BUS LAW

novation

an agreement between the partnership, a creditor, and an outgoing partner to release outgoing partner from debt or liability at issue. can be express or implied.

par value

an arbitrary dollar amount that may be assigned to share by articles of incorporation does not reflect the fair market value of the shares but is the minimum amount of consideration for which the shares may be issues protects creditors by establishing minimum equity cushion

Limited Partnerships

investors can contribute capital without having management or unlimited liability used primarily in tax shelter ventures (real estate investment, oil, mining, sports, etc.)

Dissolution of Partnerships

involves a change in partners' relationships

LLP liability

-a partner's liability for partner's negligence is limited to partnership assets but a partner has unlimited personal liability for his own malpractice and non-professional obligations of the partnership

Limited Liability Partnership (LLP)

-a reaction to the large amount of liability imposed on professionals such as attorneys, accountants, and architects for professional malpractice of their partners

Limited Partnership (LP)

-at least one general partner and at least one limited partner. -has a life span after death of partners -only created by complying with a statute permitting limited partnerships, sign certificate of limited partnership -can attract large amounts of capital

Limited Liability Company (LLC)

-combines the non-tax advantages of corporations with favorable tax treatment of partnership -hybrid between partnership and corporation -owned by managers who manage the LLC themselves -must have LLC in name -death, retirement, or bankruptcy forces liquidation unless all remaining members vote to continue

S-Corporation

-corporation and shareholders taxed under Subchapter S of Internal Revenue Code -taxed like partnership -no more than 100 shareholders

Manager Liability and Taxation in LLC

-limited liability for obligations of the LLC -liability limited to capital contribution -transfer of membership prohibited without 100% consent -pay taxes on their share of firm's profits, no taxation at firm level -treated like partnership for taxation

LP Limited Partner

-no personal liability once they have paid their capital contribution to the limited partnership. -right to access information regarding business, but no right to manage business without losing personal liability protection. -must pay federal income tax on their share of the profits of the business. deduct losses only to the extent of their investment

Shareholders in C-Corps

-no right to manage corporation -limited liability, amount of shares -do not report their share of corporation's profits on individual tax returns -report dividends on tax returns -do not deduct corporate losses, deduct investment losses -may sell shares without limitation

Corporation (C-Corp)

-owned by shareholders who elect a Board of Directors to manage the business. -Board of Directors select officers to run day-to-day affairs of the business -ownership and management completely separate -tax paying entity for federal income tax purposes -life separate from owners and managers

S Corporation

A for profit corporation that cannot have more than 100 shareholders. eliminate the double taxation of ordinary corporations

close corporation

a for profit corporation where the controlling shareholders are the only managers of the business. essentially "incorporated partnerships"

amplification

a partner has the POWER to disassociate from the partnership at any time, such as by withdrawing from the partnership. a partner does not always have the RIGHT to disassociate though.

charging order

a partner's partnership interest is subject to a judgment creditor's lien, meaning a creditor who is chasing a partner for money can go after the partnership interest through a charging order

Doctrine of Partnership by Estoppel

a person who holds himself out or consents to being held out as a partner of another person, a third party justifiably relies on the holding out, and the third person is injured as a result of the alliance -the person who held himself out as a partner is liable to the third party who was injured as though he were a partner

Joint and Several Liability

a third party may sue and collect against any one or more of the partners without suing all of them or the partnership itself. partners are jointly and severally (individually) liable for debts and contracts

Winding up of an LP

basically same as winding up of a partnership

fair value

board's judgment to the amount of consideration that is received for the shares is conclusive when the board acts in good faith, exercises care of directors and acts in the best interest of corporation

Liability of Incoming Partners to a Partnership

cannot lose personal assets from liabilities before entering the partnership, but unlimited liability after joining partnership

equity securities

commonly called shares

Partner's Interest/Personal Asset in a Partnership

compensation (share of profits, not entitled to wages), sharing of profits and losses -partners may assign/sell their partnership interest to a creditor but this does not give creditor any control, just share of profits

Limited Partners (in LPs)

contribute capital and share profits, but have no management power, limited liability no inherent right to vote as a class and can only receive this right by agreement of the partners

General Partners (LPs)

contribute capital to the business, manage it, share in its profits, possess unlimited liability for its obligations same rights as in ordinary partnership

business judgment rule

director and officer's duty of care states that without there being bad faith, fraud, or breach of fiduciary duty, the judgment of the board of directors is conclusive and a court will not substitute its judgment for the judgment of management

duty of loyalty

directors and officers cannot self deal, usurp a corporate opportunity, oppress minority shareholders, trade on inside information

Non Profit Corporations

do not issue stock and do not expect to make a profit. have members rather than shareholders, profits put back into the business. pay no income tax.

respondeat superior

employers responsible for torts committed by employees while acting within the scope of their employment

bylaws

essentially supplement the articles of incorporation by more precisely defining the rights and responsibilities of parties involved in the corporate structure

common shareholder benefits

exclusive claim to corporate earnings and assets that exceed the claims of creditors and other shareholders. bear major risk but profit the most if corporation is successful

5 Causes of Dissolution of an LP

expiration of the LP term happening of events specified in partnership agreement consent of all partners withdrawal of a general partner by court order

sole propreitorship

has only one owner and is merely an extension of that owner. the sole proprietorship is not considered to be a legal entity. A sole proprietorship has no existence apart from the owner of the business.

Distribution of Assets for LP according to RULPA

highest priority to lowest: to firm creditors, to partners for unpaid distributions, to partners for extent of capital contributions, to partners in proportion in which they share distributions DIFFERENT than for partnerships!

For Profit Corporations

issue stock to shareholders who hope for profits/dividends, publicly available to investors

tender offer

made by outsiders, called raiders, for shares of a target corporation by offering to buy shares above market price. board of directors must carefully study offer

piercing the corporate veil

may cause shareholder to lose limited liability occurs with 1) domination of the corporation by its shareholders 2) using the domination for improper purpose, such as defrauding creditors, circumventing a statute, evading obligation

corporation liability on pre-incorporation contracts

not liable, but after the corporation is formed, board of directors can adopt contract

Partner Fiduciary Duties

not secretly profit from partnership not compete against partnership serve partnership's day-to-day activities exercise skill and care of ordinary prudent manager act within the actual authority possessed by the partner account for the proper use and disposal of partnership funds and property indemnify confidentially maintain partnership info disclose info inform partners of notices

When a limited partner can be liable

overstepped management boundary and... this participation leads to a third party believing the person is a general partner and that person transacts business with the limited partner because of that belief

corporation

owned by shareholders who elect board of directors who chose officers to run the corporation double taxation

Partnership Crime Liability

partners are not criminally liable for a crime committed by another partner in the course and scope of transacting partnership business unless the crime was foreseeable or encouraged

partnership personal liability

partners assume personal liability for all obligations of the business, partners also liable for the torts committed in the course of the partnership business by their partners or employees.

Promoter liability on pre incorporation contracts

personally liable for any contract made UNLESS the contracting party knows the corporation is not yet in existence but agrees to look solely to the corporation for payment

LP General Partner

rights and liabilities similar to partnerships in a regular partnership. unlimited liability. same tax rules. cannot transfer rights without agreement of other partners.

Promoters

someone who incorporates a business, organizes its initial management, raises an initial capital. owes fiduciary duties to the corporation such as full disclosure, honesty, not to divert business opportunities to self takes risks that may not be repaid

winding up the partnership business

step after dissolution. orderly liquidation of the assets of the business.

requirements for BJR to protect board

the managers must make an informed decision managers must not have any conflicts of interest the managers must have a rational bias for believing the decision is in the best interest of the corporation

non-wrongful dissolution of partnerships

the partner has both the power and the legal right to dissolve without violating partnership agreement. leads to winding up

Revised Uniform Limited Partnership Act (RULPA)

to form a limited partnership... -certificate signed by secretary of state with LP in name -any person/corporation/partnership, etc. may be a general or limited partner -allows for different types of capital contributions

partnership

two or more owners, called partners who have the equal right to make all management decisions and share in profits of the business. requires no formalities for creation

UPA Definition of a Partnership

voluntary and consensual association of two or more persons, carrying on a business with a series of transactions, co-ownership, intending to make a profit, intent to create a partnership as recognizes by law

derivative suit

when a limited partner of an LP sues a person who has harmed the LP

watered shares

when the board of directors impermissibly overvalues the consideration given for shares, both the board and shareholder are liable to corporation for difference

wrongful dissolution

where the partner dissolves the partnership in violation of the partnership agreement. the bad guy cannot demand the business be wound up