Entrepreneurship, Partnerships, and Corporations - (Law 615) Exam 3

Sole Proprietorship Disadvantages

1) Access to capital, which is generally limited to personal funds and loans 2) Personal Liability, so owner has unlimited liability for all contracts and torts committed by himself or his employees in the course of business

Creation of a General Partnership

1) Business must be a voluntary association of at least two persons that are carrying on a business as co-owners for profit 2) The formation requires little or no formality 3) The courts will consider receipt of a share of the business profits and losses proof of a partnership, opposed to right to management 4) Agreement may be oral, written, or implied ***Statue of Frauds will require written partnership agreement if partnership is to exist for over a year or deal with real estate***

Creation of Limited Partnership

1) Certificate of Limited Partnership 2) Name of the Limited Partnership - which must have Limited partnership in title 3) Types of Capital Contributions 4) Defective Formation 5) Limited Partnership Agreement 6) Shares of Profits and Losses 7) Rights to Information 8) Admission of New Partner 9) Foreign Limited Partnership

Duties of General Partnerships

1) Duty of Loyalty 2) Duty of Care 3) Duty to Inform 4) Duty of obedience

Characteristics of a Corporation

1) It's a legal person/entity 2) Limited liability of shareholders - to the extent of their contribution 3) Free Transferability of Shares 4) Perpetual Existence 5) Centralized Management

Rights of General Partnerships

1) Right to participate in management 2) Right to compensation and reimbursement 3) Right to return of loans and capital 4) Right to information (financial records, taxes, etc)

Incorporation procedures

1) Selecting a state for incorporation 2) Selecting a corporate name 3) incorporators - persons, corporations, partnerships or other associations serve as the incorporators and sign the articles of incorporation

How is a corporation financed? What is authorized, issued and outstanding shares.

1) Through stock - common (right to vote for directors and receive dividends) and preferred (get paid first but no voting rights) 2) Debt Securities (debenture, bond, notes)

Liability of General Partnerships

1) Tort Liability - the partnership as a whole is liable for any acts caused by a partner, employee, or agent within the ordinary course of business 2) Contract Liability - Partners are jointly liable. A party must name ALL partners in a lawsuit in order to collect anything from the partner/partnership. Releasing a single partner releases them all. If a partner is made to pay more than their share, they may seek indemnification from the other partners 3) Liability of Incoming Partners - If a partner comes in with $1,000 in debt, they alone, keep that debt. It is not distributed to the other partners. If partnership has debt of $2,000 and the incoming partner is a 20% partner, that partner has their own debt, plus 20% of the partnership debt of $2,000 too.

Sole Proprietorship Advantages

1. It is the simplest form of business. 2. As the name indicates, the owner is the business. 3. It is easy to form and does not cost a lot. 4. The owner has the right to make all management decisions. 5. He/She owns all of the business, receives all of the profit, and carries the tax liability on his personal income tax for both state and local taxes 6. The sole proprietorship can be easily transferred or terminated at any time.

Permissible Activities of Limited Partnerships

1. May be an agent, employee, or contractor of either the limited partnership or of a general partner, as well as an advisor or consultant. 2. May act as a surety, and vote on a number of partnership matters including the dissolution and winding up, the sale or transfer of substantially all of the assets, the incurrence of indebtedness, and the removal of a general partner. 3. May be a surety for a loan to the limited partnerships and if they are, they will be held personally liable for that loan, beyond the limits of his capital contribution.

Limited Partnership

A limited partnership must have at least one general partner and one limited partner, which may be the same person

General Partnership

A voluntary association of two or more persons for the purpose of carrying on a business for profit Taxation - Income and losses flow through to the partner's personal income tax returns

Which of the following is a consequence of a limited partnership failing to obtain a certificate of registration before conducting business in another state? A) The limited partnership cannot initiate any lawsuits in the other state. B) Contracts that it enters into are void. C) Contracts that it enters into are voidable. D) The limited partnership cannot defend itself in any lawsuits brought against it in the other state. E) The limited partners will lose their limited liability.

A) The limited partnership cannot initiate any lawsuits in the other state.

Uniform Partnership Act

AN ACT to define partnerships; the relation of partners to persons dealing with the partnership; the relation of partners to one another; to provide for the dissolution and winding up of partnerships; to prescribe powers and duties of certain state agencies and officials; and to make uniform the law relating to partnerships.

Which of the following best describes the Revised Uniform Limited Partnership Act? A) A federal statute that states can choose to implement or not. B) A standard law passed by most states that generally applies to limited partnerships except where the limited partnership agreement provides a different provision. C) A standard law passed in every state that applies to limited partnerships and takes precedence over any contrary provisions in a limited partnership agreement. D) A federal statute governing all limited partnerships.

B) A standard law passed by most states that generally applies to limited partnerships except where the limited partnership agreement provides a different provision.

What must be done by a limited partnership that is properly registered in one state in order to conduct business in another state? A) Nothing, because the home state registration is good in all states. B) It must obtain a certificate of registration in the new state. C) It must obtain a registered agent in the new state. D) It must clearly indicate that it is formed in a different state to all parties with whom it does business. E) It must obtain a certificate of limited partnership just as it had in the first state.

B) It must obtain a certificate of registration in the new state.

How can articles of incorporation be amended

Board must pass a resolution recommending the amendment and the shareholders must vote. The corporation will file an article of amendment with the secretary of state.

Which partners have an unlimited right to obtain information about the partnership's business? A) General partners only. B ) Limited partners only. C) Both general and limited partners. D) Neither general nor limited partners.

C) Both general and limited partners.

Which of the following is true about articles of limited partnership? A) The articles of limited partnership apply to the general partners only. B) Without articles of limited partnership, the partnership will be treated as a general partnership. C) If there are no articles of limited partnership, the certificate of limited partnership will serve as the articles. D) The articles must be filed along with the certificate of limited partnership.

C) If there are no articles of limited partnership, the certificate of limited partnership will serve as the articles.

Which of the following is true regarding the liability of the partners in a limited partnership? A) If a corporation is a partner, its shareholders have unlimited liability for the partnership debts. B) Neither the limited nor the general partners have unlimited liability for the partnership debts. C) The limited partners have limited liability and the general partners have unlimited liability for the partnership debts. D) The limited partners have unlimited liability and the general partners have limited liability for the partnership debts. E) Both the limited and general partners have unlimited liability for the partnership debts.

C) The limited partners have limited liability and the general partners have unlimited liability for the partnership debts.

Source of Law of Partnership

Common Law Uniform State Law - This created a uniform set of laws covering the formation, operation, and dissolution of limited partnerships.

Where can a corporation be incorporated

Corporations are domestic in the state of their incorporation, and foreign in all other states. Most states require foreign corporations to obtain a certificate of authority to do business in their state. Alien corporations are incorporated in other countries, and most states place similar requirements on them to foreign corporations.

Cindy is one of 50 limited partners in a real estate investment limited partnership. The general partner is Evergreen Corporation. Evergreen Corporation invested $500,000 in the partnership and each of the limited partners all of whom are natural persons, invested $10,000. Evergreen has four shareholders. If the real estate partnership is dissolved at a time when it has debts exceeding assets, which of the following is true? A) Because having a corporation means that no partner in the limited partnership has unlimited liability, the shareholders of the corporation would have unlimited liability. B) Neither the corporation nor the limited partners would be required to contribute any assets toward the satisfaction of the unpaid obligations of the limited partnership. C) Because having a corporation means that no partner in the limited partnership has unlimited liability, the limited partners would have unlimited liability. D) The limited partners would not need to contribute any amounts to the satisfaction of the debts, but the assets of the corporation would be available for this purpose.

D) The limited partners would not need to contribute any amounts to the satisfaction of the debts, but the assets of the corporation would be available for this purpose.

Which of the following best describes who may be a partner in a limited partnership? A) An individual, corporation, and a limited partnership only. B) An individual only. C) An individual and a corporation only. D) An individual, corporation, and an estate only. E) An individual, corporation, limited partnership, and an estate.

E) An individual, corporation, limited partnership, and an estate.

What are the corporate powers expressed and implied.

Express - The express power of a corporation is derived from the constitutions of the U.S. and the states, federal and state statutes, the articles of incorporation, the bylaws, and resolutions of the board of directors, and may engage in almost every legal activity. A few activities like banking, insurance, and operation of a public utility require government agency approval. Implied - These powers allow the corporation to exceed its express powers in order to accomplish its stated purpose.

What is an organizational meeting.

Following the filing of the Articles of Incorporation, the directors meet to adopt bylaws, elect officers, and transact business.

What are Corporate Powers ultra vires acts?

If a corporation exceeds either its express or implied powers, the shareholders can sue for an injunction to prevent the action from continuing or sue the officers or directors. The attorney general of the state of their incorporation may bring an action to enjoin the act or to dissolve the corporation.

Liability of Limited Partnership

Liable only up to the amount of their capital contribution.

Creation of a Sole Proprietorship

No formalities or government approvals required - might have to purchase a business license

Profit vs Non-Profit Corporation

Profit - Private corporations are classified as for profit, if they can distribute profits to the shareholders Non- Profit - are prohibited from distributing the profit to members, directors, or officers.

Public vs Private Corporation

Public - Government-owned public corporations are formed for specific government purposes. Private - formed to conduct privately owned business

Publicly Held vs Closely Held Corporation

Publicly held - have many shareholders and are usually traded on stock exchanges. Closely Held - have shares that are owned by few shareholders. there is usually a buy-and-sell agreement which restricts transfer of shares to only other current shareholders.

What are articles of incorporation

The corporate charter is the basic governing document for the corporation. It includes the name, number of authorized shares, address of the initial office and registered agent, and the name and address of each incorporator. This paper is a matter of public record.

What are corporate bylaws

The governing documents of an organization, bylaws are not filed with any government official. Bylaws establish the internal management structure and are adopted by the incorporators or the board. They establish the time and method for the annual meeting, board meetings, special meetings, duties of board members, determine what a quorum is and the required vote, and establish committees. The board may amend them at any time, unless this right is specifically reserved to the shareholders.

Incorporation Promoter's liability

The promoters organize and start the corporation, and usually enter into contracts on its behalf. If the corporation does not come into existence, the promoters have joint personal liability on all contracts that were signed. If the corporation is formed, a resolution must be passed by the board of directors in order for it to be bound by the contracts. Even then, the promoters are still liable unless the parties enter into a novation

Death of a Parner Right of Survivorship

The surviving partners receive the partnership property from a deceased partner through the right of survivorship. His heirs or beneficiary receives only the value of the deceased partner's share

Profession Corporations

These corporations are formed by licensed professionals, and are identified by P.C., P.A., or S.C. The shareholders are called members, and most states grant them limited tort liability, requiring, instead, large insurance requirements.

The UPA specifies that a partner has the right to an equal share in partnership's profits and losses unless the otherwise agreed in a partnership agreement. True False

True

What is the RMBCA, Revised Model Business Corporation Act

is a model set of law prepared by the Committee on Corporate Laws of the Section of Business Law of the American Bar Association and is followed by twenty-four states