Business Law Clarkson...12th Ed

Dissolution can take place by

(1) acts of the partners or, in a corporation, of the shareholders and board of directors; (2) the death of a partner; (3) the expiration of a time period stated in a partnership agreement or a certificate of incorporation; or (4) judicial decree.

ultra vires

A Latin term meaning beyond the powers; in corporate law, acts of a corporation that are beyond its express and implied powers to undertake.

stock certificate

A certificate issued by a corporation evidencing the ownership of a specified number of shares in the corporation.

bond

A certificate that evidences a corporate (or government) debt. It is a security that involves no ownership interest in the issuing entity.

stock warrant

A certificate that grants the owner the option to buy a given number of shares of stock, usually within a set time period.

holding company

A company whose business activity is holding shares in another company.

consolidation

A contractual and statutory process in which two or more corporations join to become a completely new corporation. The original corporations cease to exist, and the new corporation acquires all their assets and liabilities.

close corporation

A corporation whose shareholders are limited to a small group of persons, often including only family members. The rights of shareholders of a close corporation usually are restricted regarding the transfer of shares to others.

alien corporation

A designation in the United States for a corporation formed in another country but doing business in the United States.

dividend

A distribution to corporate shareholders of corporate profits or income, disbursed in proportion to the number of shares held.

Constructive eviction

A form of eviction that occurs when a landlord fails to perform adequately any of the undertakings (such as providing heat in the winter) required by the lease, thereby making the tenant's further use and enjoyment of the property exceedingly difficult or impossible.

Limited liability company (LLC)

A hybrid form of business enterprise that offers the limited liability of the corporation but the tax advantages of a partnership.

Joint stock company

A hybrid form of business organization that combines characteristics of a corporation (shareholder-owners, management by directors and officers of the company, and perpetual existence) and a partnership (it is formed by agreement, not statute; property is usually held in the names of the members; and the shareholders have personal liability for business debts). Usually, the joint stock company is regarded as a partnership for tax and other legally related purposes.

Joint venture

A joint undertaking of a specific commercial enterprise by an association of persons. A joint venture is normally not a legal entity and is treated like a partnership for federal income tax purposes.

Partnership by estoppel

A judicially created partnership that may, at the court's discretion, be imposed for purposes of fairness.

Family limited liability partnership (FLLP)

A limited liability partnership (LLP) in which the majority of the partners are persons related to each other, essentially as spouses, parents, grandparents, siblings, cousins, nephews, or nieces.

parent-subsidiary merger

A merger of companies in which one company (the parent corporation) owns most of the stock of the other (the subsidiary corporation).

Limited partnership General partner

A partnership consisting of one or more general partners who manage the business and are liable to the full extent of their personal assets for debts of the partnership

Family limited liability partnership

A person acting in a fiduciary capacity for persons so related could also be a partner. All of the partners must be natural persons or persons acting in a fiduciary capacity for the benefit of natural persons.

outside director

A person on the board of directors who does not hold a management position at the corporation.

inside director

A person on the board of directors who is also an officer of the corporation.

business judgment rule

A rule that immunizes corporate management from liability for actions that result in corporate losses or damages if the actions are undertaken in good faith and are within both the power of the corporation and the authority of management to make.

bylaws

A set of governing rules adopted by a corporation or other association.

shareholder's derivative suit

A suit brought by a shareholder to enforce a corporate cause of action against a third person.

Information return

A tax return submitted by a partnership that only reports the income earned by the business. The partnership as an entity does not pay taxes on the income received by the partnership.

Limited liability limited partnership (LLLP)

A type of limited partnership. The difference between a limited partnership and an LLLP is that the liability of the general partner in an LLLP is the same as the liability of the limited partner.

Business trust

A voluntary form of business organization in which investors (trust beneficiaries) transfer cash or property to trustees in exchange for trust certificates that represent their investment shares.

Articles of partnership

A written agreement that sets forth each partner's rights and obligations with respect to the partnership.

voting trust

An agreement (trust contract) under which legal title to shares of corporate stock is transferred to a trustee who is authorized by the shareholders to vote the shares on their behalf.

Partnership

An agreement by two or more persons to carry on, as co-owners, a business for profit.

stock

An equity (ownership) interest in a corporation, measured in units of shares.

Cooperative is an association to provide an economic service to its members

An incorporated cooperative is a nonprofit corporation. distributions of dividends, or profits, to its owners on the basis of their transactions with the cooperative rather than on the basis of the amount of capital they contributed.

Syndicate

An investment group of persons or firms brought together for the purpose of financing a project that they would not or could not undertake independently.

tender offer

An offer to purchase made by one company directly to the shareholders of another (target) company; often referred to as a takeover bid.

Franchise

Any arrangement in which the owner of a trademark, trade name, or copyright licenses another to use that trademark, trade name, or copyright, under specified conditions or limitations, in the selling of goods and services.

Generally speaking, a limited partnership may be dissolved by which of the following events or occurrences?

By the bankruptcy of a general partner.

venture capital

Capital (funds and other assets) provided by professional, outside investors (venture capitalists, usually groups of wealthy investors and investment banks) to start new business ventures.

preferred stock

Classes of stock that have priority over common stock both as to payment of dividends and distribution of assets on the corporation's dissolution.

treasury shares

Corporate shares that are authorized by the corporation but that have not been issued.

S corporation A close business corporation that has met certain requirements of IRS code

Essentially, an S corporation is taxed the same as a partnership, but its owners enjoy the privilege of limited liability.

Limited liability

Exists when the liability of the owners of a business is limited to the amount of their investments in the firm.

securities

Generally, corporate stocks and bonds. A security may also be a note, debenture, stock warrant, or any document given as evidence of an ownership interest in a corporation or as a promise of repayment by a corporation.

receiver

In a corporate dissolution, a court-appointed person who winds up corporate affairs and liquidates corporate assets.

foreign corporation

In a given state, a corporation that does business in the state without being incorporated therein.

domestic corporation

In a given state, a corporation that does business in, and is organized under the laws of, that state.

Operating agreement

In a limited liability company, an agreement in which the members set forth the details of how the business will be managed and operated.

General partner

In a limited partnership, a partner who assumes responsibility for the management of the partnership and liability for all partnership debts.

Limited partner

In a limited partnership, a partner who contributes capital to the partnership but has no right to participate in the management and operation of the business.

share exchange

In a share exchange, some or all of the shares of one corporation are exchanged for some or all of the shares of another corporation, but both corporations continue to exist. Share exchanges are often used to create holding companies (companies that own part or all of other companies' stock).

commingle or to mix together

In corporate law, if personal and corporate interests are commingled to the extent that the corporation has no separate identity, a court may pierce the corporate veil and expose the shareholders to personal liability.

proxy

In corporation law, a written agreement between a stockholder and another under which the stockholder authorizes the other to vote the stockholder's shares in a certain manner.

Joint and several liability

In partnership law, a doctrine under which a plaintiff may sue, and collect a judgment from, one or more of the partners separately (severally, or individually) or all of the partners together (jointly).

Charging order

In partnership law, an order granted by a court to a judgment creditor that entitles the creditor to attach profits or assets of a partner on dissolution of the partnership.

Buy-sell agreement

In the context of partnerships, an express agreement made at the time of partnership formation for one or more of the partners to buy out the other or others should the situation warrant—and thus provide for the smooth dissolution of the partnership.

Business trust

Management of the business and trust property is handled by the trustees for the use and benefit of the investors. The certificate holders have limited liability (are not responsible for the debts and obligations incurred by the trust) and share in the trust's profits.

Dissociation

Occurs when a partner ceases to be associated in the carrying on of the partnership business. The severance of the relationship between a partner and a partnership.

Franchisor

One licensing another (the franchisee) to use his or her trademark, trade name, or copyright in the sale of goods or services.

Franchisee

One receiving a license to use another's (the franchisor's) trademark, trade name, or copyright in the sale of goods and services.

Entrepreneur

One who initiates and assumes the financial risks of a new enterprise and who undertakes to provide or control its management.

If Frank, a dentist who is a member of a limited liability partnership (LLP), negligently harms Kathy while attempting to complete a root canal, what is the liability of the other members of the LLP?

Only the supervising partner will be liable, if there is a supervising partner.

private equity capital

Private equity capital is a financing method by which a company sells equity in an existing business to a private or institutional investor.

preemptive rights

Rights held by shareholders that entitle them to purchase newly issued shares of a corporation's stock, equal in percentage to shares presently held, before the stock is offered to any outside buyers.

Joint liability

Shared liability. In partnership law, partners incur joint liability for partnership obligations and debts.

watered stock

Shares of stock issued by a corporation for which the corporation receives, as payment, less than the fair market value of the shares.

Which of the following IS NOT required to prove de facto corporate status?

Statutory corporate formalities were not followed.

takeover

The acquisition of control over a corporation through the purchase of a substantial number of the voting shares of the corporation.

Confession of judgment

The act of a debtor in permitting a judgment to be entered against him or her by a creditor, for an agreed sum, without the institution of legal proceedings.

Buyout price

The amount payable to a partner on his or her dissociation from a partnership, based on the amount distributable to that partner if the firm were wound up on that date, and offset by any damages for wrongful dissociation.

Certificate of limited partnership

The basic document filed with a designated state official by which a limited partnership is formed.

target corporation

The corporation to be acquired in a corporate takeover; a corporation to whose shareholders a tender offer is submitted.

When a court "pierces the corporate veil," what happens?

The court disregards the corporate entity and exposes the shareholders to personal liability.

Articles of organization

The document filed with a designated state official by which a limited liability company is formed.

articles of incorporation

The document filed with the appropriate governmental agency, usually the secretary of state, when a business is incorporated; state statutes usually prescribe what kind of information must be contained in the articles of incorporation.

Dissolution

The formal disbanding of a partnership or a corporation.

quorum

The number of members of a decision-making body that must be present before business may be transacted.

retained earnings

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

Condemnation

The process of taking private property for public use through the government's power of eminent domain.

surviving corporation

The remaining, or continuing, corporation following a merger. The surviving corporation is vested with the merged corporation's legal rights and obligations.

Which of the following IS NOT a remedy for an ultra vires transaction?

The responsible officers can sue the corporation for damages.

appraisal right

The right of a dissenting shareholder, if he or she objects to an extraordinary transaction of the corporation (such as a merger or consolidation), to have his or her shares appraised and to be paid the fair value of his or her shares by the corporation.

Winding up

The second of two stages involved in the termination of a partnership or corporation. Once the firm is dissolved, it continues to exist legally until the process of winding up all business affairs (collecting and distributing the firm's assets) is complete.

A merger is a contractual and statutory process in which one corporation (the surviving corporation) acquires all of the assets and liabilities of another corporation (the merged corporation).

The shareholders of the merged corporation receive either payment for their shares or shares in the surviving corporation.

Sole proprietorship

The simplest form of business, in which the owner is the business; the owner reports business income on his or her personal income tax return and is legally responsible for all debts and obligations incurred by the business.

Member

The term used to designate a person who has an ownership interest in a limited liability company.

Conveyance

The transfer of a title to land from one person to another by deed; a document (such as a deed) by which an interest in land is transferred from one person to another.

Joint and several liability

This is true even if one of the partners sued did not participate in, ratify, or know about whatever it was that gave rise to the cause of action.

pierce the corporate veil

To disregard the corporate entity, which limits the liability of shareholders, and hold the shareholders personally liable for a corporate obligation.

n simple terms, an "S" corporation could be defined as:

a corporation whose shareholders have limited liability but avoid corporate income taxes.

Partnerships may be classified as general or limited and also as:

an aggregate or an entity.

If a franchisor requires a franchisee to purchase all of its supplies and materials exclusively from the franchisor, what legal problem could arise?

an antitrust problem

Limited partnership limited partner

and one or more limited partners who contribute only assets and are liable only to the extent of their contributions.

short-form mergers

can be accomplished without the approval of the shareholders of either corporation.

A parent-subsidiary merger

can use a simplified procedure the short form merger when the parent corporation owns at least 90 percent of the outstanding shares of each class of stock of the subsidiary corporation.

In corporate law, when a corporation acts beyond the scope of its authority, it is said to:

engage in ultra vires transactions.

In order for a limited partnership to be legally valid, it must:

file a certificate of limited partnership.

One of the great benefits of LLCs, which helps promote investment, is that:

foreign investors are allowed to become LLC members.

Articles of incorporation contain:

information about the corporation, including its organization and functions.

common stock are shares of ownership in a corporation that give the owner of the stock a proportionate interest in the corporation with regard to control, earnings, and net assets

shares of common stock are lowest in priority with respect to payment of dividends and distribution of the corporation's assets on dissolution.

The key characteristics of a limited liability company (LLC) are:

the tax characteristics of a partnership, plus the liability of a corporation.

The LLC is a form of business organization that:

was first authorized in the United States in 1977, by the state of Wyoming.