partnership & corp Flashcards
general (partnership)
Partnerships – General Law
There appears to be a partnership between ____ and ____ . A partnership is an
association between two or more people to go into business for profit.
Under the Uniform Partnership Act. The courts will look to whether the parties are a) sharing
profits and losses, b) share mutual control and management and c) whether they are
‘holding out’ as partners. The law of agency applies to partnerships and each partner is
an agent of the partnership and hence they have fiduciary duties of loyalty and care to
the partnership.
Partnership Blurb
There appears to be a partnership between ____ and ____ and. A partnership is an
association between two or more people to go into business for profit. Under the
Uniform Partnership Act. The court will look to whether the parties are a) sharing profits
and losses, b) share mutual control and management and c) whether they are ‘holding
out’ as partners. The law of agency applies to partnerships and each partner is an agent
of the partnership and hence they have fiduciary duties of loyalty and care to the
partnership.
Limited Partnership
(Hybrid of a general and LLP)
A Limited partnership needs at least one General Partner who make the day-to-day
decisions on operations and may be personally liable. The Limited (silent) Partners invest
in the partnership and have limited control, no business decisions, or the day-to-day
operations, limited partners have NO personal liability (only for their own misconduct)
There are requirements of filings with the State, and generally more formalities than a
general partnership.
Limited Liability Partnership
LLPs must have at least one managing partner who may be exposed to liability for the
partnership’s actions. The managing/general partner who runs the day to day
operations is legally exposed in the same way owners of a simple partnership. Silent
limited partners and investors in an LLP receive liability protection as long as they do not
take on a managerial role. If they do, a court could pierce the veil of liability protection,
under a de facto theory.
Most jurisdictions require the Partnership to file certain documents to qualify as an LLP
(usually partnership agreement, Qualifications, certificate of insurance, etc.)
Note: Any breach by partners – the court will utilize the equitable tool of an Accounting
for Profits
Closed Corp Blurb
There appears to be the existence of a Close Corporation, a close corporation is one in
which there is a) a small number of shareholders, b) no publicly traded stock and c) the
shareholders equally manage and control the corporation. Shareholders have the
highest duty of utmost good faith and loyalty to the corporation and shareholders.
Note: S/H are always breaching their duties. Think equity.
Limited Liability Corp
A separate legal entity with members, have limited liability, under most circumstances,
they are not personally liable for the debts and liabilities of the LLC.
corp outline
Partnership
General , limited/LP, LLP
General
-all jointly and personably liable for partnership debts
- No formal agreement or filing with state but can be
- Partnership by estoppel because held self out as partners
- There Is profit sharing
- All improvements are shared, lose are split to their share in profits
- All have equal rights limited liability)
Rights same as GP
Liable only for its own acts that they supervise or direct
Formation filing with state with info (I needed)
LP(limited)(more for investors so no duties )
Manage and control day to day
Limited authority
No fiduciary duty
Can compete or have adverse interest generally investors
Liable only to extent of investment
Formation- file certificate W State, names and address of each general partner ship and their signature
Fiduciary duties
Loyalty- (look out for business interest first)account, don’t compete
Care- no misconduct of law, reckless negligence
Obedience- act reasonably and seek diections from all partners
*each partner can ask to inspect financial records
Business liable K’s
-k’s are expressly authorized and made by partners in the scope of business ..
-to not be liable other side need to know they don’t have authority or its something outside the scope of the business and all business partners need to sign
Buisness in torts
-all liable if tort committed in the ordinary business or with authority of the partnership
GP
- All parties is liable to the extent of there share/profits in business (profits not contributions)
- Can be indemincation (1 pay all and seek reimbursement from partners)
LP and LLP
Have limited liability
Dissociation -
partner don want to be involved any more, if a person wants to dissociate it must be a express notification
-In rights, profits, and duties expect for things owed before dissociation
-Partners can buy them out
Dissolution
Have to be by ending date if none then just give other partners notice
-wind up business, liquidate assets, pay out creditors first
-if winding up a business, a partnership is bound to a partners post dissolution act if the act was appropriate for winding up the business …..if not appropriate like entering a new business deal, the 3rd party must not have knowledge of the dissolution and the act would have bound the partnership b4 dissolution because partner is acting in ordinary course of partnership
-Business can continue until winding up is done.
-partnership assets are those purchased by the partnership or given to the partnership. (money, tools, recipes, good will; etc)
-good will- is the going concern value of the business. if a value cannot be placed upon it, then it’s questionable of whether it exists.
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LLC
Corp and partnership
- Formed like a (LLP) partnership but taxed like a corporation
- Ran like member managed and manger managed
- Equal vote unless operating agreement had otherwise
- File with state , register agent, operation agreement
- Good faith and fair dealing
- Duties same (loyalty, care)
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Corporations
- Living entity
- Shareholders can transfer interest
- Still exist even if owners change
Formation
-filed with state, name address, registered agent, statement of purpose
-by laws, articleds of incorporation (articles of incorporation trumps by laws)
Parties
Promoters, shareholders, directors, officers
——
Parties duties
- Promoter a agent thatmake contracts/ find funding/bind corp before crop is in existence if corp adopt K..promoter is liable to K’s even after formation unless novation or indication
- with them as long as its duties the directors actually have
- Shareholder select and remove directors, adopt amend or repel by laws, oppose fundamental changes in corp(merges sale of assets), inspect corp books with written notice 5 days, if by laws or article don’t need notice
- Officers run day to day activities , or additional things directed by directors as long as in directors power, cant make major decisions without corp consent
- Directors
- determine when and where to distrubrite shares, elect officers, can decided officers and share directors duties
- responsible for corp affairs and management, has to be at lease 1 director, can be elected or removed by shareholder duty of care- handle operation with care and don’t breach business judgement rule (make reasonable decisions for corp)
- Duty of loyalty- no conflict of interest(ties to other side)/cant compete(self deal unless safe harbor rule)/ can’t usurp corp opportunity(a deal that corp would have interest or expectancy in the opportunity, must give corp the opportunity to act first)
- Safe harbor rule: conflict is fair to the corp and is approved after disclosing to disinterest shareholders or majority of disinterested bad members
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Liabilities
Promoter- Liable even after crop come into existence unless novation or indeminification
Shareholders, directors and officers
Not liable to corp unless director and officers bad acts: then everybody liable but typically only go after management roles
- Court finds Actions to pierce corp veil- co mingle funds, inadequate capitalization, ignoring formalities not keeping corp separate, doing criminal acts through corp like fraud to avoid existing personal liability
- Ultra vires - corp acting out side it’s purpose (purpose statement in articles of formation)
-state brings action to dissolve corp
- Shareholders Brin suit to stop acts
- Corp suit- corp sues directors or officers responsible (remember directors can grant officers some of their responsibilities) - Defect Corp
Corp failed to properly form but carry out corp formation
- Corp won’t be in trouble if corp made good faith effort to comply w/ state to incorporate
- The entity acted like a corp (conduct business in the corporation name - Corp by estoppel: corp will be held out ad a corp if was holding out as a corp but now denying Is a corp
- shareholder law suit
corp, officer, or director harm to Shareholder, suit against corp (Direct of derivative)
-Direct - harm to direct shareholder
-Derivative suit - harm to corp
Need Standing- shareholder is a shareholder at the time of suit -Prerequisites-shareholder made a written demand on the corp and wait 90 days by filing suit unless corp reject or there will be irreaprble injury to corp if have to wait 90 days for suit Recovery- is to corp but shareholder get legal fees
———
Funding corp
-Bonds/ loans or Stocks/ Shares
——— Shares
Shareholder become owners
Art. Of incorporation tells number of shares corp can distribute
Shares can be split by catorgey
Directors decide when and how to dustribute assets
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Meeting- where shareholders make decisions for corp
Notice is required to shareholders
Annual meeting- elect directors and special matters
Special meetings-conduct business needed with shareholder approval]
Must be a majority vote
-Voters must be the voter by the record date (that’s not the date the voting takes place) look for it in fact pattern
-voter can use proxy but must send in written letter to officer, can be revoked if voter show up or write revoked unless the writing say irrevocable and there is interest
-reacquired shared by crop don’t count as votes
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Dissolution/disposition of corp property
Merger
-1 or 2 corps merge to one, need each corp board and shareholder approval unless
-The surviving corp had no significant changes (shares, rights, articles, dissolution of property), the surviving corp becomes boss- owns all property and assume all obligations
-Short term merger, a parent copt owns at least 90% stock of qsubsidiary corp so don’t need approval
Dissenting shareholder
Shareholder don’t agree with merger so want payment of shares at fair market value or challenge merger
*shareholder must get notice before vote
*must give notice in advance of intent for payment
Dissolution & Disposition of Corp Property
-End corp. no new business, wind up and liquidate
-Voluntary- Fundamental change and shareholder
-Administrative dissolution - brought by state to dissolve because crop failed to follow state requirements (can be remedied)
Judicial Dissolution
-By either Attorney general- abuse of authority (piece veil)
- Or shareholder suit - corp abandon business or failed to dissolve
- Dead lock w/ bod and shareholders that threaten irreparable injury to corp
Disposition of property
- Corp sell/lease/dispose property (fundamental change)
- Outside regular course of business
BJR vs exculpatory rule (not following your duties)
Bjr -protected if self in good faith …another person in same shoes would do the act …got consent
-Business judgement rule (think directors judgement in decisions)- watch for personal interests not always bad!
BJR - protect director’s decisions as long as made in good faith, in the manner of a reasonable person in their position, for the interest of the corp.
Good faith actions are relying on opinions of experts, and corp insiders, as long as seems reasonable. Not reasonable if know the person has a personal interest (go do research!!) if material facts are disclosed and are in the best interest of corp then okay!
inflated prices are bad
-Exculpatory provision (think exempt in articles)
Provision in articles of formation that limit or eliminate directors personal liability for money damages shareholder or corp for actions taken.
Except liable when director intentionally inflict harm on corp or shareholders (intent crime or approve unlawful distribution) , or got a benifit (personal gain) while corp/shareholders suffered .
-BJR think breach in duty …no good faith intention..self dealing ..failure to inquire….VS
Exculpatory think more legal ..intent to do crime (misrepresent/fruad) get a benefit..intentionally commit harm
-Piecing corporate veil (giving liability )
- Art of incorp. are above by laws when in conflict
- Determining who owns the share, is the person on record on the “legal record date “ not annual shareholders meeting or before.
- Can vote in person or write letter with signature.
- Repurchased shares are not outstanding and cant be voted (when a corp rebuy shares)
-unamiomus vote vs affirmative 2/3
Proxys (shareholder to shareholders)
- When giving proxy must be written and signed to treasury
- Can be revocable by original person showing up to vote Except is coupled with interest (ie, the new person paid for proxy/shares from person)
Quorum-directors get together to meet and vote on things must be a majority of the director, remember directors cant give more control then they have.
Corp members are ::
Directors , shareholders and officers (president, treasury, etc)
-shareholders strongest (test like to play with voting powers(shares, proxy)and suits
-Directors work for shareholder (test: like to play with duties, busness judgement, exculpatory)
-officers work for directors - (agency powers, *look to art of incorp if silent, look to what director gave them/ cant be powers directors don’t have such as “substantial change, need shareholders)
Officers have power to enter ordinary contracts that involve day to day operation can have more up to directors decision but can only be up to the powers that the directors theirself have unless art. Of corp exclude it. explain agency/agent powers here
Ie;(things bod may give to officers: delegate daily operations, study business operations, and other powers Bod have)
SUBSTANTIAL change would be sell all corp assets need shareholder approval
Anything with substantial change- directors need quroum (meeting) get together to make a plan, only need majority of directors for meeting and then need shareholders approve the plan need majority vote.
Shareholder Remedies to fundamental change :if shareholders that do not agree,(appraisal method) …they go to the meeting,, ( file objection before vote), vote no at meeting, write a letter of demand for fair value of shares and deposit shares with corporation-IF the company don’t want to give the value amount must go to court.
Holding a corp or agent liable to a K
- person liable, if promoter before corp is formed , promoters liable b4 and after unless k says exempt
- Corp not liable to promoter k’s unless it adopts promoter or agency k express or implied or silent on the behalf of ppl or person with authority to deny or adopt
- Corp must be formed to have a agent act on his behalf (except promoter)
- If corp is formed, Person act/sign as agent of corp
Promoters
- are able to enter coprs in k’s before formed
- Promoter make ks and funds for corp
- Promoter is personally liable even after corp formed unless k says probomter not liable
- * saying is a agent for corp dont work for a corp essay but will for a agency essay”
- Corp not liable on promoter k unless ratify it (express or implied)
- Express action to adopt with knowledge of material facts.
- Implied somone of authority to accept the bendits of the k with knowledge of material facts
