REG - R8 Business Structures Flashcards
General Partnership
Two or more persons interested in carrying on a business
No need to file anything
Could have an express or implied agreement
Implies an ongoing business for profit
A writing is NOT necessary UNLESS the partnership is intended to remain LONGER THAN one year.
Profit/Loss flows through the business (no double-taxation)
Each partner is PERSONALLY LIABLE for ALL partnership obligations. Partners in a general partnership have UNLIMITED liability.
Limited Partnership
“LP”
A LP is a partnership made up of one ore more general partners (personally liable for all partnership debts) AND one or more limited partners (whose liability for partnership debts generally is limited to their investment).
No perpetual life (different from a corporation)
Limited partners are very much like shareholders (passive).
Management is the responsibility of the GENERAL partners.
**Assignment of Profits/Losses according to CAPITAL CONTRIBUTIONS (absent other agreement).
**Termination (like a corporation); if a limited partner dies (so what?!). If a general partner dies, a dissolution occurs.
**If there is a loss, only general partners are personally liable.
C-Corporation
A DISTINCT legal entity.
Corporation is liable (generally no personal liability for the corporate torts, etc…).
Double taxation (once at corporate level, once when dividends are distributed to shareholders).
Owned by shareholders, managed by directors.
Perpetual life (unique to corporations).
Freely transferable (unique to corporations).
Directors may NOT vote by proxy.
S-Corporation
Taxed like a partnership (is a flow-through entity)
RESTRICTIONS:
1) Stock can be held by no more than 100 persons;
2) Shareholders must be individuals, estates, or certain trusts;
3) The corporation must generally be a domestic corporation;
4) There can be only ONE class of stock;
5) Foreign shareholders are generally prohibited.
Limited Liability Corporation
“LLC”
Hybrid of a corporation and a partnership.
2 Main Features:
1) All members have limited liability (owners not personally liable).
2) Taxed like a partnership (P/L flow through the business), however there is limited liability (owners are NOT personally liable).
To form, must be filed with state.
Only need one member
Every member is an agent (owes fiduciary duty); may participate in management.
Voting strength proportional to contribution (like a corporation).
Is dissolved upon the death, retirement, resignation, bankruptcy, etc., of a member.
Unlike a Corporation:
- Transfer ability of ownership and rights (cannot transfer without unanimous consent); Like a partnership.
- Termination (has a limited life); like a general partnership (limited life).
Limited Liability Partnership
“LLP”
Very similar to General Partnership, but limited liability.
To limit liability, you MUST file; file a form with the state.
Partners NOT personally liable for acts of fellow partners, employees, or agents (you can’t lose personal assets; you can still lose your investment!).
You are personally liable for your own negligence and for those under your direct control.
Sole Proprietorship
Business is not a separate entity (no need to file anything)
Personally liable
When you die so does the business
Profit/loss flows through the business (no double-taxation)
Free to transfer
Articles of Incorporation
1) the NAME of the entity
2) the NAMES & ADDRESSES of the corporation’s Registered Agent (e.g., the person on whom process may be served if the corporation is sued;
3) the NAMES & ADDRESSES of each of the incorporators;
4) the NUMBER OF SHARES authorized to be issued.
- Note: One or more classes of stock must have unlimited voting rights.
- Articles of Incorporation can be proposed by the directors but CANNOT be effected without the affirmative vote of the shareholders.
Ultra Vires Acts (purpose clause)
Ultra Vires Acts (“OPTIONAL”)
A corporation may include a clause in its articles stating the business purpose for which the corporation was formed; clause may be narrow or very broad.
If a business has a narrow clause and undertakes business outside the clause, it is acting “ultra vires”
Bylaws
Bylaws: contain the rules for running the corporation
A corporation’s initial bylaws may be adopted by either the incorporators or the board of directors.
A corporation’s bylaws are a separate document not included in the corporation’s articles of incorporation.
Preemptive Right
Preemptive Right is when a corporation proposes to issue additional shares of stock, the current shareholders often want to purchase shares in order to maintain their proportional voting strength.
The common law granted shareholders such a right, known as the “preemptive right.”
Dissenting Shareholder Appraisal Rights
“DAMS” Mnemonic
D - Dissolution
A - Amendment to the articles of incorporation
M - Mergers, consolidations, and compulsory share exchanges
S - Sale of substantially all of the corporation’s assets outside the ordinary course of business.
A shareholder can be asked to be bought out (at FMV) for any of the above reasons (DAMS).
Derivative Action vs. Direct Action
Derivative Action: action brought to vindicate the rights of the corporation
Direct Action: shareholder seeks to vindicate the shareholder’s own rights against the corporation.
Calendar Year vs. Fiscal Year
Companies typically have the option of choosing a calendar year-end or a fiscal year-end.
**For tax purposes, a fiscal year must be first approved by the IRS.
Warrant
A WARRANT is a contractual right to purchase stock, which constitutes a share of corporate equity.
