BLaw 441 exam 3

How does one determine whether a joint venture was created?

-Look to see combined efforts towards a single goal -Created through conduct or oral or verbal words -Less implied and apparent authority for the co ventured in a venture then in a general partnership -partnership are usually formed in perpetuity and a joint venture is usually only be a single action or single event

A potential problem for close corporation

-The potential for corporate assets to be used for personal benefit is especially great in this corporation -The separate status of the corporation entity and the shareholders must be carefully preserver

Distribution of Assets (winding-up) for Limited Partnership

-creditors claims including those of partners who are creditors take first priority -partners and former partners receive 1)unpaid distributions of partnerships assets, 2) capital contributions, 3) the remainder of proceeds proportionate to their share of distributions

Partner in LLP is held personally liable for:

-his or her wrongful conduct (contracts, torts, crimes). -The wrongful conduct of an individual he or she supervised.

Before corporation is formed, promoters are the persons who:

-take the preliminary steps of organizing the venture; and -attracting investors via subscription agreements.

What 2 situation can shareholders be held personally liable for obligations of the corporation?

1) 2)

Corporation may be convicted for the Crimes of Its Agents if (3 things):

1) Agent's criminal act is within scope of employment and the statute imposes liability upon the corporation. 2) Agent failed to perform a duty imposed on the corporation as a matter of law. 3) Corporation's high managerial agents authorized, requested or recklessly tolerated acts of lower level employees or agents.

3 Examples of the implied powers of a corporation are the corporation's ability to:

1) Borrow funds within certain limits 2) to lend funds 3) Extend credit to whom it has legal or contractual relationships

3 Reasons supporting a judicial decree:

1) Business Impracticality. 2) Improper Conduct. 3) Other Circumstances (personal dissension)

2 Practices that invite trouble for close corporation:

1) Commingling of corporate and personal funds; or 2) Shareholders continuous personal use of corporate property (IE: vehicles)

What 7 pieces of basic information is necessary for the articles of incorporation?

1) Corporate Name 2) Nature and Purpose 3) Duration 4)Capital Structure 5) Internal Organization 6) Registered Office and Agent 7) Incorporators (Promoters)

3 Forms of Corporate Existence Due To Improper Incorporation

1) De Jure 2) De Facto (Some States) 3) By Estoppel

The termination of a partnership occurs in two stages:

1) Dissolution 2) Winding up

4 Unique Characteristics of Corporations:

1) Limited liability of shareholders 2) Free transferability of shares 3)Perpetual existence Centralized management

3 Joint Ventures and Partnerships Similarities

1) Member profits are taxed like a partnership. 2) Each member owes the other fiduciary duties of care and loyalty. 3) Equal rights to manage the activities of the enterprise (through an agreement, management control may be given to one member)

There are two options for LLC management

1) Member-Managed: all of the members participate in management, like a partnership. 2) Manager-Managed: members are elected to manage the LLC. They have the authority to bind the LLC

3 Joint Ventures and Partnerships dissimilarities

1) Members of joint venture have less implied and apparent authority than partners. 2) Members of joint venture have less powers to bind their co-members. 3) Death of partner does not terminate joint venture.

4 Requirements of Novation

1)Existence of previous, valid obligation; 2)Agreement of all parties to new contract; 3)The discharge of the promoter's obligations; 4)A new, valid contract.

5 Examples of special business forms are:

1)Joint Ventures 2)Syndicates 3)Joint Stock Companies 4)Business Trusts 5)Cooperatives

3 Characteristics of a Closely Held Corporation:

1)Members often know each other personally 2)Share not traded on national capital/stock markets. 3)Management of corporation resembles that of a partnership.

Formation of an LLC Articles of Organization require 5 things:

1)Name of Business which must include LLC or Limited Liability Company 2)Principal Address. 3)Name and Address of Registered Agent. 4)Names of the Owners; and 5)How the LLC will be managed.

3 Disadvantages of partnership

1)Partners are personally liable for all torts and contracts. 2)Dissolved upon death of a partner. 3)Difficult to raise financing.

The process of incorporation generally involves two steps:

1)Preliminary and Promotional Activities; and 2)The Legal Process of Incorporation.

10 Classification of Corporations

1)Profit 2)Non-Profit 3)Corporations Public 4)Private Corporations 5)Publicly Held 6)Closely Held Corporations 7)Professional Corporations 8)Domestic Corporations 9)Foreign Corporations 10)Alien Corporations

4 Procedures for Incorporation:

1)Select a state in which to incorporate. 2)Create articles of incorporation. 3)Obtain certificate of incorporation (corporate charter). 4)Hold first organizational meeting once the corporate charter has been granted.

4 Factors that a court considers For Piercing the Corporate Veil:

1. 3rd party tricked into dealing with a corporation rather than the individual. 2. Corporation is set up never to make a profit or remain insolvent, or is under capitalized. 3. Statutory formalities are not followed. 4. Personal and corporate interests are mixed together.

S Corporations

A close business corporation that has most corporate attributes, including limited liability, but qualifies under the internal revenue code to be taxed as a partnership (single taxation) - can avoid income taxes at the corporation level, and limited liability -corporat income passes through to the shareholder who pay personal income tax on it

A limited liability partnership (LLP) is a special form of partnership where:

ALL partners are limited partners; and There are NO general partners. - An LLP is a pass-through entity for tax purposes, but a partner's personal liability for the malpractice of other partners is limited

What is a Syndicate?

An investment group of persons or entities who together finance a particular project. May exist as a corporation, or as a general or limited partnership.

Professional Corporations

Available for professional-class workers such as physicians, lawyers, dentist, accountant - similar laws to ordinary business corporations

Advantage of a Business Trust

Beneficiaries have no personal liability for debts and obligations of trust; and taxation only upon distribution of proportionate share of assets or income.

Case: Rubin v. Murray -Rubin is minority shareholder. -Murry and other majority members paid themselves additional compensation from net profit of the company -Rubin claimed that their compensation deprived him of his share of olympics profits -Court said salary should reasonably relate to a corporate officers ability and the quantity and quality of their services.

Court found that they were taking way too much compensation compared to a reasonable amount. The additional compensation the majority paid themselves based on stock ownership and not performance was excessive

why do people incorporate in Delaware

Delaware allows a business to incorporate in Delaware and carry out its business and locate its headquarters in another state. - least restrictive laws , with provisions that favor corporate management

what does the UPA do?

Governs the operation of partnerships if the parties have no express agreement

What are the tax consequences if profits are distributed to shareholders?

The company pays tax on its profits, and then if the profits are passed on to the shareholders as dividends, the shareholders must also pay income tax on them. Double taxation is one of the biggest negatives of corporations

when conducting business what does a corporation do?

The corporation substitutes itself for the natural persons in conducting corporate business and incurring liability.

Implied Corporate Powers

The implied powers of a corporation are those acts beyond express powers that are necessary to accomplish the corporation's purpose.

What type of evidence indicates that an agent or officer is acting within the course and scope of his employment?

The key to determining whether a principal may be liable for the torts of an agent under the doctrine of respondeat superior is whether the torts are committed within the scope of the agency or employment. Courts may consider the following factors in determining whether a particular act occurred within the course and scope of employment: 1. Whether the employee's act was authorized by the employer. 2. The time, place, and purpose of the act. 3. Whether the act was one commonly performed by employees on behalf of their employers. 4. The extent to which the employer's interest was advanced by the act. 5. The extent to which the private interests of the employee were involved. 6. Whether the employer furnished the means or instrumentality (for example, a truck or a machine) by which an injury was inflicted. 7. Whether the employer had reason to know that the employee would perform the act in question and whether the employee had done it before. 8. Whether the act involved the commission of a serious crime.

Is the promoter personally liable to third parties for pre-incorporation contracts?

The promoter is released from personal liability when the corporation assumes the pre-incorporation contract by novation.

What is a Special Business Form?

These are organizations that have similarities with partnerships or corporations, or combine features of both.

How does the partnership avoid liability from acts of dissociated partner?

They should notify its creditors, customers, and clients of the dissociation as well as file a statement of dissociation

Pass-through entity

a business entity that has no tax liability-the entity's income is passed through to the owners of the entity, who pay income taxes on it

Dividend

a distribution of corporate profits to the corporation's shareholders in proportion to the number of shares held

Benefit corporation

a for profit corporation that seeks to have a material positive impact on society and the environment. it is available by statute in a number of states

illegality & impracticality Dissolution by Operation of law

any event that makes it unlawful for the partnership to continue its business will result in dissolution. court may dissolve a partnership when it becomes obviously impractical for a firm to continue

What is An Ultra Vires Act?

Ultra Vires Act is an act by a corporation that is beyond the express or implied powers of the corporation.

consumer purchasing co-ops

are formed to control the market and thereby enable members to sell their goods at higher prices

Preformation Contracts

businessman can enter into contracts on behalf of a business not yet established. one can create a pre-incorporation contract that will have enforceable terms once the company is incorporated bc of novation

What 3 business and partnership activities may the limited partner engage in?

- Be hired by GP to be agent, employee, or contractor - Be a consultant or advisor to GP - Act as a Grantor for GP

Joint Liability for Contracts and Debts.

- Each partner is liable for claims regarding partnership debt or contractual disputes if transactions were authorized. - 3rd party must name partnership and all partners in lawsuit.

When is the Corporate Entity Disregarded AKA: "Piercing the Corporate Veil"?

- a court, in the interest of justice or fairness - holds shareholders personally liable for corporate debts or obligations. -a corporate business is treated so carelessly that it is indistinguishable from that of a controlling shareholders

Articles of Organization

considered effective against 3rd parties because of public notice

Secure the corporation anme

corporate name is subject to state approval to ensure against duplication or deception -all states require corporations to include the words corporation, incorporated, company, or limited

Non-for Profits Corporations liability

corporation is a convenient form of organization that allows various groups to own property and form contracts without exposing the individuals members to personal liability

Must the corporate by-laws be filed with the Secretary of State?

corporation's bylaws is a private, internal document that does not have to be filed with the state or any government entity.

Liabilities and management rights of joint ventures

-JV can be held personally liable for the ventures debt - JV's have equal right to manage the activities of the enterprise, but they can agree to give control of the operations to one of the members

Incorporated Cooperative Liability

limited liability.

Manager-Managed:

members are elected to manage the LLC. They have the authority to bind the LLC

what type of corporation are usually involved in ultra vires suits

nonprofit corporation, municipal (public) corporations

Operating Agreement

only effective against 3rd parties who are personally given notice of the restrictions

What are examples of projects that are funded by syndicate's?

shopping centers, professional sports franchises

Bylaws

the internal rules of management adopted -the bylaws cannot conflict with the state corporation statute of the articles of incorporation

Retained Earnings

the portion of a corporation's profits that has not been paid out as dividends to shareholders

What happens if a member want to give up his/her ownership interest in the corporation?

- the corporation could restrict the transferability of shares to outside person -shareholders could be required to offer their shares to the corporation of the other shareholders before selling to outside people

Can you identify examples of the express powers of a corporation?

- to sue and be sued in the corporate name; - to purchase, use, and sell land and dispose of assets to the same extent a natural person can; -to make contracts, borrow money, issue notes and bonds, lend money, invest funds, make donations to the public welfare, and establish pension plans

What is a Joint Stock Company?

-A company which has some features of a corporation and some features of a partnership. -Formed by agreement and company is not treated as separate legal entity during lawsuits. -The company sells fully transferable stock, but all shareholders have unlimited personal liability. -Shareholders are not considered agents of each other. - it is usually managed by directors and officers of the company or association -it can have a perpetual exstence

What is a Cooperative?

-An association organized to provide an economic service to its members. -Profits distributed to members based upon their transactions with cooperative, rather than on basis of capital contribution. -Usually adopted by groups of individuals who wish to pool their resources and gain some advantages

What does "Piercing the Corporate Veil" mean that court has done?

-Court concludes that shareholders used corporation as a "shield" from illegal activity. -the shareholder/owner is then required to assume personal liability to creditors

What is a Business Trust?

-Created by investors (beneficiaries) who transfer cash or property to be managed by trustees. -Beneficiaries hold trust certificates (like stock certificates), which represents their interest in the trust's assets and income.

De Jure:

-De Jure = right and lawful existence -substantial statutory requirements are met; neither the state nor a 3rd party, may challenge corporate status. -the secretary of state's filing of the articles of incorporation is conclusive proof

Benefit corporation differ from traditional corporation in 3 ways:

1) Purpose: to benefit the public as a whole 2) Accountability: shareholders of the corp. determine whether the company has achieved a material positive impact 3)Transparency: must issue an annual benefit report on its overall social and environmental performance

What are the 3 remedies for an ultra vires act?

1) Shareholders may sue to enjoin (stop) the act, or to obtain damages caused by the act. 2) Corporation may sue officers and directors responsible for the act to obtain damages. 3) Attorney general of state of incorporation may sue to enjoin (stop) the act or to dissolve the corporation.

A corporation is a separate legal entity (an artificial person) created by statute that can (4 things):

1) Sue or be sued in its own name; 2) Enter into and enforce contracts; 3) Hold title to and transfer property 4) Be found liable (civil and criminal) for violations of the law.

3 requirements for De Facto corporations to be allowed

1) a state statute exists under which the corporation can be validly incorporated 2) the parties have made a good faith attempt to comply with the statute 3) the parties have already undertaken to do business as a corporation

Shareholders should have the first organizational meeting after the charter is granted to do these 4 things:

1) approve the bylaws (most important part) 2) elect directors, 3) hire officers, and 4) adopt pre-incorporation contracts and activities

2 Possible methods of termination of corporation (B.c they are made in perpetual existance)

1) by the shareholders unanimous vote to initiate dissolution proceeding 2) by a proposal of the board of directors that is submitted to the shareholders at a shareholders meeting

6 steps in the incorporation process

1) promotion 2) name search 3) subscribers 4) file articles of incorporation 5) state charter 6) first organizational meeting

6 Requirements for S Corporations

1) the corporation must be a domestic corporation 2) the corporation must not be a member of an affiliated group corporations 3) the shareholders must be individuals, estates, or certain trist. partnerships and non-qualifying trust cannot be shareholder. corporations can be shareholders under certain circumstances 4) the corporation must have no more than 100 shareholders 5) the corporation must have only one class of stock, although all shareholders do not have to have the same voting rights 6) no shareholder of the corporation may be a nonresident alien

3 Significant differences in liability for Professional Corporations:

1)Each shareholder is liable for any malpractice that occurs during scope of corporate business. 2)Each shareholder is liable for negligence and wrongful corporate conduct of corporate agents under his/her direct supervision. 3)Limited protection from contractual liability and other professionals' liability which are unrelated to malpractice or breach of a duty to clients/patients

How is the corporation punished for criminal conduct?

A corporate who is held criminally liable for it's employees criminal conduct may suffer financially and criminally. Everyone in the corporate entity may be held liable for the criminal activity including officers, directors, and the corporation itself. The penalties may include: -Revocation of corporate charter by state authorities -Civil penalties -Loss of government contracts -Shareholder suits -Permanent or temporary loss of deposit insurance, conservatorship, receivership.

4 major Constitutional Rights of Corporations

A corporation enjoys rights and privileges under the Bill of Rights: 1) Right of access to the courts. 2) Due process rights. 3) Freedom of speech. 4) Fifth Amendment right against self-incrimination (officers and employees in limited circumstances only).

Alien Corporations

A corporation formed in another country but doing business in the U.S.

Corporate Responsibility for the Torts of Its Agents

A corporation is liable for the torts committed by its agents or officers within the course and scope of their employment. Corps. Cant go to jail but they can be fined, but their members can be.

Foreign Corporations

A corporation that does business in that state but is not incorporated there

Domestic Corporations

A corporation that is organized under the law of that state

Closely Held Corporation

A corporation whose shares are held by members of a small group.

A public corporation and Publicly held corporation are Dif: whar are Publicly held corporation?

A corporation whose shares are publicly traded in securities market, such as the stock exchange

Case: Purdue Pharma {Corporate Criminal Charges} -Felony criminal charges for false or misleading information (misbranding) of the safety of OxyContin, a time-released, narcotic pain-killer. -From 1995 to mid-2001, Purdue Pharma marketed OxyContin as posing a lower threat of abuse and addiction than traditional painkillers (Percocet or Vicodin).

Impact: rising crime rates; teen drug addition and death.

What is improper incorporation?

Improper incorporation refers to errors that occur in the incorporation procedures.

where are the expressed powers of a corporation found?

In its articles of incorporation. in the law of the state of incorporation, and in the state and federal constitutions, The corporation's by-laws; and The resolutions of the board of directors.

Authority to enter contracts of joint ventures

JV's have authority as agents to enter into contracts for business that will bind the JV

What happens if a corporation fails to pay its taxes?

Lead to severe consequences such as the state suspending the entity's corporate status until the taxes are paid or even dissolve the corporation from failing t pay taxes

Personal liability on pre-incorporation contracts.

Promoters may not act as an agent of proposed corporation.

Joint Ventures

Relationship among 2 or more persons or business entities who combine business efforts towards a single project or transaction, or towards a related series of projects or transactions. they share profits and losses equally

Case: Drake Manufacturing Co. v. Polyflow, Inc. -Drake Manufacturing (incorporated in Delaware) entered a contract to sell Polyflow (incorporated in PA) products -Drake promised to ship from their plant in PA to Polyflow's OA, cali, and canada places -Poly withheld payment so Drake filed for breach of contract in a PA court - But Drake never got a certificate of authority to do business in PA as a foreign corporation -Poly said their failure to get certification deprived Drake of being able to bring action against Polu in PA courts - Did Drake's failure to submit a certification of authority deprive the company of the capacity to sue in the PA state's Courts?

Yes A state intermediate appellate court reversed the judgment that had been in Drakes favor. THe trial court should not have allowed Drake to prosecute its action against poly. PA statutes require a foreign corporation to obtain certification of authority before doing business in PA

Case: Dog House Investments, LLC. V. Teal Properties, Inc. -Dog House runs a dog camp leasing its property from teal properties -under contract landlord promises to fix and damages from fire or other causes that edner the property unusable -after a flood dog house informed landlord of damanges -Landlord assured it was covered under insurance, but took to no steps to remedy -later parties agreed dog house would pay costs, but will be reimbursed by landlord -cost 39K to doghouse, landlord got 40K from insurance, and did not pay dog house -close to bankruptcy doghouse suid landlord -court held landlord personally responsible, landlord appealed - should the court pierce the corporate veil of teal properties to accomplish justice for dog house?

Yes, dog house had not been reimbursed for the cost to repair the flood damages as the landlord promised - 4 factors that showed the company was a sham 1) an investment of insufficient capital in the corporation 2) the sole ownership of its stock by one individual 3) its use as a conduit for the personal dealing of an individual 4) the failure of the owner to maintain an arm's-length from corporation

Private Corporation

created wholly or in part for private benefit. may serve a public purpose, public gas or utilities corp, but are owned by private persons rather than government

Misappropriation of close corporations funds

if a majority shareholder take advantage of this position the normal remedy to injured parties is to have their shares appraised and to be paid the fair market value

By Estoppel:

if it acts like a corporation, cannot avoid liability by claiming that no corporation exists.

Public Corporation

is one formed by the government to meet some political or governmental purpose

Unincorporated cooperatives Liability

joint liability for cooperative's acts (like partnership).

Articles of Incorporation:

primary enabling document filed with the Secretary of State that includes basic information about the corporation.

Management of corporation resembles what?

sole proprietorship or a partnership

De Facto (Some States):

statutory requirements not met, but promoters made good faith effort to comply with corporate law; state, but not 3rd party, may challenge corporate status.

Case: Brown v. W.P. Media, Inc -W.P and Alabama MBA agree to from a wireless internet service company -WP has to create a wireless network -Alabama Has to provide funding -Brown signed contract for Alabama, at this time Alabamas articles of incorporation had not been filed -Brown files the following year -Brown filed suit that WP breached contract for not creating the network as promised in contract - Can WP get out of the contract

supreme court of ALabama held that b/c WP had treated Alabama as a corporation, WP is estopped from denying Alabama corporate existence

Case: Dissolution of Midnight Star Enterprises, LP -KC was a LP in Midnight Star Enterprise, LP - two other PL carla and frances Caneva, who owned a small percentage of the partnership, and were on salery - A company owned by KC, midnight star enterprise Limited was the General partner (MSEL) -Communications between partners ended and MSEL asked for judicial dissolvement of the partnership - Accountants of MSEL said company is work $3.1 M -the Caneva's presented evidence that a competitor would pay $6.2 M - the Canevas wanted the court to force KC to pay that much or sell the place onthe open maket -

- COurt found for KC bc a partner cannot force the sale of a LP when the other partners want to continue the business, so court accepted the $3.1 M buyout price and he had to pay the Canevas their 6.5joint partnership ownership

LLC Operating Agreement

- Not mandatory but recommended as it gives a sense of authority Operating agreement is similar to a corporation's bylaws. Operating agreements may be oral and contain provisions relating to management, dividends, meetings, transfer of membership interests, and other significant issues.

Winding up

- when the firm's assets are collected, liquidated, and distributed, and liabilities are discharged - Partners have no authority to create new partnership obligations after dissolution occurs except to complete transactions already begun

Joint and Several ( separately or individually) Liability.

-A 3rd party may sue one or more partners separately (severally) or all of them together (jointly) for all partnership obligations. -If it is truly a partnership obligation (authority or course and scope of partnership business), then all partners are held liable. - normally the partnership's assets must be exhausted before a creditor can enforce a judgement for personal assets

Dissolution of LLCs

-A dissociating member has no right to trigger dissolution of the LLC. -Members may agree to conditions that trigger dissolution in the LLC operating agreement. -Courts may order an LLC dissolved in certain circumstances.

non-partner as agent estoppel

-A partner in an actual partnership tells a third-party that a non-partner is in fact a partner, -The non-partner is an agent whose acts are binding on the partner only, not the partnership.

Partnership Buy-Sell Agreements

-Agreement entered into at the formation of the partnership to address dissolution issues. -Provides that one partner may purchase the other's partnership interest under certain circumstances. -Often determines the value of the interest being sold and gives other partner or 3rd parties option to purchase interest.

Rights and Duties in a Limited Partnership for LP & GP

-Except for right to participate in management, limited partners have essentially the same rights as general partners. -General and limited partners also owe each other a fiduciary duty to exercise good faith in transactions related to the partnership.

Management of A Limited Partnership

-General partners assume all management rights and have fiduciary responsibility to limited partners. -Limited partners give up right to participate in the control and management of the LP. --Limited partner DOES NOT have the right to bind the LP to contracts or other obligations. --You can vote partnership matters as LP and not be held liable

2 reasons that Courts may order an LLC dissolved

-Illegal or oppressive conduct of members. -Impracticable or not feasible to carry on business

Partner in LLP is not personally liable for:

-Malpractice of another partner unless he or she acted as supervisor. -UPA exempts partner for personal liability of any partnership obligation (contractual liability or tortious conduct).

Liability of Incoming Partner.

-Newly admitted partner has no personal liability for partnership debts and obligations incurred before the individual joined the partnership. - The new partner's liability to existing creditors of the partnership is limited to her or his capital contributions to the firm

Winding Up of the LLC

-Winding up involves collecting, liquidating and distributing LLC assets. -Member who wrongly dissociated is barred from participation

Member-Managed:

-all of the members participate in management, like a partnership. They use a majority vote control -Most LLCs statutes assume that LLC will be member- managed, unless the articles state otherwise

What 4 events would cause the certificate of limited partnership to be amended?

1) Capital contribution of partner 2) New partners 3)withdraw of new partner 4)Continuation of business after withdraw of last partner and amendment to a new partner

Partnership not be inferred if profits received as payment in the following 5 situations

1) Debt by installments of interest on a loan. 2) Wages of an employee or independent contractor. 3) Rent to a landlord. 4) Annuity to a widow or representative of a deceased partner. 5) Sale of good will.

3 Advantages of partnership

1) Easy to create and maintain. 2) Flexible and Informal. 3) Partners share profits and losses equally.

2 Types of partners in a Limited Partnership

1) General - invest capital, manage the business and are personally liable for partnerships debt 2) Limited - invest capital, no rights to participate in management and not personally liable for partnership debts beyond investment in partnership

Wrongful dissociation occurs when 1 of 2 events happen

1) Leaving the partnership would be a breach of the agreement 2) A Partner refuses to perform duties required by the partnership agreement

3 Advantages of the LLC

1) Member liability limited to the amount of his/her investment. 2) Members may choose to be taxed as either a partnership or corporation. If taxed as a partnership, members avoid "double taxation." Members who reinvest profits in LLC may choose to be taxed at lower corporate rate. 3) Foreign investors may participate in an LLC.

Certificate of Limited Partnership requires 7 aspects:

1) Name of business 2) General character of business (what they are going to do) 3) Address of principal place of business 4) Name and address of registered agent 5) Name and business address of each partner 6) The latest date upon which the limited partnership is to dissolve (term, perpetuity, at-will) 7) Cash, property, services contributed by each partner

3 Essential elements of a partnership

1) Sharing of profits or losses. 2) Joint ownership of the business. 3) An equal right in managing the business.

3 Disadvantages of the LLC

1) State statutes are not uniform with respect to limited liability of members. 2) Not all states recognize LLCs (use law of state of incorporation). 3) Lack of case law as to how to treat LLCs. Some states may seek guidance from principles of partnership law; others may look at principles of corporate law.

Partnerships can be dissolved in 3 methods

1) acts of the partners 2) operation of law 3) judicial decree

Tort Liability of the LLC and LLC is liable for 3 things

1) any third party's loss, 2) caused as a result of a wrongful act by a member, manager, agent or employee of the LLC, 3)if the act is committed while acting in the ordinary course of business.

Dissolution by Operation of law in two ways

1) illegality 2) impracticality

Dissolution by Acts of the Partners occurs by either 3 methods

1) stated time or purpose 2) partner's withdrawal assuming there was no term (if term than breach) 3) at least 50% of partners decided inf acor of dissolution if event occurs (such as death or bankruptcy)

Leaving the partnership would be a breach of the agreement in 2 ways

1)A partner leaves before the expiration of a term in a partnership for term. 2)A partner leaves before the completion of a project in a partnership at will.

Proceeds distribution of Winding Up of the LLC (3 steps):

1)Creditors, including member-creditors. 2)Capital contributions to members. 3)Remaining assets according to the LLC operating agreement, or ratio of capital contribution if no LLC agreement.

5 tiered steps of Distribution of Assets

1)Creditors: 2)Partners: 3)Return of Capital: 4)Remainder to Partners (Agreement): 5)Remainder to Partners (No Agreement):

Partnership obligations are paid in the following 2 step order:

1)Debts owed to non-partner creditors and partner-creditors (personal creditors). 2)Return of capital contribution and distribution of profits to partners.

Unlimited personal liability for LP occurs (3 situations):

1)Defective formation 2)Participation in management 3)Personal guarantee

5 Causes for Dissolution of the Limited Partnership:

1)End of a set time period for partnership or completion of a project. 2)Written consent of all general and limited partners. 3)Bankruptcy/Withdrawal, death or mental incapacity of a general partner. Not for LP 4)Decree of judicial dissolution for LP

Three Consequences of Dissociation

1)Terminates the right of the leaving partner to participate in partnership business. Duty of loyalty ends, but Duty of care continues with respect to events that occurred before dissocaiation 2) Requires partnership to purchase his/her interest. 3)Alters third party liability. For 2 years after partner leaves, the partnership is liable to 3rd party for transactions with dissociated partner based on apparent authority.

Members' and managers' authority to bind the LLC may be restricted in either (2 things):

1)The articles of organization (public record) 2)The operating agreement (privet)

8 Events Trigger Dissociation (UPA 601)

1)Voluntary Notice of Withdrawal. 2)Occurrence of an Event. 3)Unanimous Vote of Partners. 4)Judicial Decree. 5)Bankruptcy; 6)Assignment of Interest to Creditors; 7)Incapacity 8)Death

Can't be in what 2 industries to be an LLC?

1)banking 2)insurance

As a separate legal entity, a partnership may (5 things):

1)sue and be sued. 2)have judgments collected against its assets. 3)own and convey partnership property. 4)keep its own financial records. 5)be subject to marshaling of assets.

unless specified each partner has one vote in a partnership in 6 areas

1. Management 2. Interest in the Partnership 3. Compensation 4. Inspection of Books 5. Accounting of Partnership Assets or Profits 6. Property Rights

What is an LLC?

A limited liability company (LLC) is a business entity that combines: the limited liability of a corporation {liability limited to capital contribution, no personal liability for company's debts}; and the tax advantages of a partnership (taxed once instead of corporations that get taxed twice)

What is Partnership Dissociation?

A partner ceases to be associated with carrying on the partnership business.

Fiduciary Duty of Loyalty

A partner must account for all property, profit benefit that arises from the partnership's business or property.

Fiduciary Duty of Care

A partner must refrain from grossly negligent or reckless conduct, intentional misconduct or a knowing violation of the law.

Partnership as an independent entity

A partnership is sometimes called a company or a firm. Suggests that the partnership is an entity separate and apart from its members.

At least how many general and limited partners should a LP have?

At least one general and one or more limited partners

Case: Estate of Webster v. Thomas -A partnership was created to farm 180 acres of land -Under partnership agreement firm will last till January 31, 2010 and the death of any partner would dissolve the partnership -Webster died in 2002, but other partners did not dissolve the firm and distribute assets -Webster estate filed suit -December 2009 court ordered firms dissolution and liquidation of assets , but partners ignored the court

Case went to trial in 2011, court said they must dissolve, liquidate assets, and pay Webster's attorneys fees since the agreement was past expiration.

Dissociation of LLCs

Dissociation occurs in the same manner as general partnerships (one member ceases to be associated with the business of LLC).

Dissolution of the Limited Partnership

Dissolved in much the same way as a general partnership. -GP can dissociate or withdraw unless partnership agreement says otherwise. -LP can dissociate by giving six month notice unless partnership agreement says a specific time period

What Is the Authority of Partners?

Each partner is an agent of every other partner and acts as both a principal and agent in any business transaction that are within the scope of the partnership agreement.

When do we presume that a partnership exists?

If a commercial enterprise shares profits and losses a partnership will be inferred.

What are the management rights of a partner?

In a general partnership, all partners have equal rights in the management and conduct of partnership business. Each partner has one vote in management matters. The majority rule controls decisions on ordinary matters of partnership business.

Is the authority of managers limited in any way?

Its limited by statutes, there are things that need to be taken to a vote in the member managed position bc they are fundamental to changing the articles of member, operating agreement, admitting new members, consent to dissolve the LLC, consent to merge the LLC with another entity, selling leasing of all or some of the assets of the LLC

Liability in a Limited Partnership for Limited Partners

Liable for debts of the limited partnership up to their capital contributions.

Formation of A Limited Partnership

Must create LP formally and follow statutory requirements.

Does the creditor of an individual partner have the right to attach partnership property?

No

Has a partnership been created between David and Citibank? : David owns the Empire Casino. David borrows $3 million business loan from Citibank. David and Citibank agree that he will pay back loan by sending Citibank 10% of his monthly business profit until the loan is paid in full. Do David and Citibank have a partnership agreement regarding Empire Casino?

No, Debt by installments of interest on a loan

Case: General Electric v. Stover -Linnane Magnavox Home Entertainment Center is a limited partnership. -Paul Linnane is the only general partner -Richard Gale Stover is the limited partner -Linnane Magnavox and GE Credit Corp. signed contract for financing. -GE Credit refused to grant credit unless Stover signed as guarantor of the credit. -Stover gave GE Credit personal financial statements and personally signed the credit agreement as guarantor. -Linnane Magnavox defaulted on debt -Paul Linnane was adjudicated bankrupt. -GE sued Stover to recover on the debt. -How do you think the court ruled?

One GP and one LP. Stover LP must sign as guarantor for the line of credit. Enterprise defaulted on debt. General partner went into bankruptcy and court adjudicated him. GE is suing Stover for the debt. Court said he amended or modified his statues by signing the agreement and he was aware that the personal guarantee hold him personally responsible for the debts and obligations of the limited partnership

Case: Hodge v. Strong Built Int'l., LLC Hodge was hunting from a deer stand, the stand failed and he fell and died, they are sewing for wrongful negligence. Strong built is a single owner LLC from Louisiana. Trial court gave summary judgment. They overturned this.

Owners of LLC are not personally liable unless you can go beyond the shield. Exceptions are based on a statute: no member, manager, person, employee, or agent of an LLC, only managers or __ may be personally liable for a breach of wrongful duty or some other negligent or wrongful act. Member owes a duty of care beyond the duties of the LLC. The LLC worked it shielded from personal liability, they upheld the summary judgment

Limited Duration: Partnership for a term.

Partners agree that the partnership will continue until a certain date, or until the completion of a project.

Unlimited Duration: Partnership at will.

Partnership agreements do not specify how long the partnership will last.

Case:Venture Sales, LLC. v. Perkins 3 ppl for venture sales LLC. They managed to develop 2 other subdivisions but not the one in petell missisippi. Perkins didn't agree with the listing price of the property that the other properties listed. Trial court ordered the company to be dissolved, other partners appealed.

Supreme court affirmed trial court since it is not reasonable practical to carry on the LLC business with the community to the LLC agreement since they have been trying to but it hasn't been working. Dissolution is ok if they are not meeting the economic purpose for which it was established, acquire develop and sell properties near petell missipi. They lacked the funds to proceed to develop the property and didn't know where they would get it form.

Is the operating agreement is silent on a certain issue, how is that issue resolved?

The first place to look is the operating agreement, if nothing look to the LLC statute if it says how to handle it, if not there than courts will apply partnership principles (this is state specific) some courts might do corporate principles.

Case: Craton Capital, LP v. Natural Park Production II, LLP Natural parks productions is a LLP, craton capital is the LP in the LLP, they had a buy sell agreement. Impaired circumstance. Craton capital wanted to dissociate, once they entered their request another LP followed. Natural Parks Production declared an impairment circumstance. Giving them their buyout would adversely affect their working capital. The trial court said impairment circumstance was their so they didn't have to be bought out. - what did the appellate court say?

They appalled, issues was NPP being forced to buy dissociated LP rn would cause harm. The appellate court said YES and compel LLP to give them back their money. The language of the clause is mandatory that NNP would have to buy out the LLP, but did not say when they would have to. The impairment circumstances differed the purchase.

Liability in a Limited Partnership for General Partners

Unlimited personal liability for the debts of the limited partnership.

What happens if the operating agreement is silent?

What does the statutes say, default position member managed

Is it possible for the dissociated partner to be bound by partnership after leaving the partnership?

Yes a dissociated partner may be liable for partnership obligations entered into during a 2 year period following dissociation

Case: DeWine v. Valley View Enterprises, Inc. Two enterprises owned by the same natural person Valley view, owner and president is JF, is going to build houses and a golf course in phase one and phase two. "JF was the owner and the president of valley view enterprises and the sole general partner of valley view properties." They actually had the permit for phase one. Valley view properties LTD (limited partnership), JF is a general partner(GP have limited lability - LP have only up to cash buy in), they own the land on which the property is going to be developed and they had the phase two permits. Lawsuit said all 3 partnership is liable for civil violations, the trial court gave judgment in all 3 defendants favor. They said a corporate officer cannot be held labial for virtue of their stats as a corporate status. Attorneys general appealed, the appellate court reversed the ruling. Did JF status as general partner make him responsible for the acts of Valley View Properties

Yes, As a general partner he could be held liable since he is a owner and president of valley view enterprises, VVP LTD, and Ferrara bc general partner of VVP. For the LP JF was not a corporate office but the general partner.

Case: Meinhard v Salmon -Salmon got a 20 year lease for a hotel. -To convert the hotel into stores he entered into an agreement with meinhard for half the cost. -They agreed to share profits and loss as a joint venture. Salmon had sole power to manage building. -Salmon agreed to raise the building and build a new building with the landlord, but using his company name (the one with without meinhard). -Did salmon breach his fiduciary duty of loyalty to meinhard?

Yes. Salmon had breached his duty by failing to inform meinhard of the business opportunity and secretly taking advantage of it for him self

Case: Mekonen v. Zewdu - Green Cab Taxi is an LLC and requires members to pay weekly fees -members that don't pay fees are in default and must return their taxi license -members in default can't sit on the board or withdraw from the company without consent of all members - management issues broke out and Mekonen withdrew without consent from others and still use company name - Mekonen group filed suit against Zewdu group (Who did not withdraw), and wanted rights to use name -the court said Mekonen could not use company name. They appealed what happened?

court upheld the ruling saying they are bound by the operating agreement

What are the partner's rights to share in profits and losses?

if no partnership agreement: split equally among all partners if yes partnership agreement: split proportionally to capital contributions

Chargining Order

in partnership law, an order granted by a court to a judgment creditor that entitles the creditor to attach a partner's interest in the partnership

2nd consequence of dissociations (buyout): Buyout Price

is based on the amount that would have been distributed ti the partner if the partnership had been wound up on the date of dissociation. offset against the price are any amounts owed by the partner to the partnership

General Partnership

is created when: two or more persons (corporations can be a person) agree to carry on business for profit as co-owners with equal right to manage and share profits

Limited partners' liability for partnership debts:

is limited to capital contributions; and None of the partners is personally liable for the debts and obligations of the partnership beyond capital contributions (UPA).

If no LP agreement

profits and losses are allocated according to ratio of capital contribution, LP only liable up to capital contributions

Limited Partnership Agreement may

specify how profits and losses are allocated.

Novation

substitutes a new contract for the old contract

Jackson Paper Manufacturing Company and Stonewall Packaging, LLC - Jackson Paper Manufacturing Company makes paper that Stonewall Packaging uses - Jackson and Stonewall have directors and officers in common; they share employees, property, and equipment - Best Cartage Inc, relying on Jackson's reputation agreed to provide transportation services for Stonewall and bought 37 tractor trailers to use in fulfilling the contract - Best provided services until Stonewall terminated the agreement -Best filed suit against both Stonewall and Jackson, arguing that they had a partnership by estoppel

the courts agreed

Case: Russell Realty Assoc. v. Russell - family opened Russell Realty Assoc. as partnership - Eddie had decision-making authority several years later eddie and sister nina had disputes - b/c of disputes RRA could not sell anything for 2 years - Eddie filed for judicial dissolution of partnership which court granted - nina appealed - What did the virginia supreme court say?

virginia supreme court affirmed the lower court's decision that RRA must be judicially dissolved. the partners relationship deteriorated to the point where it could not function effectively so they incurred unnecessary costs which made it impracticable to continue

Dissolution

when any partner stops being associated with carrying on the partnership business, and the other partners don't want to or can't continue