Quiz 5 Liability Flashcards
Limited Liability Company (LLC) definition (2 parts)
“Hybrid entity” has
1. Limited liability of a corporation
2. Tax advantage of a partnership
What is the tax advantage of a partnership
The business doesn’t pay income tax
Limited Liability Partnership (LLP) definition
Same as LLC, but for Professionals (ex doctors, dentists, optometrists)
Liability of Members of LLCs
Members (owners) have are shielded from personal liability.
Their liability is limited to amount of their investment.
Liability of Partners of LLPs (3 things) #1
- The LLP allows Professionals (ex doctors) to avoid personal liability for the malpractice of other partners
Liability of Partners of LLPs (3 things) #2
- UNLIKE LLC, the partner is still liable for his or her own wrongful acts
Liability of Partners of LLPs (3 things) #3
- the LLP partner who supervised the individual who committed a wrongful act is also liable
Limited Partnerships (LPs) definition (3 things) #1
A limited partner:
1. Contributes cash or other property
Limited Partnerships (LPs) definition (3 things) #2
A limited partner:
2. Is not involved in management responsibilities
Limited Partnerships (LPs) definition (3 things) #3
A limited partner:
3. Is not personally liable for partnership debts beyond the amount of his or her investment (capital contribution)
LPs Liability Exception
If a limited partner engages in management, he loses his limited liability and is treated as a general partner for liability purposes
Limited Partnerships (LPs) Liability (2 things)
- Is not personally liable for partnership debts beyond the amount of his or her investment (capital contribution)
- Liability Exception
:If a limited partner engages in management, he loses his limited liability and is treated as a general partner for liability purposes
Corporate Shareholders Liability
Shareholders are not personally liable for corporate acts
Officers Liability (2 things)
- 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 (4 things) #1
- generally protected from personal liability for corporate debts or obligations due to the corporate veil
Directors Liability (4 things) #2
liable if they breach duty of care, loyalty, or good faith
Directors Liability (4 things) #3
liable if they:
- commit fraud or illegal acts
Directors Liability (4 things) #4
liable if they:
-authorize wrongful acts or violate statutory obligations
Corporate Veil definition
Legal separation between a corporation and its owners. Protects owners from personal liability for their company’s debts and legal issues.
Which companies does Corporate Veil apply to
Corporations like LLCs, S Corporations, and C Corporations
Which companies does Corporate Veil not apply to
sole proprietorships or general partnerships, where the owners are personally responsible for the business’s debts.
What does “pierce the corporate veil” mean
When the court holds the corporation shareholder or director personally liable for the corporation’s debts
In the case study why did the court pierce the corporate veil?
Corporate and personal assets were commingled (blended together ) so the corporation had no separate identity
