Types of Companies Flashcards
What is a partnership?
An association of two or more persons to carry out as co-owners of a business for profit
What are the 4 key features of a partnership?
1) A partnership has no limited liability
2) Each partner has the ability to participate in management & control
3) Profits & losses are shared
4) income is not taxed, profits and losses flow through the partners to be included in their tax returns
Agency of a partnership
Each partner is an agent of the partnership for conducting its business.
What issues usually occur with voting in a partnership
Deadlock, because each partner has equal voting rights.
How is deadlock usually solved in a partnership?
Eather deligating decision-making power to a small, odd-numbered group. OR addressing the problem in the partnership agreement & giving some people more power than others.
Half the partners in a partnership want to vote to shift the direction of the partnership, and the other half wants to shift, but in a different way. What happens?
Nothing, Partnerships can’t take new actions in the event of deadlock and the status quo persists. (National Buiscit Co.)
What duties do a partner owe the partnership?
The duties of Loyalty & care & to account for profits, property, or benefits on behalf of the partnership and to refrain from competition or self-dealing
When can a partner engange in actions that violate the duties of loyalty & care?
When the action was ratified by a specific action or authorized
What is a partnership’s property?
everything the partnership owns, including both capital and property that is subsequently acquired in partnership transactions and operations.
How may a partner use the partnership property?
They may use and possess property only on behalf of the partnership, not for personal reasons
Can you sell your partnership interest?
you can sell the economic rights to profits and losses, but not the right to be a partner which requires unanimous consent.
Can a creditor recover from a partner’s individual assets?
Yes, but they must first seek to recover from the partnership’s assets.
What is a limited partnership?
A partnership with one or more general partner and one or more limited partners.
How is a limited partner different from a general partner?
LPs don’t participate in the day-to-day management of affairs. “LPs invest & general partners run”
What is a limited liability company?
A company in which the personal assets of the people who invest money in the LLC are protected. With limited exceptions the can’t be held liable beyond their investment.
What is the Check-the -box rule?
How you become an LLC, an LLC can elect to be taxed as a corporation by “checking the box” on an IRS form. Usually can only be done once.
What documents are needed to form a partnership?
None, can happen anytime two or more persons to carry out as co-owners of a business for profit
What documents are required to form an LLC?
Articles of organization (with designated state office, usually the secretary of state)
What is required for the articles of organization of an LLC?
Name, PPB, & name/address of agent for service of process
What other document may be needed for an LLC?
An Operating (LLC) Agreement
What does an operating (LLC) agreement include?
How the LLC will be governed (voting, management, etc.)
The financial obligations of the members
How profits, losses, and distributions will be shared
How membership interests (ownership units) will be handled upon separation, death, disability, etc.
What restrictions exist in creating an operating agreement?
There is relative freedom in selecting governing rules only limited by the mandatory provisions set fourth by the RUICA.
What type of authority do members and managers of LLCs have?
Apparent Authority.
How are profits and losses allocated in an LLC?
on a pro rata basis according to the member’s contributions
When can aspects of fiduciary duties be altered?
If they are not manifestly unreasonable
What does the DE act say about fiduciary duties?
fiduciary duties exist by law and may be expanded, restricted, or eliminated by contract, except for the elimination of the duty of good faith & fair dealing.
What are the rights of shareholders?
1) Vote: on any shareholder issues, including board elections which are most important
2) Sue: claims against the corporation, board, officers, and other controlling shareholders
3) Sell: shares of stock to exit company
4) Yell: make their voice & opinions heard
What are a shareholders responsibility?
to approve of actions outside the ordinary course of business & fundamental transactions like a merger.
What do directors do?
Manage the company or delegate to officers, they act as a collective body.
What are the directors responsibilities?
the fiduciary duties they owe to the corporation itself, not shareholders. Are not agents of the corporation.
What are the duties of Officers
Officers manage the day to day affairs & any tasks delegated to them by the directors. They also owe fiduciary duties to the corporation and not shareholders.
How can shareholders file suit against managers as cooperation?
They would require a derivative suit
What documents are required to form a corporation?
Articles of incorperation
What are the other key organizational documents for a corporation?
The bylaws
What information is needed for the articles of incorporation?
Entity name, registered agent, address for service of process, and # of authorized shares.
What are authorized shares?
The maximum amount of shares that a cooperation is allowed to sell
What are issued shares?
of shares sent out into the world
What are outstanding shares?
of shares still issued after a stock buyback
What are stocks held in treasury?
shares that have been issued and then bought back
What are bylaws?
A contract between the shareholders. They cover the powers of directors & officers, procedures for electing directors, and voting issues.
What is the difference between non-profit & for-profit corporations?
Non-profits don’t have shareholders, they are sometimes viewed as owned by the state.
How are private corporations different than public ones?
Stock is owned by private individuals, and sales of shares must be handled “face-to-face.” Not anyone can buy stock.
Two partners agree to share profits 30/70 but don’t mention losses. At what rate would losses be shared?
30/70, absent a contrary agreement, losses in a general partnership are shared in the same ratio that profits are shared.
