REG - Business Law Flashcards
Contract
An agreement supported by consideration between 2 or more people w/competent capacity for a legal purpose
Statute of frauds
Statute of frauds requires certain types of contracts to be written in order to be enforceable
- contracts involving sale of land/real estate
- contracts impossible to perform w/in 1 year of formation
- contracts for the sale of goods priced at $500 or more
- guaranty of debt contracts
specific performance
When a court orders a party to perform his/her contractual duties as promised. Available only when money damages would not be sufficient to compensate the injured party.
One type of contract that is often ordered to be specifically performed is the sale of real property.
express contract
the parties have directly stated the terms of their contract orally or in writing
Mutual mistake of facts typically causes…
a contract to be unenforceable
On the other hand, mutual mistake of value isn’t grounds to make a contract unenforceable
under the UCC, in the case of a sale or return contract, risk of loss and title pass
to the buyer according to the shipping terms of the contract
promissory estoppel
One party relies on another party’s promise to his/her detriment
The elements necessary for a promissory estoppel are:
- A promise that the promisor should foresee is likely to induce reliance;
- Reliance; and
- An injustice resulting from the reliance
Liquidated damages
liquidated damages are those agreed to in a contract to set the amount of damages in the event of breach of contract
However, liquidated damages become considered penalty when they are equal to or more than the actual cost -> this voids the liquidated damages
accord and satisfaction
In an accord and satisfaction, both parties to the contract agree to satisfy the contract in a different manner
fully integrated contract
A contract that is complete and unambiguous
The remedy of specific performance is not available for breach of a personal service contract
PAROL EVIDENCE RULE
Parol evidence means written or spoken statements that are not contained in the written contract.
When there is a written agreement intended by the parties to be a fully integrated and completed contract, the parties are barred by the parol evidence rule from introducing prior or contemporaneous evidence which contradicts the terms of the agreement.
voidable
One in which the harmed party has a right to cancel their obligations under the contract (e.g.: a contract induced by fraud or duress is voidable) -> the important feature of a voidable contract is that the injured party has the right to cancel the contract if he chooses
novation
a 3 party agreement between the contracting parties and a 3rd party, whereby 1 of the contracting parties is discharged from his/her duties and the 3rd party is substituted in the discharged party’s place
executed accord and satisfaction
an agreement by two parties to terminate an existing contract between them by substituting a new agreement.
The furnishing of false financial statements does not
void a contract. It does, however, extend the time the seller has to reclaim goods already delivered to the insolvent player
The death of an offeror (person making the offer) automatically and immediately…
terminates an offer to contract. This applies whether the offeree has received notice of the offeror’s death.
The offeror’s notice of revocation must be received by the offeree before the revocation becomes effective
Any right can be assigned or delegated (unless an exception applies)
The assignment of rights is a contract separate from the original agreement
Donee (intended) beneficiary
The contract must be made for the direct benefit of the beneficiary and the donee’s rights must be given in the contract (i.e. the donee beneficiary has a legal right to what is given by the 2 parties to the contract)
creditor beneficiary
There must be a debtor - creditor relationship and the debtor must make a contract that befits the creditor w/a 3rd person
When the buyer rejects goods he ordered the title of the goods…
reverts back to the seller at the time of rejection
The primary distinction between an action based on innocent misrepresentation and an action based on common law fraud is that, for misrepresentation, a party need not allege and prove
That the party making the misrepresentation had actual or constructive knowledge that it was false.
In general, an offer remains effective until it is withdrawn, rejected, or accepted
in the instance in which the offeree sends a rejection first and then an acceptance…
the acceptance is not effective until received
An assignor who receives payment from the debtor after the assignment of rights has occurred will always be…
liable to the assignee for payment received
Under common law, absent of any consideration, a promise to hold an offer open until a specified date is…
not binding on the offeror
A seller who discovers that an insolvent buyer has received goods on credit may reclaim the goods by…
making a demand for their return within 10 days after receipt of the goods by the buyer
This 10-day limitation, however, does not apply if the buyer made a written misrepresentation of its solvency within 3 months prior to its receipt of the goods
A minor who makes a contract has the right to disaffirm a voidable contract at…
anytime while still a minor and for a “reasonable time after reaching the age of majority”
If you are an incidental 3rd party beneficiary, you’re not entitled to…
monetary damages since only the intended beneficiaries can maintain an action against the contracting parties for nonperformance
Doctrine of substantial performance
Under the doctrine of substantial performance, a contractual obligation can be discharged if:
- it can be shown that the defect in the performance was only minor in nature
- good-faith effort was made to conform completely w/the terms of the agreement
- Price is decreased by the value of the defect
In order to conform to the Statute of Frauds, and therefore be enforceable, any contract for the sale of an interest in real property must be
in writing and signed by the party to be charged
Principal
The party who delegates authority to another in order to accomplish a task or consummate a transaction
Agent
One who acts on behalf of the principal to accomplish a task or consummate a transaction for the principal
Express authority
Express authority is the authority which the principal has expressly given to the agent whether orally or in writing
Before any interest in goods (title or risk of loss) can pass from a seller to a buyer, the goods must…
The goods must be in existence and identified to the contract
Implied authority
Implied authority refers to an agent with the jurisdiction to perform acts which are reasonably necessary to accomplish the purpose of an organization.
Implied authority refers to authority implied from the express authority
For goods in existence at the time the contract is entered into, identification occurs…
at the time the parties enter into the contract
For fungible goods (goods that can’t be distinguished b/c of homogenous qualities or are so mixed together that they can’t be distinguished by individual units -> i.e. grains, fruits etc.), identification occurs when
the goods are shipped or otherwise designated for the buyer (i.e. set aside in a warehouse)
Article 9 of the UCC
the uniform law that governs the rights of creditors and debtors for security interests in personal property and fixtures (incl. goods, documents, instruments, general intangibles, agricultural liens, promissory notes etc.)
More specifically, an Article 9 security interest gives the creditor the right to specific collateral that the debtor owns, or has rights in, in order to satisfy the debt
Article 9 also gives creditors a way to have priority to that collateral, through a step known as perfection of the security interest
Security interest
The interest in the collateral that secures payment or performance of an obligation
Requirements for a Security Interest to Attach
- A writing (this includes all form of tangible records, including electronic documents)
- The secured party must give the debtor something of value (such as a binding commitment to extend credit)
- The debtor must have “rights” in the collateral
Common carriers’ liability is based on strict liability (liability irrespective of fault), therefore,
common carrier is liable for losses to property whether or not the common carrier was negligent
Risk of loss
risk of loss determines which party should bear the burden of risk for damage occurring to goods after the sale has been completed, but before delivery has occurred
A security interest can be created by the secured party taking possession of the collateral under a security agreement
Perfection of security interests
Perfection is a means by which a secured party gains priority to a debtor’s collateral over other 3rd parties who also claim to have interest in the same collateral
Security interest is perfected upon communication (allows electronic filings, if authorized) of a financing statement + filing fee to a filing officer OR acceptance of the financing statement by the filing officer
A perfected security agreement due to purchase money security interest is not effective against
a good faith purchaser for value who buys from a consumer for consumer use
4 methods of perfection
- Filing (either a UCC-1 form or a security agreement)
- Possession (creditor has physical possession of the goods)
- Automatic Perfection (perfection is automatic upon creation of the security interest - applies mainly to a purchase money security interest (PMSI) in consumer goods)
- Temporary Perfection
Rights of Secured parties on Filing for Perfection
- Release: A secured party can release all (used as a termination statement) or part of any collateral
- Assignment: A secured party can assign all or any part of the security interest to a 3rd party assignee
- Amendment: if debtor and secured party agree, then the filing can be amended (i.e. adding new collateral if authorized by debtor)
- Info Request: Anyone can request from the filing officer “information” on previously filed security interests on a specific debtor
Buyer in the Ordinary Course of Business
A buyer who buys goods from a merchant (a seller who regularly deals in goods of that kind)
Buyer not in the Ordinary Course
A buyer not in the ordinary course of business is one who buys at a 1-time event such as an estate sale or the sale of the furniture/equipment of a company that’s going out business
PMSI (Purchase Money Security Interest)
A PMSI is someone who lends you money to buy something. If you don’t pay back the money, they keep the item you spent their money on
If the collateral is consumer goods and 60% or more of the purchase price has been paid, the creditor must…
sell the collateral
5 types of bankruptcy
*Note, Chap 7, 11, 13 are the most emphasized on the exam)
- Chapter 7 (“straight bankruptcy” or “liquidation”) -> individuals and businesses may file
- Chapter 9 -> Allows for the adjustment of debts of an insolvent municipality
- Chapter 11 -> Allows for the reorganization of a business debtor to pay debts)
- Chapter 12 - Allows for the adjustment of debts of a family farmer and family fisherman
- Chapter 13 -> (“wage earner’s plan”) -> allows for the adjustment of debts of an individual w/regular income
Chapter 7
- referred to as “straight bankruptcy” or “liquidation”
- individuals and businesses may file Chapter 7
- Consumers must establish that they do not have the means to repay their debt
- Means test is used to determine whether the debtor has the means to pay off his/her debts -> this entails looking at debtor’s monthly income -> if the debtor’s income is at or below the state median income, the bankruptcy proceeds -> if the debtor’s income > state median income, then the court looks at debtor’s expenses (i.e. food, rent etc.) and if there is sufficient income after coverage of reasonable expenses to pay off the debts, the debtor must file Chapter 13
Not eligible for Chapter 7
- railroads
- Domestic insurance companies
- Credit unions
- Banks
Chapter 9
Allows for the adjustment of debts of an insolvent municipality (any political subdivision, public agency etc.)
Permits voluntary petitions only by the municipality
Chapter 11
Allows for the reorganization of a business debtor to pay debts
- Permits voluntary and involuntary petitions
- Allows companies to restructure and be discharged from certain debts
- Reorganization plan must be approved by half of the creditors w/ two-thirds of total claims (inc. shareholders)
- Court must approve
Not eligible for Chapter 11
- Banks
- Insurance companies
Chapter 12
Allows for the adjustment of debts of a family farmer and family fisherman
- Only voluntary petitions by the family farmer/fisherman
- Court appoints trustee
Chapter 13
Allows for the adjustment of debts of an individual w/regular income
- Permits only voluntary petition
- Less than $419,275 in unsecured debt and less than $1,257,850 in secured debt
- Always has a trustee
- 3-5 years for plan - discharged if payment is made
Requirements for creditors’ involuntary petitions of a debtor into bankruptcy
- If the debtor has 12 or more unsecured creditors w/noncontingent claims, then the petition must be signed by 3 or more of those creditors whose aggregate claims are $16,750 or more
- If the debtor has less than 12 unsecured creditors w/noncontingent claims, then the petition requires only one (though more can sign) of these creditors w/an aggregate debt of $16,750
Debtor’s can challenge involuntary petitions -> this would require creditors to prove…
Creditors would have to prove:
- Debtor hasn’t been paying debts as they become due; or
- Debtor’s property has been placed in receivership or debtor has made an assignment for the benefit of creditors w/in 120 days of the filing of the involuntary petition
The standard is the inability to pay debts as they become due
Chapter 11 Bankruptcy
- Debt adjustment plan for businesses
- Petition may be voluntary or involuntary -> same amounts and number of creditor requirements for Chapter 7 apply under Chapter 11 as well
- No trustee is appointed
Chapter 13 Bankruptcy Consumer Debt Adjustment Plan
- Individuals and married couples w/regular income who have undergone credit counseling + have proposed plan qualify if they have less than $419,275 in unsecured debts and less than $1,257,850 in secured debts -> the court also applies the means test, which evaluates whether the debtors have sufficient means to pay their debts
Corporations and partnerships don’t qualify for Chapter 13 bankruptcy
Upon the filing of a voluntary petition or granting of an involuntary petition, the court will grant an order for relief or a stay
Order for relief or stay
creditors must stop collection and all pending credit proceedings and the debts and payments will be handled through the bankruptcy court
Effect of bankruptcy petition
- Upon the filing of a voluntary petition or granting of an involuntary petition, the court will grant an order for relief or a stay
- The order for relief or stay will initiate proceedings that lead to the discharge of the debtor’s debt
Responsibilities of the debtor upon a bankruptcy filing
- The debtor is required to file:
- List of all creditors w/addresses and amounts owed;
- Schedule of assets and liabilities
- Schedule showing current income and expenses;
- Financial statements;
- Statement of intention to retain or surrender any property (which secures a consumer debt), and to specify property claimed exempt from bankruptcy proceedings
- Statement of the amount of monthly income itemized to show how the amount is calculated
- Copy of debtor’s federal income tax return for most recent year prior to filing
- PRoof of payments received from employers during the last 6 months
- The debtor is also required to cooperate fully and to respond truthfully during examinations by the trustee or creditors, appear at hearings, surrender to the trustee all property books and records
Failure to cooperate may also be grounds for the court to dismiss the bankruptcy petition
The trustee is
a government-appointed official who takes charge of the bankruptcy process that must be followed under the jurisdiction of the bankruptcy court
Basic trustee duties include:
- Collecting the debtor’s property
- Accounting for all property received and making a final report to account for the administration of the debtor’s estate
- Investigating the financial affairs of the debtor to determine what valid debts exist and whether the debtor has been involved in transferring property improperly to provide certain creditors w/preferences or to hide property
- Furnishing info and reports concerning the debtor’s estate
- Providing notice info to domestic support creditors
Trustee has the power to
- Bring lawsuits for collection
- Assign leases of debtors to 3rd parties
- Sell the debtor’s property
- Complete or obtain releases from contracts
- Evaluate existing contracts, professional fees of debtor
The debtor’s estate includes…
- All tangible and intangible property of the debtor held at the time the bankruptcy proceedings began
- Any of the following property acquired w/in 180 days after the petition is filed:
- Property by inheritance or gift
- Property by divorce, separation, or property settlement
- Beneficiary proceeds from a life insurance policy
- Any property appreciation, income etc. from existing property but excludes withholdings for employee benefit plan contributions
Property that is exempt from Bankrupt’s Estate
Only individuals can claim exemptions (see p169)
- 2 lists of exemptions: state and federal
“set aside a transaction”
means to cancel a court order
Trustee can set aside any transfer due to the usual contract defenses such as duress, mistake, undue influence, failure of consideration, debtor’s incapacity etc.
voidable preference
A voidable preference occurs when there is a transfer of assets to a creditor shortly before a debtor files for bankruptcy protection. The recipient of these assets must return them to the bankruptcy estate.
The Bankruptcy Code defines a voidable preference as a payment to or for the benefit of a creditor on account of a debt owed by the debtor and made while the debtor is insolvent. The code creates a presumption that the debtor was insolvent 90 days before the bankruptcy petition was filed. Thus, any payment to a creditor to retire all or part of a debt made during this period can be voided by the trustee without proving that the debtor was insolvent.
Elements for all voidable preference transfers by debtors to creditors
- A transfer of debtor’s property to a creditor;
- For a preexisting debt;
- Made w/in 90 days of filing the petition;
- Made while the debtor was insolvent (insolvency presumed for any transfer made w/in 90 days of the petition being filed)
Distribution of Estate (highest to lowest)
- Perfected secured parties have priority to the collateral or proceeds over general creditors and the trustee. Unperfected secured parties are secured creditors who have rights in the collateral, but not above the rights of perfected secured parties
- Claims for domestic support obligations (i.e. child support and alimony)
- Admin costs (incl. all the costs/expenses of the bankruptcy proceedings - trustee, attorney, accountant fees etc.)
- Claims arising in the ordinary course of business
- Employee wages (limited to those earned w/in 180 days of the filing of the petition or cessation of business to a max amount of $13,650)
*Any amount of back wages etc. owed rgardless of when owed or amount owed above the $13,650 during the 180 day period is still a claim but for priority purposes goes to the last category - general creditors
Under the Bankruptcy Code, the debtor has the right to receive any of the following as exempt property:
- Social security benefit
- veteran’s benefit
- disability, illness or unemployment benefit
- alimony, support or separate maintenance to the extent reasonably necessary for the support of the debtor and any dependent’s of the debtor
- a payment under a stock bonus, pension, profit sharing, annuity or contract on account of illness, death, disability, age or length of service to the extent reasonably necessary for the support of the debtor and any dependent’s of the debtor
Exceptions to the trustee’s authority to do a set-aside…
- A contemporaneous exchange between the debtor and a creditor for a new value
Types of agents
- Special agent - one authorized to conduct a single transaction or series of related transactions on the principal’s behalf (i.e. a real estate agent)
- General agent - one authorized to conduct all necessary personal or business transactions for the principal (i.e. a restaurant owner [principal] who owns a restaurant in another city hires a manager [general agent] to run that restaurant -> such an agent ca
The prerequisite for the creation of an agency relationship is
- The principal must have capacity
- Agent must have sufficient mental and physical ability to carry out the principal’s instructions
Consideration isn’t required from either party
Requirements for the creation of an Express Agency (Express Authority) relationship
An agent’s power to act on behalf of a principal, explicitly granted by an agreement between the agent and principal.
Apparent agency
This an agency relationship in which the agent doesn’t have an express agreement but still has authority to act as an agent for a principal b/c of the appearance of having that authority
Power of attorney
The power of attorney gives 1 or more people the power to act on your behalf as your agent
- The power of attorney must be signed only by the person granting that authority
- The power of attorney doesn’t have to be for a definite, specified time period
Duties of Principal to Agent
- To comply w/agency agreement
- To reimburse reasonable expenses (the principal must reimburse the agent for expenses incurred in carrying out the agency agreement. The expenses must be related to performing duties and can’t be excessive)
Duties of the Agent to the Principal - Fiduciary relationship
- Fiduciary duty (the agency relationship is a fiduciary relationship; agent owes a supreme duty of loyalty to his/her principal)
- Subagents owe a fiduciary duty to the agent who hired them as well as the principal of the agent
- Duty to follow instructions (duty of obedience) -> agent should follow the principal’s instructions unless they are illegal/immoral
- Reasonable care -> agents should carry out all responsibilities carefully
- Accounting -> agent has a duty to provide the principal w/an accounting for funds of the principal
- Keep principal’s fund separate from agent’s own funds
- Duty of disclosure -> agent should immediately inform the principal of any important information that the principal would want to know
- Duty of loyalty -> As a fiduciary, the agent acts in the best interest of the principal and doesn’t profit on transactions at the principal’s expense
Agency coupled with an interest
An agency coupled w/an interest is a unique agency relationship - created by writing - that gives the agent some interest vested in the property that is the subject’s matter of the agency relationship
This agency relationship can’t be terminated w/out the agent’s consent
The agency relationship will be terminated if either the principal or agent dies or if the principal doesn’t have capacity (i.e. becomes insane or vegetable)
Disclosed principal
In this situation, the 3rd party is aware that the agent is acting for a principal and the third party knows who that principal is
Apparent authority
Apparent authority is the power of an agent to act on behalf of a principal, even though not expressly or impliedly granted. This power arises only if a third party reasonably infers, from the principal’s conduct, that the principal granted such power to the agent.
Typically, if an agent has apparent authority, the agent’s principal will be held liable for the actions of the agent which are within the scope of the apparent authority.
Lingering apparent authority
Authority that comes from the failure to let 3rd parties know that the agent no longer works for you
I.e.: Agent has been traveling sales rep for principal for 10 years. Principal fires agent. Agent then goes to long-time customer X, who hadn’t heard of the firing, and negotiates a contract to sell principal’s goods to X and accepts downpayment -> she steals that.
X can bind principal to the contract b/c it appeared to X that the agent still had authority to work for principal
Terminating actual authority
To terminate an agent’s actual authority, the Principal must end the relationship -> this would end all actual authority (which incl express and implied authority)
Partially Disclosed Principals
If an agent is acting for a principal under actual authority but doesn’t ID the principal, then both the principal and the agent are liable to the 3rd party
I.e: a real estate agent might disclose that they’re acting for a buyer but don’t want the seller to know who the buyer is b/c the seller might increase the price if the buyer is a rich dude
Undisclosed principals
If an agent w/actual authority doesn’t disclose to the 3rd party the fact that he/she is acting on behalf of the principal, AND the 3rd party believes the agent is acting on his/her own behalf, the agent and principal are BOTH personally liable on the contract
Agents ARE liable for their own torts regardless of whom they were working for at the time and whether it was in compliance w/boss’ order
Vicarious liability
Vicarious liability is a situation in which one party is held partly responsible for the unlawful actions of a third party. The third party also carries his or her own share of the liability.
Requirements for vicarious liability
-
Existence of a master-servant relationship -> this is determined by the ability of the principal to control the activity of the agent -> Q to ask: does principal have the right to control the method and manner of agent’s work?
2.
When the creditor refuses to accept the principal debtor’s tender of payment…
the surety is released
The suretyship contract must be in writing and signed by the surety (guarantor) for it to be enforceable against the surety
The debtor is required to file the following for bankruptcy:
- List of all creditors w/addressess and amounts owed
- Schedule of assets and liabilities
- Schedule showing current income and expenses
- Statement of financial affairs
- Statement of intention to retain or surrender any property (which secures a consumer debt) and to specify property claimed exempt from bankruptcy proceedings
- Certificate from an approved credit-counseling agency (for consumers)
- Statement of amount of monthly income (w/calculations shown)
- Copy of debtor’s federal income tax return (most recent filing)
- Proof of payment received from employers during last 6 months
Insider (in the context of bankruptcy)
An inside is an individual or business that has a close relationship w/the debtor
Bankruptcy discharge
Bankruptcy discharge releases the debtor from liability for certain debts, so that the debtor is no longer legally required to pay the balance
Conditions under which bankruptcy discharge may be denied
- A partnership or corporation cannot get a discharge decree under Chapter 7 (they can under other chapters). Only individuals can get a discharge decree under Chapter 7
- A debtor will be denied a discharge if he/she received a discharge w/in 8 years before filing of the current bankruptcy petition
- Any fraudulent claims/statements or intentional concealment, distribution/transfer of assets; refusal to obey lawful orders; failure to file required or requested tax documents; failure of debtor to complete the required consumer education course
- Consumer debts -> any consumer debt incurred w/in 90 days of filing petition that’s more than $725 to a single creditor for luxury goods or services
Debts not discharged (by Statute) under any circumstances
- Unpaid taxes IF:
- taxes were due at least 3 yrs before the filing of the bankruptcy petition
- tax returns for the taxes due was filed at least 2 yrs before the filing of the bankruptcy petition; and
- the IRS assessed the liability for the taxes due more than 8 months before the bankruptcy filing
- Debts incurred through fraud, embezzelement
- Unscheduled debts (debts that aren’t listed by the debtor upon filing of bankruptcy)
- Alimony, maintenance, and child support
- fines and penalties payable to a governmental unit
- Student loan debts or benefits
Investment contract
The most important of the catch-all categories is the investment contract
Elements of an investment contract:
- Investment of money
- In a common enterprise
- W/an expectation of profit
- To be earned primarily by the action of others
the Supreme Court has held that certificate of deposits are not to be treated as securities under the securities laws
Basic Procedure of the Securities registration process
- Issuer files registration statement w/SEC
- Issuer waits 20 days for SEC approval, during which time preliminary “red herring” prospectus is disseminated, and oral offers and limited types of written offers cna be made
- Registration statement is deemed “effective” and sales can begin
Basic Legal framework of securities registration
- The prefiling period - This is before the registration statement is filed w/the SEC. The company can neither offer to sell securities or sell securities
- Waiting period - This is after the issuing company has filed but before the SEC has given permission for selling to begin. During the waiting period, a company may make oral offers and certain types of written offers but can’t sell the securities
- Post-effective period - An issuer may both offer and sell the securities
Contents of Registration Statements
- Financial statements audited by independent CPA
- Names of issuer, directors, officers, underwriters
- Risks
- Description of issuer’s business
- Description of secruity and intended use for proceeds
Securities exempt from the SEC registration rules
- Bank and government securities
- Short-term notes
- Charitable organizations’ securities
- Regulated savings and loans
- Federally regulated common carriers
- Receiver or trustees in bankruptcy
- Insurance and annuity policies (this doesn’t include stocks issued by insurance companies)
Accredited investors
Investors whom the SEC deems capable of looking out for themselves w/out the need for an offering to be registerd
Examples: millionaires/high-income individuals or couples, institutional investors etc.
Section 11
Remedies misleading statements and omissions contained in the registration statement as of its effective date
Exchange Act of 1934 has registration provisions that require specified disclosures including bonus and profit-sharing arrangements, the financial structure and nature of this business, and names of officers and directors.
For the Securities Exchange Act of 1934 to apply, including the antifraud provisions of Rule 10b-5, there must be shown a federal constitutional basis such as use of the mail, interstate commerce, or a national securities exchange.
Sole proprietorship
Single-owner business. The firm’s liabilities and assets belong solely to the owner. Thus, owner has unlimited personal liability
General partnership
An association of 2 or more people to cary on as co-owners of a business for profit. The owners have unlimited personal liability
Limited partnership
A partnership with at least 1 general partner and at least 1 limited partner.
The difference between a limited partnership and a general partnership is that limited partners give up some of the general managment rights that partners in general partnerships would have in exchange for the limited liability that shareholders in corporations would get.
The limited partnership is a separate legal entity
Limited liability partnership
A business structure that carries greater protection form liability than would general or limited partnerships.
The LLP was created primarily to protect professionals, such as accountants, physicans, and attorneys from undue malpractice liability arising from the errors of their partners
In LLPs, partners are generally liable only for (a) their own malpractice, and (b) the malpractice of those they directly supervise
Corporation
An artificial lega entity. Its owners (shareholders) typically enjoy limited liability.
The shareholders’ losses are limited to the amount they invested into the corporation
Pros/Cons of sole proprietorship
Pros
- Total control
- Simple to form
- Taxation - all income from the business accrues to the sole owner who is responsible for paying the individual income taxes on that amount
Cons
- Unlimited liability - owner is personally liable for any debts incurred by the business
Pros/Cons of General Partnerships and joint venture
Pros
- Pass-through taxations - partnerships enjoy single taxation b/c the partnership entity pays no taxes -> instead, the partnership income passes through to the individual partners who pay individual income tax on their shrae
- Simple to form - like sole proprietorship, no formal documents need to be filled
Cons
- Unlimited liability - all general partners are personally liable for the obligations of the business
Pros/Cons of Limited partnerships (LPs)
Pros
- Pass-through taxation - like general parternships, limited partnerships enjoy single taxation
Cons
- Formality - legal documents must be filed w/state office to form a limited partnership
- Authority - A limited partner must forfeit the right to manage the business in order to be entitled to limited liability
- General liability - a limited partnership must have at least 1 general partner who will be generally liable to
Pros/Cons of Limited liability partnerships
Pros
- Pass-through taxation - LLPs enjoy single taxation
- Limited liability
- Authority - LLPs may be actively involved in managing the partnership w/out forfeiting the limited liability that partners in an LP generally enjoys.
Cons
- Formality - legal documents must be filled w/state office
- Insurance requirement - in many states, firms must maintain a minimum lvl of liability insurance to entitle partners to liability protection
- Selectivity - usually state statutes limit LLPs to particular professions, such as accountants, architects, and lawyers
Pros/Cons of Corporations
Pros
- Limited liability - all shareholders are entitled to limited liability
- Legal personality - the corporation is viewed as a legal entity, separate and apart from its owners. It can do pretty much any legal act that an individual can
- Perpetual duration - the corporation is viewed as a separate legal entity so it can last a hell of a long time
Cons
- Double taxation - Corporations are subject to corporate income tax and their shareholders are subject to individual income tax liability on dividends and other distributions
- Formality - Legal documents must be filed w/a state office
A partnership agreement must be in writing if
The partnership’s purpose cannot be completed within 1 year of formation
A stock dividend is not defined as a distribution under the Revised Model Business Corporation Act.
Revised Uniform Partnership Act provides that losses in a general partnership are shared per the profit-sharing proportions unless the partnership agreement provides otherwise.
A Subchapter S corporation provides for limited liability of the shareholders and the corporation is not required to pay taxes at the entity level.
Under the Revised Uniform Limited Partnership Act, none of the names of the limited partners need to be listed in the certificate of limited partnership that is filed with the Secretary of State. However, all of the general partners must be listed.
Death or bankruptcy of a general partner causes dissolution of the limited partnership. However, this is not true if a limited partner dies or goes bankrupt.
A limited partner is allowed, without losing the protection of limited liability, to act as an agent of the limited partnership. The limited partner may also vote on the removal of a general partner.
In the typical limited liability company (LLC), unlike the common corporation, the interests of the members are not freely transferable. The other members have to agree to admit new members.
“partnership at will” is used to describe a partnership without a specified duration.
When a corporation elects to be a Subchapter S corporation, the corporate income and loss flow through to the income tax returns of the individual shareholders even when the income is not distributed to them.
if a corporate officer makes a judgment in good faith, he or she is not liable for a mistake.
Majority shareholders now owe a fiduciary duty to their corporation.
Under RUPA, the partnership is a legal entity that can own property in its own name. The partners also have joint and several liability for all debts whether they are based in contract or tort.
Unanimous consent is needed in the partnership for actions that are not part of the implied authority of individual partners. Purchasing goods are actions that third parties can expect individual partners to do. These actions are binding on the partnership whether that partner had actual authority or not.
Admission of a new partner is not based on implied authority and needs the approval of all partners.
corporations may not own shares in an S corporation.
