Test 3 Flashcards
types of business organizations
liability shield
flow through taxation
sole proprietorship
flow through taxation
no liability shield
no corporate form
Limited Liability Corps (LLC)
certificate of formation
liability shield and flow through taxation
governed by an operating agreement
members can be corporations or partnership
operating agreement
legal contract signed by the members of an LLC which govern the way the LLC will be run and provides rules regarding profits, expenses, etc.
piercing the corporate vail
“pierce” the liability shield and hold the owner of the LLC liable
circumstance of piercing the veil
not following business protocol
comingling of assets
inadequate capitalization
fraud
failure to observe corporate formalities
Members must treat LLC like a separate organization- act like an LLC if you are one
Commingling of assets
Need separate bank accounts
inadequate capitalization
Cannot only make $20,000 and keep getting million dollar loans
business judgement rule
the managers of a corp owe a fiduciary duty to, and must act in the best interest of the corp and shareholders
goals of business judgement rule
allows managers to do their jobs
keeps judges out of corporate management
encourages managers to want to manage
you have not violated the business judgement rule if:
you act in good faith
use the care a reasonable person would use
there is reason to believe you are acting in best interest of the corp
avoiding liability from business judgement rule
disinterested members of the board of directors approves the decision
disinterested shareholders approve it
the courts say your decision was fair
practical application of the business judgement rule
cannot do something illegal
no self dealing
no corporate opportunity
must make rational decisions
must make informed decisions
ways to take over a company
buy all assets of the company
merge 2 companies
buy stock from the shareholders (tender offer)
