Special Types of Corporations Flashcards
Define
Closely held/Close Corporation
- only has a few SHs
- stock not publicly traded
- more relaxed style of governance
Define
Foreign Corporation
- incorporated in another state
- must register and seek a certificate of authority from the current state
Define
Professional Corporation
the purpose is statutorily limited to the rendering of a professional service
Define
S Corporation
Corporation avoids double taxation by passing income and expenses through to its SHs, who are then taxed directly
Define
Benefit Corporation
- for profit
- corporate purpose is creating social/enviromental benefit rather than maximizing shareholder profit
Define
Limited Liability Corporation (LLC)
enjoys the pass-through tax advantage of a partnership and limited liability of a corporation
How is a LLC created?
Filing of articles of organization with the state
What must be in an LLCs articles of organization?
- LLCs name
- mailing address
- and if there are no members upon filing - a statement to that effect
- **does not come into existence **until it has at least one member
Some states allow de facto and estoppel if there was good faith
What is an operating agreement?
Operating agreement is in addition to the articles of incorporation and is made between the owners/shareholders of an LLC
In what way is an operating agreement made?
can be oral, in a record, or implied by conduct
What applies if there is no operating agreement?
statutory default provisions apply when there is not and operating agreement or if the operating agreement is silent
What are the minimum and maximum membership requirements for an LLC?
minimum - one member
maximum - none
How does one become a member of an LLC?
Must have consent of all other LLC members
What does a transfer of a membership require?
the consent of all LLC members
What rights do a transferee acquire?
the transferee only acquires the transferor’s right to share in the LLC’s profits and losses, not a right to participate in the LLC’s management
Does termination of membership automatically trigger dissolution of an LLC?
No
LLC may elect to liquidate the fair value of that person’s interests
Unless determined in an operating agreement, how are profits and losses allocated?
allocations are made according to each member’s contributions to the LLC
Do members of an LLC have the same right to inspectas Shareholders?
Yes
What are the two ways management can occur for a LLC?
Direct (by members)
Centralized (by one or more managers who need not be members)
Are members generally liably for the LLC’s obligations?
No
Are managers of an LLC personally liable for obligations incurred on behalf of the LLC?
No
When is piercing the veil in an LLC appropriate?
- undercaptalization
- commingling assets
- confusion of business affairs
- deception of creditors
What is the mere instrumentality test?
For piercing the veil
1) members dominated the entity such that the LLC has no will of its own
2) members used that domination to commit a fraud or wrong and
3) the control and wrongful action proximately caused an injury
What is the unity of interest and ownership test?
Used for piercing the veil
- the LLC did no thave an existence independent of the members because there was such a unity of interest and ownership between the entity and the members that the failure to pierce the veil would be unjust or inequitable
What duties are owed by member or manager of an LLC?
owe duties or loyalty and care to the LLC and its members
What duties of loyalty are owed?
- Must members account to the LLC for any benefit derived by the member related to the LLC’s business
- refrain from dealing with the LLC on behalf of one having an adverse interest
- refrain from competing with the LLC (Non-compete)
T/F: the duty of care to LLC is subject to the BJR not liable for simple negligence
True
Do managers have the authority to bind the LLC?
Yes
When may members withdraw from an LLC?
Can withdraw at any time
How can members withdraw from an LLC?
for any reason without written notice
Does a withdrawal necessarily trigger dissolution and winding up?
No
What does a direct suit try and do?
For an LLC
enforce a member’s rights as a member under the operating agreement and state LLC statute
What is required for a Direct suit?
there must be an actual or threatened injury that is not just a result of an LLC injury
What is a derivatice action?
an action by a member on behalf of the LLC to enforce the rights of the LLC
What is required for a derivative suit?
For an LLC
must show that a demand was made or that demand would be futile
When does an LLC disolve?
- merge with another LLC/business entity
- mutual consent of members
- lack of members for 90 consecutive days
- cour order
- events provided in operating agreement
When may members seek involuntary dissolution?
if a controlling member acts in a way that is oppressive and directly harmful to the member seeking the order
- the action by controlling member must violate member’s reasonable expectations
When winding up what must an LLC do?
- discharge the LLC’s debts, obligations, or other liabilities, and
- settle and close the LLC’s activities, and marshal and distribute the LLC’s assets
- may perform acts necessary or appropriate to the winding up
