Mod 25 Key Terms Business Structure Flashcards
Articles of incorporation (corporate charter) are filed with the state contain…6
1 proposed name of corp and initial address 2 purpose of corp 3 powers of corp 4 name of registered agent of corp 5 name and address of each incorporator 6 number of shares authorized
Short form merger 3
1 Parent mergers with a 90%+ owned sub
2 only approval needed is from board of parent
3 only stockholder’s of sub get appraisal rights
Incorporator said may be…
Promoters
To be a partnership parties must be co-owners of…
A business, not co-owners of property
A partnership must be operated for…
Profit
Partnerships impossible to perform…
In one year must be in writing
If a partner breaches the partnership agreement he is…
Liable to the other partners
General partners are jointly and severally liable for…3
1 all partnership debts
2 contract obligations
3 all partnership torts
General partners are agents…
Agents of the partnership and agents of each other
A general partner upon termination must give…2
1 actual notice to old customers and
2 published notice to new customers
Limited partnership consists of 2 or more parties formed by filing with…
A state
A general partner may also be a…
Limited partner in the same partnership
Limited and general partners may be either…
Secured or unsecured creditors of the partnership
Limited partners have the right to inspect and copy…
Partnership books and records to specifically include the right to receive copies of any partnership tax returns
Limited partners have no liability beyond…
Their capital contribution
If limited partners participate in daily management they are…
Personally liable to any party reasonably believing they were a
general partner
Limited partners may vote on the following 5 areas without losing limited liability
1 dissolution of limited partnership
2 fundamental changes in limited partnership
3 admission or removal of general or limited partner
4 amending certificate of limited partnership
5 act as agent
Partner’s rights: most decisions require only…
A majority vote
Partner’s rights:
Unless otherwise agreed, the following 5 require unanimous consent of all partners
1 admit new general partners or new limited partners
2 transfer partnership property to others
3 change written partnership agreement
4 admit liability in law suit or submit claim to arbitrator
5 fundamental changes in partnership business to include selling goodwill
Partnership rights:
If division of profits is specified, but not losses…
Losses will follow profits
In limited partnership, if it doesn’t state how to divide up profits and losses, then they are divided up based on…
Their capital allocations
Each partner has the right to be…
Reimbursed for loans and advances made to partnership
A partner is entitled to repayment for loans only…
After all other creditors are paid
All partners and limited partners have a right to full information of partnership, which is…
The right to inspect and copy books and records
Each partner is not a co-owner of…
Partnership property
Each partner has a right to use partnership property for…
2) But no other right to…
Partnership purposes
2) use property without consent of other partners
A partner cannot transfer or assign his individual interest in…
Partnership property to others
Partnership property may not be attached by…
An individual partner’s creditors
An general or limited partner may assign or sell…
Their partnership interest
Assignor still remains partner and is still…
Liable for partnership debts
The partnership will not dissolve from…
Assignment of partnership interest
An assignee does not become a partner without…
The consent of all other partners
The only right an assignee has is the right to…
Receive the assignor’s share of profits
The assigned is not liable for…
The assignor’s share of losses
3 steps required for partnership to formally end
1 dissolution
2 winding up or liquidation
3 termination
Dissolution, what is it caused by?
Caused by any partner ceasing to be associated with business
What does dissolution terminate and not terminate?
Terminates actual authority
does not terminate apparent authority
Winding up or liquidation
Settlement of partnership affairs
Termination
Completion of winding up process
Changes in limited partners do not…
Dissolve partnership
Any partner can dissolve the partnership by simply withdrawing, even if…
Prohibited by partnership agreement
If partnership agreement is breached by partner…
Partner is liable
Dissolution may occur by operation of law. 3 examples
1 death of partner
2 bankruptcy of partner or
3 bankruptcy of partnership
Exception: under Revised Uniform Partnership Act. Partner’s that own majority of partnership may choose to…
Continue general partnership within 90 days of partner’s withdrawal, death or bankruptcy
Upon dissolution, non continuing partners are…2
1 credited with their profits or charged with losses
2 liable to creditors
Upon dissolution, non continuing partners are liable to creditors even if…
Continuing partners agree to hold them harmless
Upon dissolution, creditors of old business are…
Creditors of the new business
Upon dissolution, a new partner has…2 for liability
1 Liability limited to his share of partnership property
2 not liable to creditors of old partnership
Order of distribution in dissolution of general partnership 4
1 pay creditors
2 pay loans made by partners to partnership
3 distribute capital contributions made by partners
4 distribute profits
Partnership creditors have first claim on partnership assets, but they may only sue a partner personally after…
All partnership assets are exhausted
Most states require 2 members to form a…
LLC
3 key areas of LLCs differing from other business forms
1 liability advantage
2 participate in management
3 federal tax advantage
All members in LLC have…
Limited liability and can participate in management
An LLC must file its articles of organization with…
The state
Operating agreement
2) is it filed with the state?
Agreement with LLC members (like a partnership agreement)
2) no
2 main methods of managing an LLC
1 member managed
2 manager managed
Member managed LLC 2
1 Each member has equal right unless otherwise agreed and
2 each member has actual and apparent authority to bind LLC
LLC may be managed by…
Managers elected by members
Manager managed LLC 2
1 members have no actual or apparent authority unless also a
manager
2 LLC managers have same limited liability as LLC members
LLC member rights:
3 rights determined by operating agreement
rights to profits, losses and distributions
LLC member rights:
Unless otherwise agreed, a member has the right to…
Assign his interest in the LLC
LLC member rights:
Unless otherwise agreed, a member has the right to assign his interest in the LLC 2
1 assignment doesn’t dissolve LLC, assignee doesn’t become
member
2 assignee only receives the right to receive assignor’s share of distributions
An LLC is dissolved in much the same manner as…
A partnership
In most states remaining members may continue LLC by…
Unanimous consent
LLP is treated by law as…
A general partnership for most purposes
In an LLP, partners in LLP are…
general partners
In an LLP, partners are not jointly and severally liable for…3
1 partnership contracts
2 debts
3 torts
An LLP is taxed as…
A partnership
LLP must file with…
State
Joint venture
Business association of 2 or more owners acting together for profit
For limited purpose and limited duration
Joint ventures are usually for…
A single project
Joint ventures are treated as…
A Partnership in most cases by law
Death of joint venture does…
Not dissolve joint venture
Corporations are formed by…
Promoters who are primarily liable for preincorporation contracts
If a corporation accepts a promoter’s contract…
Both corporation and promoter are liable
Corporation cannot…
Ratify promoters contracts
Promoters remain primarily liable unless there is…
Novation
Novation
Release
Corporations are formed by filing Articles of Incorporation which must contain 2
1 stock provisions
2 names
Stock provisions 3
1 Amount authorized shares
2 voting stock
3 capital structure
Articles of incorporation:
names 3
1 name of corporation
2 it’s registered agent
3 names of all incorporators
Common shares characteristics 2
At least one class and have voting rights
Preferred stock has special rights over other stock usually as to…
Dividends
Cumulative dividends
Dividend carry overs to future years if not paid
Treasury stock 4 characteristics
1 no preemptive rights
2 no voting rights and no dividends
3 corporation can’t buy if it will become insolvent
4 can be distributed as stock dividend or resold at less than par
Watered stock
Selling par value at less than par in original issue
Watered stock, initial purchaser and all others with notice are…
Liable for difference in price
Foreign corporation
Corporation doing business in state other than state of incorporation
Foreign corporations must obtain a…
Certificate of authority from any state where they are doing business
Merger of A&B
Combine and one survives
Consolidation of A&B
Combine and new company emerges
Approval steps for merger/consolidation 3
1 submit formal palm of merger to both boards and get majority approval
2 submit to all stockholder’s and get majority approval
3 submit plan to Secretary of State
For a merger plan submitted to Secretary of State, the Secretary of State issues a…
Certificate of merger upon approval
When submitting merger plan to stockholder’s and getting majority approval, notice must be given for…
Time, date and place
Right of appraisal
Dissenting shareholders can buy out of corporation at FMV
Piercing the corporate veil define
Disregarding corporate form and holding stockholder personally
liable
3 situations where stockholder’s are liable under piercing the corporate veil
1 fraud
2 under capitalization
3 commingling of funds
2 management rights of stockholder’s
1 elect board of directors
2 vote on fundamental changes to corporation
Stockholder’s voting on fundamental changes to corporation 4
1 amending articles of incorporation
2 dissolution
3 selling substantially all of corp. assets
4 mergers unless short form merger
Investors can inspect books and records at reasonable times if…
They have proper motive
Pre emotive rights are only available if…
Corporation permits
Preemptive rights are not available for…2
1 treasury stock
2 if stock is traded for property or services
Derivative suit is brought by…
Large group of stockholder’s in the name of the corporation
In derivative suit stockholder’s must show…
2) If successful recovery goes to…
Harm to corporation
2) goes to corporation
Stockholder voting agreements are enforceable in most states if…
They are in writing
When are directors liable for dividends?
Wrongful declaration of dividends
Dividends become a corporate debt only after…2
1 after declaration and
2 public notice stockholders
One a dividend is duly declare it can’t be revoked unless…2
For fraud or illegality
Once a dividend is duly declared, stockholder’s become…
Unsecured creditors
Stock dividends don’t reduce corporate assets or increase stockholder’s percentage of ownership or wealth, therefore they have no effect on…
Earnings for tax puposes
Principal duties of directors
Handle overall management of corp and set policy
Principal duties of officers
Handle day to day affairs
Officers are selected by…
Board of directors
Business judgement rule
Officers and directors not liable if acted reasonable and in good faith
Directors can usually rely on reports of…
Officers and agents
Officers and directors are liable if…
Negligent
Officers and directors may make personal profit on deal with their own corporation in 2 cases
1 they make full disclosure and don’t participate in approval process
2 absent pre approval, only if deal is fair and reasonable for corp
Indemnification of officers and directors
Reimbursement for losses in lawsuit if acting in their corporate
capacity
Directors and officers may be indemnified by corporation if…
They win lawsuit
If officers and directors lose the law suit indemnification may require…
Court approval
Voluntary dissolution of a corporation requires…2
1 resolution is drawn up by the board of directors and
2 approved by majority of stockholder’s
Involuntary dissolution requires…
Court action
State can request court dissolution of corporation for…3
1 fraud
2 illegality or
3 no business activity
Stockholder’s can request involuntary corporate dissolution if corporation is…3
1 hopelessly deadlocked
2 acting illegally or oppressively or
3 for waste of corporate assets
Upon dissolution first creditors are paid and then shareholders receive their…
Pro rata share
Silent partner…2
1 one who does not help manage
2 has personal unlimited liability
In a sole proprietorship, business is not a…
Separate legal entity apart from its owner
If business is operating under name other than that of sole proprietor, most states require that it…
File fictitious name statement with government
Upon partner’s death, his/her estate is entitled to deceased partner’s…
2) but the estate is not entitled to…
Charge of profits and capital
2) not entitled to any specific partnership property
Upon partners death, remaining partners have duty to…
2) Heirs do not automatically become…
Account to heirs for value of interest
2) partners
4 other activities limited partners are allowed to engage in without risk of losing unlimited liability
1 6 surety for limited partners
2 consulting with general or limited partner about partnership
3 bring derivative suit on behalf of limited partnership
4 voting on loans of limited partnership
Generally joint venture is not required to file a…
Document or certificate with the state
Laws for LLCs generally governed by
Revised Uniform Limited Liability Company Act (RULLCA 2006)
LLC must be formed according to…
LLC statue in the state in which formed
General partners that convert partnership to LLC…
Retain liabilities they had with partnership
Only have limited liability with future transactions
LLC is foreign LLC in other states in which it does business and laws of…
Laws of state in which it was formed typically govern LLC in those
Other states
LLC is a separate legal entity so it can…
Sue or be sued in its own name
Foreign LLC must register with the Secretary of State and obtain certificate of authority to…
transact business in state or it can’t sue in state courts
To form an LLC 1 or more persons may act as organizers by…
Filing Certificate of Organization with Secretary of State
LLC may be amended by filing an…
Amendment with Secretary of State
There is no limit to…
The number of member in an LLC
When LLC is manager managed, only…
2) if LLC is member managed…
Managers have authority to bind LLC to contracts to LLC
2) all members have authority to bind LLC to contracts to LLC
LLC is bound to contracts that…2
1 LLC has authorized under agency law or
2 are made in ordinary course of business
In an LLC, a member who is not a manager has no right to compensation for…
2) What’s the exception?
for services performed
2) entitled to compensation for services performed in winding up
The LLC
LLC is required to reimburse members and managers for…
Payments they made in name of LLC
Dissolution of LLC may require…
Filing dissolution document with state
Majority of states require majority of partner approval to…
Become LLP (not unanimous)
Most states allow LLP to be formed so the general partners have no personal liability for…
Contractual obligations of firm
Partners in LLP have no personal liability for debts arising from…
Torts of LLP
Partners have personal liability in LLP if…2
1 partner actually committed tort
2 those supervised under partner committed tort
In general most provisions for Subchapter C and Subchapter S corporations are similar such as…2
1 limited liability for shareholders
2 structure of corporate management
Main distinction between S corps and C corps is…
Tax treatment
In professional corporations, professionals retain liability for…
Professional acts (malpractice)
