REG: Chapter 3

Question 1

General Partnerships

What is assignment?

Answer 1

• 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

Question 2

General Partnerships

What is the role of an assignee?

Answer 2

• 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

Question 3

General Partnerships

When can specific partnership property be attached?

Answer 3

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

Question 4

General Partnerships

What is RUPA?

Answer 4

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

Question 5

General Partnerships

What is the reason for the fictitous name statute?

Answer 5

• 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

Question 6

General Partnerships

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

Answer 6

• 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

Question 7

General Partnerships

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

Answer 7

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

Question 8

General Partnerships

How is apparent authority of a partner treated?

Answer 8

• 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

Question 9

General Partnerships

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

Answer 9

A partnership at will

Question 10

General Partnerships

What is a joint venture?

Answer 10

• 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

Question 11

General Partnerships

What is a partner by estoppel?

Answer 11

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

Question 12

General Partnerships

What is duty of care in a partnership?

Answer 12

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

Question 13

General Partnerships

What is duty of loyalty in a partnership?

Answer 13

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

Question 14

General Partnerships

What is a limited liability partnership (LLP)?

Answer 14

• 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

Question 15

General Partnerships

When is a partner in an LLP personally liable?

Answer 15

When the partner personally incurs an obligation when conducting partnership business

Question 16

Limited Partnerships

What is a limited partnership?

Answer 16

• 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

Question 17

Limited Partnerships

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

Answer 17

• 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

Question 18

Limited Partnerships

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

Answer 18

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

Question 19

Limited Partnerships

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

Answer 19

• 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

Question 20

Limited Partnerships

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

Answer 20

• 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

Question 21

Limited Partnerships

What are the characteristics of a limited parntership?

Answer 21

• 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

Question 22

Limited Liability Companies (LLCs)

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

Answer 22

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

Question 23

Limited Liability Companies (LLCs)

What are the characteristics of a limited liability company?

Answer 23

• 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

Question 24

Corporate Formation

What is the RMBCA?

Answer 24

• 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

Question 25

# Corporate Formation What are subscribers?

Answer 25

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

Question 26

# Corporate Operation, Financing, and Distributions When is the corporate veil pierced?

Answer 26

* 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

Question 27

# Corporate Operation, Financing, and Distributions What is a stock dividend?

Answer 27

* 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

Question 28

# Corporate Operation, Financing, and Distributions What would a shareholder consider to be an asset or capital distribution?

Answer 28

* 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**

Question 29

# Corporate Operation, Financing, and Distributions When is it necessary to have the approval of both the board of directors and the shareholders?

Answer 29

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

Question 30

# Corporate Operation, Financing, and Distributions What is Ultra Vires Doctrine?

Answer 30

* 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

Question 31

# Shareholders’ Rights What are preemptive rights?

Answer 31

* They are options to subscribe to a new issuance in proporation to the shareholder's current interest * They dilute equity

Question 32

# Shareholders’ Rights What is a derivative suit?

Answer 32

* 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

Question 33

# Shareholders’ Rights What is a compulsory share exchange?

Answer 33

* 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

Question 34

# Shareholders’ Rights What are short-form mergers?

Answer 34

* 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

Question 35

# 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?

Answer 35

* 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

Question 36

# Mergers and Termination What is a short-form merger?

Answer 36

* 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