary duty?
explain them defenses
1 - Dissenting Director
- NOT liable if vote recorded in minutes
2 - Absent Director
- NOT liable if not at meeting
3 - Good Faith Reliance
- director relied in good faith on opinion of, or information produced by competent officers, employees, or professionals or on financial statements prepared by accountants
4 - Immunity Statute
- director NOT liable for damages UNLESS: (1) violated criminal law, (2) received improper personal benefit, (3) authorized unlawful dividend, (4) engaged in reckless, willful, or intentional misconduct
Who can elect and remove an officer?
- elected/appointed –> by board of directors
- removed –> board of directors
When is a corporation prohibited from indemnifying a director or officer against liability incurred in proceeding?
3 things
When director or officer was:
1. held liable to the corporation; OR
2. held to have received an improper personal benefit; OR
3. held to have violated criminal law
When MUST a corporation indemnify a director or officer?
When officer or director is:
1. WHOLLY successful in a suit brough against them for
2. action they took in their coporate capacity
3. on the merits or otherwise (SOL defense)
What must a director show if they wish to be indemnified by corporation?
That they acted in:
1. good faith; AND
2. with reasonable belief that their actions were in companys best interest
Does the court have the power to indemnify, notwithsatnding the rules?
YES
What are the powers held by the shareholders?
- vote for director
- inspect records
- preemptive rights (must be provided by AoI)
- approving fundamental corporate changes
- amending Articles of incorporation or bylaws
How can shareholders get managing powers?
- granted by articles of incorporation; OR
- unanimous shareholder agreement if the corporations shares are NOT publicly traded
How & to what extent is every shareholder liable?
ONLY liable for the amount of their investment
NOT liable for debts of corporation
What happens if a P pierces the corporation veil?
Shareholders active in business may be held jointly & severally liable
Explain the alter ego doctrine in FL?
- court might disregard corporate entity when corporation appears to be in the alter ego of the shareholders (used by shareholders for personal affairs)
- Requires a showing of improper conduct (fraud/ilegallity)
What is a derivative suit?
One brought by shareholder to enforce a corporate cause of action, when board of directors have not sought to enforce corporate rights
In a derivative suit, where does recovery of suit go?
Corporation
-
court may order a corporation to reimburse a successful shareholder/P for atty’s fees & expenses
When does a shareholder have standing to bring derivative suit?
Shareholder must have either:
1. owned stock in corporation when claim arose; OR
2. acquired it by operation of law from someone who owned stock in corporation when claim arose (inheritance or divorce, NOT gift or purchase)
MUST be shareholder at time suit commenced
Explain the demand requirement for a shareholder bringing a derivative suit?
Step 1
- shareholder MUST make demands on directors, that they prosecute the suit (unless demand futile)
Step 2
- after demand shareholder MUST wait 90 days to bring suit UNLESS: (a) shareholder is notified sooner that demand rejected, or (b) delay will cause irreparable injury
What does the record date deal with?
Shareholders
Date on which shareholders must be registered on the corporations books to be entitled to vote
- board of directors can set date (can’t set date more than 70 days prior)
- if no date set, close of business day before the first notice is delivered
How can a shareholder elect a proxy?
Sending the corporations secretary a signed, written authorization
How long do proxy appointments last?
Last as long as agreement says and if NOT specified, lasts for 11 months (unless irrevocable)
When are proxies irrevocable?
- proxy agreement provides it is irrevocable; AND
- proxy holder has an interest in the shares (pledgee, purchaser, employee)
without (2), proxy still revocable
What is a pooling agreement?
A binding voting agreement that shareholders may enter on how they will vote their shares
-
Agreement MUST:
1. be in writing
2. signed
specific performance may be available
What is a voting trust?
Separate legal entity to which shareholder stock is transferred (trustee votes)
- retain beneficial ownership
-
Requirements:
1. written trust document
2. transfer of legal title to trustee
When can shareholders take action without a meeting?
Written consent from minimum # of shares needed to take action at a meeting
Explain annual shareholder meetings
- ordinarily held on a date prescribed by articles of incorporation
- for normal business & electing directors
When can a corporation revoke a dividend?
Usually never, UNLESS
1. invalid
2. shareholders consent
When CAN’T the directors issue a dividend?
If corporation is insolvent OR distribution would cause corporation to go insolvent
__
2 tests corporations must pass to issue:
1. EQUITY test –> corporation must be able to pay off its debts as they come due in the usual course of corporations business
2. BALANCE SHEET test –> corporations total assets must exceed its total liabilities plus an amount sufficient to satisfy preferred rights in dissolution
What can shareholders vote on?
- election or removal of directors
- major corporate changes entrusted to him by law or AoI (merger, sale of most assets)
- matters of corporate reform & policy for consideration
- elimination or restriction of director discretion or power pursuant to a shareholder agreement
A not for profit corporation needs how many directors?
at least 3
Can a non-profit pay dividends?
NO
can loan $ to directors
A FL business trust CANNOT engage in what type of business?
Banking or security business
Who is liable for the debts of a business trust in FL?
Trustee primarily (unless stated otherwise) & trust corpus derivatively
Who is the named party in a suit against a FL business trust?
Trustee, NOT trust itself
If a registered agent dies, who must a party serve?
FL Secretary of State
What does FL’s blue sky law say?
Close corporations usually do NOT need to register their sales
exempts from registration sales to less than 35 persons
When is a corporation considered closely held?
Corporation with 100 or fewer shareholders at the time of shareholder agreement
Can a closely held corporation eliminate or restrict the discretion or powers of board?
YES
When is a corporation prohibited from indemnifying a director or officer against liability incurred in proceeding?
3 things
When diretor or officer was:
1. held liable to the corporation; OR
2. held to have received an improper personal benefit; OR
3. held to have violated criminal law
Does the court have the power to indemnify, notwithstanding the rules?
YES
When MUST a corporation indemnify a director or officer?
When officer of director is:
1. WHOLLY successful in a suit brought against them for
2. action they took in their corporate capacity,
3. on the merits or otherwise (self defense)
What must a director show if they wish to be indemnified by corporation?
That they acted in:
1. good faith; AND
2. with reasonable belief that their actions were in company’s best interest
What is a short form merger?
The merging of an 80% or more owned subsidiary into a parent or another subsidiary the parent owns
NO board or shareholder approval required
How is voluntary dissolution accomplished?
Either with:
1. approval of board & absolute majority of shares; OR
2. written consent of an absolute majority of shares
What are reasons for involuntary dissolution?
- deadlock of directors AND the corporation is threatened with irreparable injury, OR corporations business & affairs CANNOT be conducted to the advantage of shareholders bc of deadlock;
- shareholders deadlocked in voting power & unable to elect successor directors
- waste or misappropriation of corporation assets
- director or those involved in control of corporation are acting, will act, or have acted illegally or fraudulently
If a party successfully argue one ground for involuntary dissolution, is court required to dissolve?
NO
discretionary for court to decide
Who can seek administrative dissolution & for what reason?
The STATE:
1. corporation fraud, illegality, or abuse of corporate powers; OR
2. failure to file an annual report
What is the record date when dealing with dividends?
The date when:
1. the board authorizes distribution; OR
2. board sets record date
once authorized NOT revocable
Who can issue dividends?
Board of Directors
shareholders CANNOT compel
What are dividends?
Distributions made by a corporation to its shareholders in proportion to their stock ownership
can be cash or property
What are some improper purposes for record inspection?
- seeking information to give to business competitor
- obtaining information to promote shareholders personal, social, or political concerns
What are some proper purposes for record inspection?
- to solicit proxies
- considering the sale of their stock
- investigating possible mismanagement
- reason for nonpayment of dividends
What is required by shareholder who wants to inspect a record that requires a proper purpose?
- 5 day notice
- demand made in good faith with proper purpose
- demand describes with reasonable particularity the purpose & records to inspect
- records are directly connected with the shareholders purpose
What records are subject to inspection only with a proper purpose?
- minutes of board meetings
- accounting records
- records of shareholders
- certain financial statements
What records are subject to inspection by shareholders upon demand?
- articles of incorporation & bylaws
- most recent annual report
- written communications with shareholders for the past 3 years
- minutes of shareholders meetings
- list of names & business addresses of directors & officers
CANNOT be limited by AoI
Must notice be given before inspection of records?
YES, written notice must be given at least 5 business days prior to the date requested to inspect records
Can a shareholder transfer their shares?
Yes, freely transferable, unless otherwise specified in the articles of incorporation
restrictions must be reasonable - CANNOT be restraint on alienation
What is the formula for how many shares are needed to elect a director with cumulative voting?
you need more than S/(D+1) shares
- S = number of shares voting
- D = number of directors to be elected
What is the formula when trying to figure out the most number of directors one can elect if cumulative voting allowed?
Shares owned by person > (# of directors desired) x (total # of shares voting in meeting / total # of directors to be voted/elected + 1
#19 on corporation FLT
What is cumulative voting?
Shareholders can cumulate their votes and cast all votes for one or more candidates
- MUST be permitted by articles of incorporation or bylaws
number of seats x number of shares
When is a matter approved by shareholders?
If votes cast in favor exceed those cast against it
articles of incorporation could provide otherwise
What is a Quorum?
Shareholder meetings
Shares needed for a valid vote
- DEFAULT RULE: majority of shares eligible to vote can’t be less than 1/3
quorum needed only at start of meeting
Explain the notice requirements for shareholder meetings?
- written notice between 10-60 days before the meeting
- must contain date, time, place, & any special items
- special meeting notice must give special purpose
- CAN be WAIVED in writing or shareholder attends meeting & fails to object
Explain special interim shareholder meetings (who can call them)
CAN be called by
- board of directors
- officers
- shareholders with 10% less of corporations stock
usually called when a shareholder vote is needed to approve a major corporate transaction
Where does corporation file articles of dissolution?
Department of State
How can a corporation limit its liability for unknown claims after dissolution?
- file notice of dissolution with department of state & request that persons with claims unknown, present them with notice; OR
- within 10 days after adopting articles of dissolution, publish notice of corporations dissolution once a week for 2 weeks in newspaper in FL county in which corporation has principal property
When do courts have full power to liquidate the assets & business of a corporation in an action by a shareholder in a corporation?
- corporation assets are being misapplied or wasted, or causing material injury to corporation; OR
- the diretors or those in control of corporation have acted, are acting, or are reasonably expected to act in an illegal or fraudulent manner
How is an LLC managed?
By a manager or members (default)
What causes dissociation?
- partners express will to withdraw
- occurrence of agreed upon event
- partner’s expulsion pursuant to agreeemnt, death, bankruptcy, or incapacity
- termination of a partner that is a business entity
- appointment of a receiveer of a partners transferable interest
- transfer of substantially all of a partners interest in the partnership
What happens if a partner dissociates in violation of a partnership agreement?
Liable for damages caused by the wrongful termination
What happens when a partner dissociates?
The partnership buys out the dissociating partners interest & continues without them
only certain events cause a wind up
How long does a dissociating partner have apparent authority for?
1 year after dissociation
How can a partnership protect itself from its dissociated partner having apparent authority?
- notify creditors; OR
- file a statement of dissociation with department of state effective 90 days after filing
When are partnerships “at will”?
ALWAYS unless there is a specified term or task to complete
When MUST a partnership wind up?
When any of the following occurs:
1. an event in partnership agreement occurred that requires it
2. an event occurred that makes it unlawful to continue
3. issuance of a judicial decree
4. notification by a partner at will of intent to withdraw (unless partners unanimously agree to continue - usually)
5. in a partnership for a definite time or task: (1) term ends or task completes; (2) partners unanimously agree to wind up; OR (3) at least half partners agree to wind up within 90 days after partner dies, goes bankrupt, or incapacitated
When will a partner be bound by a partner’s post dissolution act?
IF:
1. the acts are appropriate for winding up business; OR
2. 3rd party did NOT have notice of dissolution
Under RUPA, a partnership will be dissolved by a judicial decree for what reasons?
- economic purpose of partnership likely to be frustrated
- partner has engaged in conduct making it NOT reasonably practical to carry on business; OR
- business cannot practicably be carried on in conformity with partnership agreement
What is the order of distribution of assets?
Partnerships assets are reduced to $ and paid in the following order:
1. creditors (including partners who are creditors)
2. partners, in settlement of their accounts
What is an LLP?
Limited Liability Partnership
- same as partnership, except for liability
How are partners in an LLP liable?
- partner NOT personally liable for LLP obligations
- partner LIABLE for their own torts & those of someone under their direct superivision
When is an LLP liable for torts or K’s committed by agent?
- TORT –> if committed within scope of business
- CONTRACT –> if executed by agent acting with authority or substitute for it
How does a partnership become an LLP?
Statement of qualification filed with Department of State, which contains:
1. name of partnership
2. addy of chief executive office
3. name & addy of agent for service
4. statement that partnership elects LLP
5. a deferred effective date, if any
What is an LP?
Limited partnership:
- 1 or more general partners
- 1 or more limited partners
Must an LLP file an annual report?
Yes, with secretary of state between january 1 & march 1
- if no filing, state may revoke status after giving 60 day written notice of intent to revoke
What must be done to create an LP?
File a certifiacte of limited partnership with department of state, which contains:
1. signatures from all general partners (LP not needed)
2. name of partnership
3. name and address of agent for service & each general partner
Must an LP have a written agreement?
YES, setting out the following:
1. amount of $ or agreed upon value of all property or services to be contributed by each partner
2. times future contributions will be made
3. specification of transfereable interests
4. any events of dissolution
Must LP renew their certificates?
YES! By filing an annual report with the department of state
- between January 1 & May 1
- pay required fee
In an LP is a limited partner personally liable?
NO
even if they participate in the management and control of the LP
How are profits & losses allocated in a LP?
Profits, losses, & distributions are allocated on the VALUE OF CAPITAL CONTRIBUTIONS (different than a regular partnership)
How can a new limited or general partner be added to an LP?
All general & limited partners MUST approve
Can someone serve as a limited & general partner of 1 LP?
Yes
If someone serves as a general & limited partner of an LP how is that persons liability?
Personal liability will depend on whether the matter concerned his capacity or actions as a general partner or limited partner
Under RULPA, what are considered forms of contribution?
- cash;
- property; OR
- a promise to perform in the future
In a LP when is a promise to contribute unenforceable?
If NOT set out in writing
- there MUST be writing signed by the limited partner
What is an LLLP?
Limited Liability Limited Partnership
- same as LP, except for liability (no partners personally liable)
How does an LP become a LLLP?
- obtain necessary approval
- file statement of qualification
- comply with name requirements
In an LLLP how long does a general partners apparent authority last after dissolution?
2 years
What is an LLC?
Limited Liability Company (like a corporation)
What must be filed to be an LLC?
Articles of Organization, containing:
1. name of LLC
2. principal office
3. registered agent & office
What is a partnership?
An association of 2 or more people intending to carry on a for profit business as co-owners
- KEY –> sharing profits
what RUPA provisions CANNOT be waived in a partnership agreement?
- duty of loyalty & care
- right of court to expel a partner
- partners’ right to access the partnership books
- power to dissociate
What is a prerequisite for filing different statements?
filing 1st a registration statement with department of state
What is partnership capital & property?
- CAPITAL = property or $ contributed by each partner for purpose of carrying on the partnership business
- PROPERTY = everything partnership owns (capital & property acquired after)
When can someone become a new partner?
If all partners expressly or impliedly CONSENT
unless otherwise agreed
Does a partnership agreement need to be in writing?
NO, need not be in writing or expressly verbalized
actions of parties is enough
If creditor sues partnership who can they name in the complaint?
- partnership; OR
- partners individually
When must a partnership agreement be in writing?
Only if the partners wish to have an enforceable agreement to remain partners for more than one year (must satisfy SOF)
Under RUPA, when is titled property deemed partnership property?
- it is acquired in the partnerships name; OR
- it is acquired in the name of one or more partners & the instrument transferring title indicates they’re acting for a partnership
Under RUPA, when is property PRESUMED to be partnership property?
If purchased with partnership funds
- not only the partnerships cash, but also partnership on credit
does NOT matter whose name is on the title
When is property presumed to be a partner’s SEPARATE property?
- property held in name of 1 or more person
- partnership funds NOT used
- instrument transferring title does NOT indicate person’s capacity as partner or the partnership
even if used for partnership
Can a partner use partnership property for personal use?
NO, unless the other partners consent
Can a partners creditors reach the partnership property?
NO
Can a partner transfer their economic interest in a partnership?
YES!
- partner may transfer their right to receive a share of the profits (does NOT transfer any other rights or obligations)
Can a partner transfer his entire partnership status to another?
NO, unless all partners unanimously consent
How do you determine how to divide profts & losses?
Agreement can state percentages
- if non stated = 50/50
- if only profits stated, same division for losses
Does a partner have a right to compensation for services rendered to partnership?
NO, unless otherwise agreed upon
- they do have a right to compensation for services performed winding up business
What matters require a majority vote of the partners v. unanimous?
- MAJORITY vote = decisions involving matters within the ordinary course of business
- UNANIMOUS vote = decisions involving matters outside the ordinary course of business
What duties does a partner owe to a partnership?
1 - Duty of Care
- partner must refrain from grossly negligent or reckless conduct, unlawful conduct, or intentional misconduct
2 - Duty of Loyalty
- partner must (1) account for profit or other benefits derived by partner from using partnership property, (2) NOT compete with partnership, (3) not deal with partnership as one with an adverse interest without disclosure of material facts
3 - Duty of Good Faith & Fair Dealing
- partners owe this
4 - Information
- partner must provide (without demand) information a partner need to exercise rights. On reasonable demand any other info.
Who has a right to inspect & copy the partnership books?
Each partner!
a transferee of a partners partnership interest has NO right
Who has a right to an accounting?
Each partner, if reasonable!
Transferee of a partners interest has right ONLY on dissolution
Does a transferee have a right to participate in the winding up of partnership?
NO
If a partner leaves a partnership, are they still liable for outstanding debts?
YES! Unless creditor releases
When can a partnership be liable for acts committed by partners or others?
When an act performed by partner or agent is:
1. performed with apparent or actual authority; OR
2. ratified by partnership
liability can be in K, tort, or breach of trust
When dealing with apparent authority, a 3rd parties reasonable belief that ‘A’ can act for partnership must stem from what?
Must stem, at least in party, by representations created by the principal (one with actual authority)
What is a statement of authority?
How long is it good for?
A statement that grants or limits a partners authority to enter into transactions on behalf of the partnership
- filed with department of state
- good for 5 years
What does the effect of a statement of authority depend on?
Whether a transfer of real property is involved
- real property? must file statement with department of state & county recording office
When is a statement of authority effective against a BFP?
1 - Statement Limiting
- effective if BFP knew of statement
2 - Statement Granting
- effective, even if terminated authority
What is a statement of denial?
A statement where a partner (who is listed in statement of authority) limits their authority by filing statement with department of state
How are partners liable in a partnership?
All partners are jointly & severally liable (K and tort claims)
- partner & partnership can be sued
