Quiz #5 Flashcards
Sole Propietors
sole propietorship is the simplest form of business. The owner is the business.
General Partners
Assumes management responsibility for the partnership and has full responsibility for the partnership and for all its debts
Limited Partners
A business organizational form that limits the liability of some of its owners. Consists of one or more general partners and one or more limited partners
Liability of Members of LLC’s
Members (owners) have limited personal liability. Their liability is limited to amount of investment.
Liability of Partners of LLP’s
- Allows professionals to avoid personal liability for the malpractice of other partners
- is still liable for his or own wrongful acts
- the LLP partner who supervised the individual who committed a wrongful act is also liable
Corporate Shareholders Liability
Shareholders are not personally liable for corporate acts
Officers Liability
Generally not personally liable for the corporation’s debts or obligations, but they can be held personally liable for their own wrongful acts, negligence, or violations of fiduciary duties.
Directors Liability
generally protected from personal liability for corporate debts or obligations due to the corporate veil, but can be held liable if they:
- breach duty of care, loyalty, or good faith
- commit fraud or illegal acts
-authorize wrongful acts or violate statutory obligations
Franchisee Agreement
an agreement that usually sets out conditions of termination. Franchisees must be given reasonable time to wind up the business.
Relationship between Franchisor and Franchisee
- A franchisee may receive little or nothing on termination since the franchisor owns the trademark—and the business.
- If franchisor arbitrarily or unfairly terminates a franchise, franchisee may be able to sue for wrongful termination
Most courts will not consider the termination “wrongful” if: - Franchisor’s decision to terminate was made in the normal course of business
operations. - Reasonable notice of termination was given to the franchisee.
Duty of Care
Acting in good faith (honestly)
exercise the care that an ordinarily prudent (careful) person would exercise in similar circumstances
Duty of Loyalty
Disclosing or avoiding any conflicts of interest
Sole proprietor Liability
Owner has unlimited liability for all losses or liabilities incurred by the business
General Partners Liability
have unlimited personal liability for the partnership’s debts and obligations, including those incurred by other partners.
Different forms of businesses How citizenship is determined for Jurisdiction
determined by the citizenship of each of its members
How LLCs will be managed and taxed
Two or more members will be taxed as a
partnership (pass-through), unless they choose to be taxed as a corporation (double-tax). A one-member LLC is taxed as sole proprietorship, unless the owner wishes to be taxed as corporation.
Duties of Shareholders
Majority shareholders owe a duty of fairness and loyalty to minority shareholders and the corporation. They must not abuse their control to the detriment of others (e.g., through oppressive conduct or self-dealing)
Duties of Officers
Responsible for the day-to-day management of the
corporation
Duty of Loyalty and Duty of care
Duties of Directors
Duty of Loyalty and Duty of care
Public Corporations
A corporation formed by the government for some public purpose (ex. U.S. Postal Service)
Private Corporations
A corporation created either wholly or in part of private benefit, or for profit
Nonprofit Corporations
A corporation formed for the purpose other than making a profit (ex. private hospitals, colleges, and charities)
Close Corporations
One whose shares are held by relatively few persons and is often operated like a partnership
S Corporations
A close corporation that meets specific requirements is allowed to make a tax-election to be taxed as a partnership. Some requirements include:
- corporation must be domestic
- corporation has no more than 100 shareholders
- corporation must have only one class of stock
- no shareholder of the corporation may be a nonresident alien
Domestic Corporation
A corporation is formed in one state and does business in that state
Foreign Corporation
A corporation that is formed in one state but does business in another state
Alien Corporation
A corporation formed in another country that is doing business in the United States
When is the Corporate Veil pierced
When the corporation no longer has a separate identity
Resulting Consequences of Corporate Veil being pierced
Shareholders may lose limited liability protection and be held personally liable for corporate debts.
