Management and Operation of Entities Flashcards
management rights in general partnerships
all partners have equal rights in management of the business, unless otherwise agreed
Voting in general partnerships
Unless otherwise agreed, all partners have equal voting rights
Ordinary course of biz requires a majority vote. Outside ordinary course of biz requires consent of ALL partners
Compensation in general partnerships
Unless otherwise agreed, NO right to compensation
Profits are your default salary. Most change this in partnership agreement however
Sharing profits and losses in general partnership
Unless otherwise agreed, profits shared EQUALLY among partners
Losses shared in SAME MANNER as profits, unless otherwise agreed
LOSSES FOLLOW PROFITS, BUT NOT HTE OTHER WAY AROUND
Liability in Tort of General partnerships
Partnership liable for loss or injury caused to a person as a result of the tortious conduct of a partner or employee acting in the ordinary course of biz or with authority
Each partner is J&S liable for all obligations whether arising in tort or K, but P must first EXHAUST partnership resources before going after individual’s assets
Liability in K of General Partnerships
Partnership liable for contracts entered into on its behalf by partners with actual or apparent authority
Each partner is J&S liable for all obligations whether arising in tort or K, but P must first EXHAUST partnership resources before going after individual’s assets
Actual Authority in partnerships
Created by partnership agreement or by requisite vote of the partners
Statement of authority
Filed withs secretary of state. Grants or limits a partner’s authority to enter into transactions on behalf of the partnership
If RP, must be filed with county recorder
Third parties deemed to have constructive knowledge of GRANTS of authority, not RESTRICTIONS. Therefore, only actual knowledge of a lack of authority or actual knowledge of restrictions would hurt them)
NOTE: for REAL PROPERTY, however, Third parties benefit by filed grants of authority and are burdened by filed restrictions. constructive record knowledge for both
Limiting Third Party Liability in General Partnerships
Partners cannot limit a third party’s rights w/o the third party’s consent
Fiduciary Duties
partners in general partnerships owe fiduciary duties of loyalty, care , and statutory duty of disclosure
Liabilities of Newly Admitted Partners
Not liable for partnership obligations that arose BEFORE his admission. Can only lose thea mount of his investment in the partnership
Duty of Loyalty
Each parter required (1) to account to the partnership for any BENEFIT derived by the partner in conducting the partnership business, using partnership property, or appropriating a partnership opportunity; (2) to refrain from dealing with the partnership in an ADVERSE way; (3) to refrain from COMPETING with teh partnership in the conduct of its business
Duty of Care
Partner must refrain from engaging in GROSSLY NEGLIGENT or RECKLESS CONDUCT, INTENTIONAL MISCONDUCT, or KNOWIN VIOLATION of the law
Note: does not include mere negligence
Duty of Disclosure
Statutory duty, not fiduciary
Each partner and the partnership shall furnish to a partner:
(1) WITHOUT DEMAND, any info concerning the partnership’s business and affairs reasonably required for the proper exercise of the partner’s rights and duties;
(2) ON DEMAND, any other info concerning the partnerships business and affairs, so long as not unreasonable or improper
NOTE: may be eliminated by partnership agreement. Duty of Care and Loyalty may not be eliminated.
Title Property in Partnership’s Name
Property is deemed to be partnership property if titled in the partnership’s name; or is titled in the name of one or more partners and the instrument transferring title notes the titleholder’s CAPACITY as a parter or the existence of a partnership
Title purchased with partnership funds
PRESUMPTIVELY partnership property, regardless of whose name title is held.
Includes cash and credit
Presumption of Separate Property
Presumption of partner’s separate property arises if (1) property is held in the name of one or more partners, (2) instrument transferring title DOES NOT indicate person’s capacity as a partner; and (3) partnership funds were NOT used to acquire property
Presumption of separate property even f it is used for partnership purposes
Untitled Property
Factors: (1) use of partnership funds; (2) use of property by the partnership in conducting biz; (3) entry of the property in the partnership books as a partnership asset; (4) close rltnsp between property and the business operations of the partnership; and (5) improvement and maintenance of the property with partnership funds
Partner’s Rights in partnership property
NOT A CO OWNER. Thus NO TRANSFERRABLE INTEREST in specific partnership property
Only a right to use the property for partnership purposes
Partner’s Ownership Interest in partnership
Management rights and Financial Rights
Right to obtain info about partnership, be recognized as a partner, receive profit distributions, etc.
Partner’s right to transfer partnership interest
unless otherwise agreed, partner CANNOT unilaterally transfer his management rights and make transferee a partner
Requires UNANIMOUS vote of existing partners to bring in new partner
Can only unilaterally transfer FINANCIAL RIGHTS. Transferee gets right to receive profit distributions and that’s it.
LP Management
managed by general partners who have equal rights in management and conduct activities
Limited partners have no management rights, unless otherwise agreed
Voting in LPs
Majority vote of only majority partners required for ordinary business activities
Vote of ALL partners is necessary for extraordinary activities, such as amending partnership agreement, admitting new partner, selling all/sub all of partnership property
Distributions in LP
DIFFERENT FROM GENERAL PARTNERSHIPS
Distributions made on the basis of the partner’s CONTRIBUTIONS (in proportion to contribution)
Liability in LP
General Partners are liable for all obligations of the LP
Limited Partner is NOT personally liable for obligations of the LP solely by being a limited partner. They have limited liability and thus are Limited to their investment only
Fiduciary Duties in LP
General partner owes LP and other partners same duties of loyalty and care as general partners owe each other. however, general partner is NOT automatically in violation of DoL just because he furthers his own interest
limited partner DOES NOT have fiduciary duties solely b/c he is a limited partner
LLP Liability
partners in LLP are NOT personally liable for obligations of the LLP
however, partners individually liable for their own wrongful acts
LLC Management
Management is presumed to be by all of the members
Can be member-managed (Default rule) or manager managed
LLC Voting
majority vote required for ordinary business decisions
Unanimous vote required to approve extraordinary biz decisions
NOTE: if manager managed, need majority/unanimous of managers only
Financial Distributions in LLC
Unless otherwise agreed, profits and losses are allocated on basis of contributions
Duty of Care in LLC
Members must act with the care that a person in a like position would exercise under similar circumstances, in a manner reasonably believed to be in the LLC’s best interest
Business Judgment Rule applies. Not liable for mere poor or erroneous decisions, or even mere negligent ones. Only liable for GROSS NEGLIGENCE or worse
Duty of Loyalty in LLC
Member must (1) account and hold for LLC any benefit he derives from LLC’s activities or from appropriation of an LLC opportunity; (2) refrain from dealing adversely with LLC; and (3) refrain from competing with the LLC’s business
HOWEVER, after disclosure of material facts, unanimous vote by members may authorize or ratify a act by a member/manager that would otherwise violate the duty of loyalty
Fiduciary duties in manager managed vs member managed LLC
Manager Managed – Both members and managers must discharge duties in accordance with contractual obligations of good faith and fair dealing. However, only managers are subject to duties of loyalty and care and only members may authorize or ratify an act by manager that may violate DoL
Member Managed – members owe each other and the LLC duties of care and loyalty. Members may authorize or ratify act of other members that may violate DoL
Transferability of LLC interest
Unilaterally transferrable financial interests, but NOT management interests
One can become a member only with consent of ALL the members
Taxation in LLC and partnerships
Pass-Thru Taxation. NO entitly level tax
Business income is passed through and reported on owner’s INDIVIDUAL tax returns
Rights to Information in LLC
Member managed – member has right to inspect and copy an record concerning LLC’s activities. LLC must automatically furnish any requests, unless if they reasonably believe the member already knows the information, or if it would be unreasonable or improper
Manager managed – managers have same right to info as above. MEMBERS have right to inspect and copy any record concerning LLC’s activity if it is (1) just and reasonable, (2) there is a material purpose to the member’s interest as a member, (3) the demand describes the information sought and purpose with reasonable particularity, and (4) the information sought is directly connceted to the member’s purpose
Piercing the LLC Veil
possible to reach members and managers personal assets
NOTE: failure to observe corporate type formalities will not be ground for piercing the LLC veil
