Partnerships, LLCs, & Corporations Flashcards
Limited liability companies (“LLCs”) generally are NOT required to keep the following records:
A A copy of the then-effective operating agreement.
B Copies of the LLC’s federal, state, and local tax returns for the most recent three years.
C Copies of any LLC financial statements for the most recent three years.
D Minutes of all meetings of members and managers for the most recent three years.
D Minutes of all meetings of members and managers for the most recent three years.
LLCs are not required by statute to keep minutes of all meetings of members and managers for the most recent three years. Each LLC must keep the following records: (i) a current list of the full names and last known business, residence, or mailing address of all members and managers; (ii) a copy of the then-effective operating agreement; (iii) copies of the articles of organization and any other documents filed with the department of state, together with any powers of attorney pertaining to these documents; (iv) copies of the LLC’s federal, state, and local tax returns for the most recent three years; (v) copies of any LLC financial statements for the most recent three years; and (vi) unless already contained in the operating agreement, a writing listing the contributions and conditions of contribution of each member.
Generally, how is a limited liability partnership (“LLP”) different from a general partnership? (Select all that apply)
A An LLP need have only one general partner with unlimited liability.
B To become an LLP, a partnership must file a statement of qualification.
C A partner in an LLP is not personally liable for the obligations of the partnership.
D There are specific requirements for naming an LLP.
B, C, & D.
The major advantage of operating as an LLP is that, unlike in a general partnership, the partners are not personally liable for the obligations of the partnership, whether arising in contract, tort, or otherwise. Furthermore, to become an LLP, a partnership must file a statement of qualification. The LLP name must end with the words “Registered Limited Liability Partnership” or “Limited Liability Partnership,” or the abbreviation “R.L.L.P,” “L.L.P.,” “RLLP,” or “LLP.” It is not true that an LLP must have one general partner with unlimited liability; in fact, no partner need be personally liable.
In a limited partnership, which of the following rights belong solely to a general partner?
A The right to indemnification for liabilities he incurs in the ordinary course of partnership activities.
B The right to transfer his distributions.
C The right to participate in the management and control of the limited partnership.
D The right to maintain a direct or derivative action against the limited partnership.
A The right to indemnification for liabilities he incurs in the ordinary course of partnership activities.
A limited partnership must indemnify a general partner for liabilities he incurs in the ordinary course of the activities of the partnership, and this right is specific to general partners. Both general and limited partners have a right to transfer their distributions, to participate in the management and control of the limited partnership, and to maintain a direct or derivative action against the limited partnership.
Under the Revised Uniform Partnership Act (“RUPA”), which of the following statements regarding dissolution are NOT true? (Select all that apply)
A After dissolution, a partnership ceases to be bound by a partner’s acts.
B A partner who wrongfully dissolves a partnership is not entitled to wind up the affairs of the partnership.
C A partnership is not terminated until after winding up is completed.
D Any time after dissolution and before winding up is completed, the partners may decide by majority vote to continue the partnership business.
A & D.
Any time after dissolution and before winding up is completed, the partners may decide to continue the partnership business, but they must do so by unanimous vote—not majority vote). A partnership will be bound by a partner’s act after dissolution if the act is appropriate for winding up the partnership (e.g., settling claims, selling partnership assets, collecting debts, paying creditors). It is true that a partner who wrongfully dissolves a partnership is not entitled to wind up the affairs of the partnership and that a partnership continues until the winding up of the business is completed, at which time the partnership is terminated.
Which of the following statements regarding a partner’s liability is incorrect?
A Partners are jointly and severally liable for all obligations of the partnership.
B Partners are personally and individually liable for the entire amount of all partnership obligations.
C Incoming partners are not personally liable for any partnership obligation incurred before their admission to the partnership.
D Outgoing partners cease to be personally liable for any obligations incurred by the partnership while members 90 days after they leave the partnership
D Outgoing partners cease to be personally liable for any obligations incurred by the partnership while members 90 days after they leave the partnership
All partners are jointly and severally liable for all obligations of the partnership, whether they arise in contract or tort. As such, an action may be brought against any one or more of the partners or the partnership. Furthermore, each partner is personally and individually liable for the entire amount of all partnership obligations. An incoming partner is not personally liable for any partnership obligation incurred before her admission to the partnership, although the incoming partner’s contributions to the partnership may be used to satisfy existing partnership obligations. An outgoing or dissociated partner remains liable on all obligations incurred by the partnership while a member of the partnership, unless there has been payment, release, or novation, or the creditor has agreed to a material alteration in the obligation without the partner’s consent. Generally, the outgoing partner also is liable for acts done until he has withdrawn from the partnership and acts done up to 90 days after he has filed a notice of dissociation with the department of state. Thus, it is not true that an outgoing partner’s liability automatically ends 90 days after leaving the partnership.
Under the Revised Uniform Partnership Act (“RUPA”), which of the following provisions may NOT be waived in a partnership agreement? (Select all that apply)
A All partners must be given a right to inspect the books and records of the partnership.
B All partners must assent to the admission of a new partner.
C All partners must share profits and losses equally.
D All partners must comply with the duties of care and loyalty.
A & D.
Partners are free to adopt a partnership agreement governing the relationships among themselves, and RUPA will govern only those issues not provided for in the agreement. However, certain provisions of the RUPA may not be waived in an agreement, including a partner’s right to access the books and records of the partnership and a partner’s duties of care and loyalty. Under the RUPA, one cannot become a partner in a partnership without the consent of all partners, but this default rule can be modified in the partnership agreement. Additionally, each partner is entitled to an equal share of the partnership profits and must contribute towards the partnership losses in proportion to his share of the profits, but this rule, too, can be modified in the agreement.
Pursuant to the duty of loyalty, a partner must (Select all that apply):
A Account for profits, property, opportunities, or other benefits derived by the partner in conjunction with partnership business.
B Refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or knowing violation of the law.
C Refrain from dealing with the partnership as, or on behalf of, a party having an interest adverse to the partnership.
D Refrain from competing with the partnership.
A, C, & D.
Partners owe the partnership and other partners the duty of loyalty. This duty is threefold: (i) to account for profits, property, opportunities, or other benefits derived by the partner in conjunction with the partnership business; (ii) to refrain from dealing with the partnership as, or on behalf of, a party having an interest adverse to the partnership; and (iii) to refrain from competing with the partnership. Partners also have a duty to refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or knowing violation of the law, but this duty is part of the duty of care, rather than the duty of loyalty.
Which of the following statements regarding a partner’s interest in the partnership are correct? (Select all that apply)
A A partner may transfer his interest in partnership property.
B A partner may transfer his interest in management.
C A partner may transfer his interest in profits, losses, and distributions.
D A partner may transfer his interest in the partnership.
C & D.
Each partner has a transferable interest in the partnership, which consists of his share of the profits and losses and the right to receive distributions. A partner is not a co-owner of partnership property and has no interest in partnership property. As such, a partner cannot transfer his interest in individual items of partnership property or use partnership property for personal purposes. Furthermore, a partner may not transfer his interest in management.
Under the safe harbor provision of the Florida Limited Immunity Statute, a director is deemed not to have derived an improper personal benefit from a transaction in which he has a personal interest when (Select all that apply):
A The transaction is fair to the corporation.
B The transaction will result in a tangible or intangible benefit to the corporation.
C The transaction is fully disclosed and approved by a disinterested majority of the directors (at least two).
D The transaction is fully disclosed and approved by a majority vote of the disinterested shares.
A, C, & D.
The safe harbor provision of the Florida Limited Immunity Statute creates a “safe harbor” (director deemed not to have derived an improper personal benefit) when: (i) after full disclosure, the the transaction is approved by a disinterested majority of the directors (at least two) or by a majority vote of the disinterested shares; or (ii) the transaction is fair to the corporation. Whether the transaction offers a tangible or intangible benefit to the corporation is not the standard that is used to judge a transaction under the safe harbor provision. A transaction might offer some benefit to a corporation, but still be unfair.
Which of the following statements is true regarding transactions between a director and her corporation?
A All such transactions are void or voidable because of the director’s relationship to the corporation.
B Transactions between a director and a corporation are permitted as long as they are fair and reasonable to the corporation.
C A transaction between a director and a corporation may be approved by a single, independent director.
D When a vote is taken to approve such a transaction, the interested director cannot be counted for quorum purposes.
B Transactions between a director and a corporation are permitted as long as they are fair and reasonable to the corporation.
A transaction in which a director is interested is not void or voidable merely because of such interest if the transaction is: (i) approved by a disinterested majority of the board upon full disclosure of the conflict; (ii) approved or ratified by the shareholders upon full disclosure; or (iii) fair and reasonable to the corporation. An interested director transaction may not be approved by a single director. The interested director may be present at the meeting where the vote is being held to approve the transaction and may be counted for quorum purposes.
Any transaction in which a director is interested must be fair to the corporation. All courts will consider which of the following to determine if this fairness requirement has been met:
A Director self-dealing has been approved by a disinterested majority of the board.
B
All interested directors have abstained from voting on the transaction.
C The corporation has received reasonably adequate consideration in the transaction.
D The board of directors has met its burden of proving the fairness of the transaction.
C The corporation has received reasonably adequate consideration in the transaction.
For a transaction to be fair, the corporation must receive reasonably adequate consideration. Some courts require director self-dealing to be approved by a disinterested majority of the board, but this may be impossible since a majority may be interested. While all interested directors must abstain from voting on this transaction, the fairness requirement cannot be met merely by showing such a vote took place. The interested director has the burden of proving the fairness of the transaction.
Which of the following statements are true regarding directors’ staggered terms? (Select all that apply)
A Staggered directors’ terms may be provided for in the bylaws or the articles of incorporation.
B There may be one, two, or three classes of directors.
C If terms are staggered, the number of directors should vary across the classes.
D If terms are not staggered, all of the directors’ terms expire at the next shareholders’ meeting following their election.
A, B, & D.
The articles of incorporation or the bylaws may provide that directors’ terms be staggered. There may be one, two or three classes staggered for election annually. If directors’ terms are not staggered, all terms expire at the next shareholders’ meeting following their election. It is incorrect to state that if terms are staggered, the number of directors should vary across the classes. In fact, any increase or decrease in the number of directors must be apportioned across classes so that the same number in each staggered class is maintained as closely as possible.
How do the Florida courts treat close corporation shareholder agreements providing control devices as to how the corporation will be managed?
A The courts enforce such agreements as they do any other contract.
B
The courts have enforced such agreements in the past, but more recent courts have declined to do so.
C The courts have not and will not enforce such agreements.
D The courts have refused to enforce such agreements in the past, but will do so now if certain conditions are met.
D The courts have refused to enforce such agreements in the past, but will do so now if certain conditions are met.
Historically courts refused to enforce such agreements on the grounds that such agreements treated the corporation as if it were a partnership. More recently, courts look at the close corporation’s distinct needs and uphold shareholder agreements, as long as they do not (i) “sterilize” the board of directors or otherwise deviate too far from the “norm,” and (ii) harm anyone such as minority shareholders or creditors.
Which of the following does any shareholder have an absolute right to inspect?
A The articles of incorporation and board meeting minutes
B The minutes of the shareholders’ meetings and the record of the shareholders
C The most recent annual report and the corporation’s accounting records
D The bylaws and a list of the names and business addresses of current directors and officers
D The bylaws and a list of the names and business addresses of current directors and officers
Any shareholder who gives at least five business days’ written notice has an absolute right to inspect and copy the (i) articles of incorporation and amendments to them in effect; (ii) bylaws and amendments to them in effect; (iii) adopted board resolutions creating one or more classes of shares, if those shares are outstanding; and (iv) list of the names and business addresses of current directors and officers. Board meeting minutes, the record of shareholders, the corporate accounting records, and any other books and records may only be inspected for a proper purpose.
When can a third party purchaser compel a close corporation to transfer its stock despite a transfer restriction?
A When the transfer restriction is noted on the certificate, and not in the corporation’s articles or bylaws
B Whenever the security is uncertificated, even if the purchaser has actual knowledge of the restriction
C When there is no restriction on the certificate and the purchaser has no notice or actual knowledge of the restriction
D Anytime, because transfer restrictions do not apply to a third party purchasers
C When there is no restriction on the certificate and the purchaser has no notice or actual knowledge of the restriction
A third party purchaser can compel a close corporation to transfer its stock despite a transfer restriction if the restriction does not appear on the stock certificate and the purchaser has no notice or knowledge of the restriction. Transfer restriction do apply to third party purchasers. The purchaser cannot compel a transfer if the restriction is noted conspicuously on the certificate, nor can he compel a transfer if the stock is uncertificated, but he has actual knowledge of the restriction.
