Business Law

Private Equity Capital

- Equity firms that obtain their capital from wealthy investors in private markets - these firms use their capital to invest in existing corporations

Syndicate

- Group of persons or entities who jointly finance a particular project (e.g., an offshore production platform) - may take the form of a corporation, general partnership, or limited partnership

Partnership at will

- Partnership agreement silent as to duration - any partner may dissolve the partnership at any time without incurring liability

Partnership by Estoppel

Whenever a third party has reasonably and detrimentally relied on the representation, by a partner, that a non-partner was part of the partnership, the non-partner is deemed to be the partnership's agent and the partnership is liable or his acts

Corporation Officers

Who the directors hire to be responsible for running the corporation's day to day operations

Corporation directors

Who the shareholders elect to oversee the corporation's affairs and to be responsible for the corporate policy

Liability for Partners' personal obligations

as a general rule, a partner is not liable for her partner's personal debts

Shareholder Inspection Rights

shareholders entitled to inspect books and records - for proper person -in person or through an agent, accountant, or other authorized assistant, -request must be made in advance

Liability to third parties

the dissociated partner may be cloaked with apparent authority for up to two years after her dissociation, if the partnership fails to notify its creditors, its customers or clients, and the appropriate state of office

Limited Liability Partnerships (LLPs)

designed for professionals who historically have done business as partners, prefer partnership tax treatment, but want to limit their liability for their partners (but not the entity's) misdeeds

types of franchises

distributorship, chain store, manufacturing or processing plant

Partnership agreement

written agreement, sometimes called "articles of partnership" that sets forth the rights and obligations of each partner with respect to the partnership

Implied powers in a partnership

any partner may exercise all implied powers reasonably necessary and customary to carry on the partnership's business

Uniform Partnership Act

provides that a corporation may be "person" for purposes of a partnership, although some states' partnership statuses exclude corporations from owning partnership interests

Business Trust

- Arrangement formed by a written trust agreement, setting forth the interests of the beneficiaries and the obligations and powers of the trustees, in which the trustees retain legal ownership and management of the trust property with profits distributed to the beneficiaries per the terms of the agreement - business trust are not personally liable for the trust's debts or obligations

Venture Capital

- Capital provided by professional, outside investors, to new business ventures, typically to a high risk business - business owner typically gives up a share of the ownership to the venture capitalists - venture capitalist may also provide managerial and technical support

Joint Venture

- A business venture where two or more persons or entities combine their interests in a particular enterprise and agree to share in the losses and profits equally or in proportion to their capital and asset contributions - taxed like a partnership

Merger

- A contractual and Statutory process by which one corporation (the surviving corporation) acquires all of the assets and liabilities of another corporation (the merged corporation), causing the latter to become defunct - receive payment for shares or shares in the surviving corporation, or both

Corporation

- A legal entity formed according to the statutory requirements of its state incorporation - it's key legal components are its shareholders, directors, and officors

Directors are responsible for....

- declaring and paying corporate dividends - authorizing major corporate decisions - hiring, promoting, supervising, and removing corporate officers and managerial employees, and - deciding whether to issue stock or bonds

Directors and officers Duty of Care

- directors and officers must place the corporation's best interest ahead of their personal interests. they may not - compete with the corporation, or otherwise usurp (take personal advantage of) a corporate opportunity - have an interest that conflicts with the corporation's - engage in insider trading - authorize corporate transactions detrimental to minority shareholders without their approval - use corporate funds or confidential information for their own personal gain - engage in self-dealing (i.e., vote on a corporate action so as to maximize one's own personal benefit) or - sell control of the corporation without shareholder approval

Breach of Fiduciary duties

- each partner must act consistently with good faith and fair dealing - a parter is free to pursue his or own interests, provided that he or she discloses the interest to the other partners

Board of Directors

- elected by a corporation's shareholders - serve for a term, unless removed early for cause or they voluntarily resign - typically neither the corporation's agents nor personally liable for the corporation's obligations - are compensated for their services, but do not share in profits or losses unless they own stock - may be inside directors (employees) or outside directors (non-employees) - exercise their oversight authority collectively, typically by majority vote, except for certain actions that require unanimous consent

Directors of a corporation are expected to.....

- make informed and reasonable decisions - exercise reasonable supervision over corporate officers and employees and - attend and participate in board meetings and clearly indicate their disagreement with any decision of the board - failure to do so may result in personal liability for harm the corp suffered

S Corporation Qualifications

- must be incorporated in the u.S. - must not be a member of an affiliated group of corporations - must be owned by individuals, estates, or certain trusts (other corporations, partnerships, or nonqualifying trusts cannot own S corp shares) - must have 100 or less shareholders - must have only one class of stock (although not all shares must have the same voting rights) - must not have any nonresident alien shareholders

Corporation shareholders

- own a share of the corporation proportional to their ownership of the corporation's outstanding stock - a shareholder's personal liability for the corporation's obligations is generally limited to the value of her investment in the corp's stock

Sole Proprietorship

- owned by one person or family - don't need to file with secretary of state (cheap) - run business however you want - you get all of the profits and losses - you have all of the liability - only taxed once - personal income

Directors are entitled to....

- reasonable notice of, and to participate in all board meetings -exercise their voting rights in corporate matters - inspect all corporate books and records - have the corporation indemnify them for any judgment entered against them, and for any legal fees and expenses incurred defending claims made, for acts taken in their directorial capacity

Common Stock

- shares of stock in a corporation that give the shareholder a proportionate interest in the corporation with regard to voting, earnings, and net assets - common stock shares are the last to receive dividends (distributed income) and to receive asset distribution upon the corporation's dissolution

LLC dissolution

- the occurrence of some event stipulated in the LLC agreement - vote of the (non-dissociated members) - judicial decree

A court may pierce the corporate veil if.....

- the plaintiff was tricked or misled into dealing with the corporation rather than the individual - the corporation was created never to make a profit or to evade an existing legal obligation the corporation had insufficient capital when formed to meet its prospective debts or potential liabilities - the corporation does not observe statutorily-required corporate formalities - personal and corporate interests are so commingled, or corporate decision making is so dominated by an individual or small group, that the corporation ceases to have a separate identity from, and become the alter ego of, its owners of the dominant individual or group

Partnership for a term

- very limited partnership - any dissolution of the partnership prior to the term, without the consent of all of the partners will leave the partner or partners responsible for the dissolution personally liable for any resulting losses

Express powers

1. U.S. constitution 2. State constitutions 3. State Statutes 4. Articles of Incorporation 5. Corporate By-Laws 6. Resolutions (e.g., policy statements)

Corporation by Estoppel

A business entity that holds itself out as a corporation will normally be estopped from denying corporation status against claims by a third party

S Corporation

A closely-held corporation that is taxed like a partnership, while affording its owners the limited liability of a corporation

Holding Company

A company, established in a low-tax or no-tax offshore jurisdiction, to which a corporation transfers its cash, stocks, bonds, and other investments to reduce its domestic tax liability

Public Corporation

A corporation a government forms to serve some public purpose

Alien Corporation

A corporation doing business in a given state, but in a foreign country (or otherwise formed, as provided by the laws thereof)

Foreign Corporation

A corporation doing business in a given state, but incorporated in another state

Private Corporation

A corporation formed by and owned by individuals and other private interests

Professional Corporation

A corporation formed by professionals, such as lawyers, doctors, dentists, accountants, or architects in an effort to reduct the members' exposure to liability compared to what they would face in a partnership

Domestic Corporation

A corporation incorporated in a given state and doing business in that same state

Corporate Constitutional Rights

A corporation is a "person" for purposes of most constitutional rights (e.g., freedom of speech, protection against double jeopardy, due process) however, corporations DO NOT enjoy the fifth amendment protection against self-incrimination or the protection of the privileges and immunities clause

Tort Liability

A corporation is liable, under the doctrine of respondeat superior, for the torts its agents or employees commit within the course and scope of their duties

Non-profit Corporation

A corporation typically formed for charitable, educational, religious, or similar purposes, and organized and operated without the goal of making a profit

De Facto Corporation

A corporation which, despite some substantive defect in its incorporation or continuing status, is recognized to exist, even if its existence is improper or illegal - must be validly incorporated, show a good faith effort by corp to comply, the corp has acutally undertakn to do the business

De Jure Corporation

A corporation whose articles, while containing some technical defect, substantially comply with the laws of the state of incorporation

Privately-Held Corporation

A corporation whose shares are not publicly-traded, and may generally only be bought from or sold to the corporation

Publicly-Held Corporation

A corporation whose shares are sold to and held by, or on behalf of, the general public, and are traded on a public exchange

Dividend

A distribution of retained earnings, net profits, or surplus, which the directors order to shareholders in proportion to their respective shares in the corporation

Block Voting

A group of shareholders may, by voting agreement or by entering into a voting trust, vote their shares together, increasing their influence on the outcome

Assignment of Partnership Interest

A partner may assign his interest in the partnership, entitling the asignee to receive the partner's share of profits and, upon termination, the partner's capital contribution

Duty of Loyalty

A partner must - account to the partnership for "any property, profit, or benefit" she derived in the conduct of partnership business or from use of partnership, property, and - refrain from competing with, or dealing with an adverse party to the partnership

Duty of Care

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

Lien on Partnership Interest

A partner's interest may also be subject to a creditor's lien. if so, the creditor may obtain a charging order which will entitle the judgment creditor to the same rights as an asignee

Watered Stock Liability

A shareholder who, usually in return for in-kind services or for property, is issued shares for less than their assessed value, is personally liable to the corporation for the difference between the price paid and the value of the stock

Joint and Several Liability

A third party may sue one or more individual partners, without suing all of the partners, and hold any partners sued fully liable for any judgement

Ultra Vires Act

Acts of a corporation - through one or more officers or directors - that exceed the corporation's express and implied powers, triggering - derivative action - direct action - state action

Uniform Limited Liability Company Act (UCLLC)

Allows members to be dissociated from an LLC - by vote of oter members - by judicial (or arbitral) order - due to death, incapacity, bankruptcy, or assigning her partnership interest for the benefit of creditors - generally does not cause the LLC to cease doing business

Family Limited Liability Partnership (FLLP)

An LLP in which the majority of the partners, all of whom must be natural persons, are persons related by blood or marriage or feduciaries of persons so related

Limited Liability Limited Partnership (LLLP)

An LP in which the general and limited partners' liability is limited to the amount each invested in the entity

Partnership

An association with two or more persons who carry on, as co-owners, a business in which they - share profits and losses - jointly own the business -enjoy equal management rights

Cooperative

An association, either incorporated or not, organized to provide an economic service, without profit, to its members (or shareholders)

Cumulative Voting

Each shareholder may vote the number of her shares times the number of open seats on the board, and may distribute her votes as she chooses

Stock Warrant

Certificate granting the owner the option to buy a certain number of shares of stock, at a stated price, usually within a set time period

Corporate Taxation

Corporate profits are taxable to the corporation when they are distributed in the form of dividends, but not when they are "reinvested" in the corporation as retained earnings

Duty of Care for Directors and Officers

Directors and Officers must -act in good faith when performing their duties - exercise the care that an ordinarily prudent person would exercise in similar circumstances and - act in the best interest of the corporation

Business Judgment Rule

Directors and officers are immune from personal liability for actions that result in harm to the corporation as long as directors and officers - took reasonable steps to become informed about the matter - had a rational basis for his or her decision, and - did not have a conflict of interest between his or her personal interest and that of the corporation and - the actions were within the corporation's power to act and - the directors' and officers' authority

Conflicts of Interest

Directors and officers must fully disclose any potential conflict of interest regarding a particular transaction

Straight Voting

Each shareholder may vote the number of her shares for each open seat on the board

Quorum

Enough shareholders and others holding proxies present to represent at least 50 percent of the corporation's voting stock

Limited Partnership (LP)

Entity composed of one or more general partners, who manage the business and are personally liable for its debt, and one or more limited partners, who contribute assets but do not participate in management

Limited Liability Company (LLC)

Hybrid form of business, which is -taxed like a partnership while offering its owners the limited liability of a corporation - as a fictional person, it can be sued, can sue, enter into contracts, and own property - composed of one or more owners, called members, who must file articles of organization with the appropriate state authority - must include the words LLC in it's business name

Joint Stock Company

Hybrid of a partnership adn a corporation that - is formed by agreement (rather than by statute) - issues transferable shares of stock - managed by directors and officers - has perpetual existence but is not treated as a legal entity for purposes of a lawsuit - does not afford its shareholders limited liability

Piercing the Corporate Veil

If the owners or officers or directors of a corporation use a corporate entity to commit fraud or act illegally, a plantiff may be able to "pierce the corporate veil" - disregard the corporate entity and its attendant limitations on personal liability - and sue the wrongdoers individually for the actions they took as owners, officers, or directors of a corporation

Board Committees

Large boards typically create committees that focus on individual subjects (e.g., audit, compensation, litigation, nominating), increasing the board's efficiency

Preferred Stock

Shares of stock that have priority over common stock both with respect to payment of dividends and distribution of assets upon the corporation's dissolution, but generally afford holders less input in corporate decisionmaking

Officers

Persons the board of directors hires or promotes to supervise the corporation's day to day operations - generally not personally liable, do not share in profits or losses, are agents of the corporation

Petroleum Marketing Practices Act

Prescribes the grounds and conditions under which a franchisor may terminate or decline to renew a gas station's franchise

Articles of Incorporation

Primary document needed to incoporate, the articles should include at minimum - corporate name -# of authorized shares - names and addresses of its registered agent and its incorporators - provide authority for its future business organization and operations

Closely Held corporation

Privately-held corporation with a smaller number of shareholders, often members of the same family

Automobile Dealers' Franchise Act

Protects automobile dealership franchisees whose franchisors impose unreasonable demands and then terminate the franchise because of the dealer's failure to satisfy them

Partnership duration

The partnership agreement may specify the duration of the partnership in terms of a date or the completion of some undertaking

Federal Trade Commission's Franchise Rule

Requires franchisors to disclose material facts that a prospective franchisee needs in order to make an informed decision whether to purchase a franchise

Majority Shareholder's Liability

Shareholder who holds more than 50% of a corporation's outstanding stock may owe fiduciary duties to the corporation and to the minority shareholders - particularly when the majority shareholder sells his shares, thereby effecting a change in corporate control

Corporate Dissolution

Shareholders may petition a court to dissolve the corporation and appoint a receiver if -the board of directors is deadlocked, or corporate affairs are otherwise being mismanaged, such that irreparable injury to the corporation is occuring or threatened - the directors are acting illegally, fraudulently, or oppressively - corporate assets are being misapplied or wasted or - the shareholders, after a specified number of ballots over a specified period of time, are unable to agree to a slate of directors

Transfer of Shares

Stock certificates are negotiable and are freely transferable by indorsement

Direct Action

The corporation may, itself, sue the officers or directors to recover damages caused by a completed ultra vires act

Derivatie Action

The corporation's shareholders may sue on behalf of the corporation - to enjoin the ultra vires act before the officers or directors commit to it or - to recover damages caused by a completed ultra vires act

Preemptive Right

The right of an existing shareholder to purchase newly-issued shares in proportion to their percentage of ownership of the corporation prior to the issue of the new shares, before the newly issued shares are offered for sale to the general public

Bond indenture

a contract between the issuing corporation and the bondholder

wrongful dissociation

a partner's dissociation may expose the dissociating partner to liability to the partnership and individual partners damaged by her dissociation if, inter alia: - the dissociation constitutes a breach of the partnership agreement; - the dissociation of premature - the partner is expelled by a court or arbitrator or declares bankruptcy

distributorship

a relationship where a manufacturer (the franchisor) licenses one or more dealers (the franchises) to sell the manufacturer's product - will often cover an exclusive territory

chain store

a relationship where the franchisee operates under the franchisor's trade name and is identified as a member of a select group of dealers that engages in the franchisor's business

manufacturing or processing plant

a relationship where the franchisor transmits to the franchisee essential ingredients or the specifications to make a particular product, which the franchisee will then market at the wholesale or retail level in accordance with the franchisor's standards

Franchise

a relationship where the owner of a trademark, trade name, or copyright allows another person or entity to use that trademark, trade name, or copyright under specified conditions or subject to particular limitations, in selling goods or services

Shareholder Derivative suit

a suit by one or more shareholders -suing the corporation's directors or others - on the corporation's behalf - for injury to the corporation

Joint Liability

if a third party sues an individual partner, the partner sued has the right to insist that her other partners be joined as defendants (and share the burden of any judgement)

Shareholder approval

must approve fundamental corporate change such as - amending the articles of incorporation or by-laws -merging or dissolving the company - increasing the number of shares of stock the corporation is authorized to issue and - selling all, most of the corporation's assets

Incoming partners liability

newly-admitted partners are liable for debts and obligations incurred before they joined the partnership only to the extent of their capital contribution