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REG > REG: Chapter 3 > Flashcards

REG: Chapter 3 Flashcards

1
Q

General Partnerships

What is assignment?

A
  • A partner may assign their interest in the partnership
  • They are not allowed to assign rights in specific partnership property
  • The partner’s individual creditors may not be assigned or attached to the partner’s individual creditors
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2
Q

General Partnerships

What is the role of an assignee?

A
  • Does not immediately become a partner
  • Will receive the profits that were to go to the partner (assignor)
  • Does not have right to manage the business
  • Does not have the right to inspect the books and records of the partnership
  • Does not have an obligation for partnership debts
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3
Q

General Partnerships

When can specific partnership property be attached?

A

Only a claim against the entire partnership will allow specific partnership property to be attached

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4
Q

General Partnerships

What is RUPA?

A

RUPA is the Revised Uniform Partnership Act
* Each partner is an agent for all the other partners
* Each partner acts as both principal and agent and has actual and apparant scope of the partnership
* Each partner is jointly liable for all obligations of the partnership

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5
Q

General Partnerships

What is the reason for the fictitous name statute?

A
  • The factitious name statute was enacted in most states
  • It is used to inform the public about who actually owns the business to let creditors know who the people are in the company and who are responsible for the company’s debts
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6
Q

General Partnerships

If a partnership is sued, what will the other party be able to collect?

A
  • The other party will be able to collect business and personal assets of the partners that are being sued
  • If the company that is being sued files for bankruptcy, then the personal assets of the partners on the lawsuit will be collected
  • If a partner files for bankruptcy, the partnership creditors will have first claim to the partnership property to the exclusion of the bankrupt partner’s personal creditors
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7
Q

General Partnerships

What is the partner’s personal liability for existing debt in a general partnership?

A

The partner’s liability will be limited based on their capital contribution

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8
Q

General Partnerships

How is apparent authority of a partner treated?

A
  • Will bind the partnership by the filing of a statement of partnership authority that may give notice on the limitations of the partner’s authority
  • May bind the partnership when buying and selling goods
  • When a partnership is dissolved, apparent authority is given until notice is given to third parties or the business winds up
  • A disassociated partner continues to have apparent authority up to 2 years if other parties believe the disassociated partner is still with the firm
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9
Q

General Partnerships

What is the term for a partnership that does not have a specified duration?

A

A partnership at will

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10
Q

General Partnerships

What is a joint venture?

A
  • A joint venture is an associatation of persons who, as co-workers, undertake a specific business project for profit
  • There is less apparent authority in a joint venture than in a partnership
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11
Q

General Partnerships

What is a partner by estoppel?

A
  • A primary estoppel is a non partner
  • It may be recogized when a partnership doesn’t actually exist
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12
Q

General Partnerships

What is duty of care in a partnership?

A

The duty of care prohibits
* Knowing violations of the law
* Intential wrongdoing
* Gross Negligence

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13
Q

General Partnerships

What is duty of loyalty in a partnership?

A

Duty of Loyalty prohibits:
* Competing with the partnership
* Have an adverse interest
* Exploiting a partnership interest
* Secretly using parternship assets

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14
Q

General Partnerships

What is a limited liability partnership (LLP)?

A
  • It is a general partnership with limited liability
  • It is commonly adopted by providers of professional services (i.e. lawyers, accountants, etc.)
  • A corporation may be a partner in an LLP
  • It must file a statement of qualification
  • It must maintain insurance
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15
Q

General Partnerships

When is a partner in an LLP personally liable?

A

When the partner personally incurs an obligation when conducting partnership business

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16
Q

Limited Partnerships

What is a limited partnership?

A
  • A limited partnership has one or more general partners and one or more limited partners
  • The only requirement is that the partnership must have at least one general partner and one limited partner
  • A limited partnership does not exist under common law
  • A limited partnership can only be created under a state statute
  • It is funded by the partners’ resources
  • The general partners have full liability, which includes business and personal
  • The limited partners have limited liability
17
Q

Limited Partnerships

What is the order of distribution when a limited partnership dissolves in accordance with the Uniform Limited Partner Act?

A
  • Creditors (including all partner-creditors)
  • Partners of unpaid distributions
  • Partners for the return of their contributions
  • Partners for the remaining assets based on the same allocation that distributions are shared
18
Q

Limited Partnerships

Who can be a general partner in a limited liability partnership?

A

The general may be:
* A limited partner in the partnership
* In another partnership
* A corporation
* Another entity
* A secured creditor

19
Q

Limited Partnerships

How does the assignment of a general partner take place in a limited liability partnership?

A
  • A new general partner is admitted only with specific written consent by all partners (both limited and general)
  • Unanimous consent is needed, unless it states otherwise in the partnership agreement
20
Q

Limited Partnerships

How are the rights of general and limited partners the same with respect to assignment of their partnership interest?

A
  • General and limited partners may assign the interests without dissolving the partnership
  • The assignee does not become a partner
  • If agreed, the assignee of a general or limited partnership may become a limited partner by the assignor
21
Q

Limited Partnerships

What are the characteristics of a limited parntership?

A
  • Certain owners do not have management rights (Limited partners)
  • Death, bankruptcy or withdraw of limited partners does not dissolve the partnership
  • Formation of the limited parternship requires a public filing
  • Capitalization is the responsiblily of the owners to provide their resources
  • Profits and losses are shared based on the value of the contributions made
22
Q

Limited Liability Companies (LLCs)

What is the covered in an operating agreement for a limited liability company?

A

It does not have to be in writing
* Management arrangements
* Voting rights
* Access to records
* Profit sharing
* Transfer of members’ interest
* Dissolution
* Admission of members
* Death of a member

23
Q

Limited Liability Companies (LLCs)

What are the characteristics of a limited liability company?

A
  • The LLC is required to file articles of organization with the secretary of state
  • All partners are called Members
  • May have a tax status similar to a parternership because the investors have limited liability and special tax treatment
24
Q

Corporate Formation

What is the RMBCA?

A
  • Revised Model Business Corporation Act
  • Applies to closely public held and closely held corpoorations
  • Subscribers, or future investors, are bound to the subscriptions for 6 months
  • Many state statutes require the subscription to be written
25
Q

Corporate Formation

What are subscribers?

A
  • Subscribers, or future investors, are bound to the pre-incorporation subscriptions for 6 months
  • Many state statutes require the subscription to be written
26
Q

Corporate Operation, Financing, and Distributions

When is the corporate veil pierced?

A
  • Undercapitalization
  • Assets of the corporation and the shareholders are commingled
  • Corporate formalities are ignored
  • The corporation was formed for sham purposes
  • Piercing the corporation veil may cause the shareholders to be personally liable
27
Q

Corporate Operation, Financing, and Distributions

What is a stock dividend?

A
  • New stock is issued to the shareholders instead of paying money from dividends
  • A stock dividend is a ratable distribution of additional shares to stockholders
  • A shareholder’s equity is not increased
  • Retained earnings will be decreased
28
Q

Corporate Operation, Financing, and Distributions

What would a shareholder consider to be an asset or capital distribution?

A
  • Liquidating dividends because it is from asset surplus
  • Property distributions may be a dividend or return of capital
  • Cash dividends

Stock splits are not considered a distribution because the capital and surplus do not change

29
Q

Corporate Operation, Financing, and Distributions

When is it necessary to have the approval of both the board of directors and the shareholders?

A

When there is a fundamental change in the corporate financial structure
* Stock splits
* Approve dissolution

30
Q

Corporate Operation, Financing, and Distributions

What is Ultra Vires Doctrine?

A
  • A corporation may not act beyond its implied or express powers
  • The Ultra Vires Doctrine is no longer used as a defense by either party in a lawsuit involving the corporation
  • A shareholder can seek an injunction
  • Corporations can proceed against directors and officers
  • The state attorney can proceed against the corporation
31
Q

Shareholders’ Rights

What are preemptive rights?

A
  • They are options to subscribe to a new issuance in proporation to the shareholder’s current interest
  • They dilute equity
32
Q

Shareholders’ Rights

What is a derivative suit?

A
  • One or more shareholders, on behalf of the corporation, files an action to enforce a right belong to the corporation
  • The board refuses to act on the corporation’s behalf
33
Q

Shareholders’ Rights

What is a compulsory share exchange?

A
  • The acquirer obtains the shares of the acquiree in a binding transaction
  • Must be approved by the respective boards and a majority of the acquiree’s shareholders
  • Dissenting of the subsidy shareholders have an appraisal right
34
Q

Shareholders’ Rights

What are short-form mergers?

A
  • The parent corporation owns 90% of a subsidiary and merges the two entities
  • Does not require shareholder approval
  • Dissenting shareholders of the subsidiary have an appraisal right
35
Q

Directors and Officers: Authority, Duties, and Liability

What happens when a board member sells an asset to the corporation in an arm’s-length transaction?

A
  • Disclose the contract to the board
  • Refrain from voting
  • The decision is made by a majority of disinterested directors
  • Give full disclosure of the profit on the transaction
36
Q

Mergers and Termination

What is a short-form merger?

A
  • Can occur when a corporation owns 90% of another corporation
  • There is no voting by the shareholders of either company or the subsidiary’s board

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