Law unit 4 exam
Explain the function of an operating agreement and the fundamental structure of an LLC.
- Operating agreement: document that governs an LLC; sets out the structure and internal rules for operation of the entity
How is a limited liability company (LLC) is formed?
-Formed by filing articles of organization (aka certificates of organization). -LLC's are frequently governed by agreement of the parties in the form of an operating agreement. -Same type of information as included on a corporation's articles of organization.
What is dissociation and when does it occur
When a partner no longer wishes to be a principal in the relationship occurs: occurs in a GENERAL PARTNERSHIP under RUPA -through voluntary separation, where the parter gives notice -expulsion by the unanimous vote of other parters -partners inability to carry out her duties to the partnership (death or incapacity)
Which kind of easement is written in the deed
express grant
List and give examples of the three major forms of real estate ownership interests most commonly held by businesses and individuals.
fee simple: current holder dies without heirs life estate: lasts for entire lifetime of a particular person leasehold estate: right to use real estate for a limited amount of time in an exclusive manner ex landlord tenant easement privilege to use real estate owned by another
What is required for adverse possession
open, notorious, visible possession exclusive and actual possession continuous possession
Where was the first LLP legislation enacted
texas
Describe bailment and give examples
when the owner (bailor) entrusts another person (bailee) to temporarily hold the property. bailee owes duty of care and to act reasonably. ex) jack brings his gold pocket watch to jeweler max to get fixed
Differentiate between partner separation and dissolution
- Partner separation o Dissociation: Term used in the RUPA to describe the act of separation of a partner from the partnership. Also, the process in which an individual member of an LLC exercises the right to withdraw from the partnership. o Or o Withdrawal: Term used by the RULPA to describe the act of separation of one partner from the partnership.- Dissolution o Occurs when it is mandated by the court or in the case of a general partnership, agreed to but unanimous consent of the partners. o Note that dissolving a limited partnership does not require unanimous consent of all partners.
Articulate the legal protections from personal liability afforded to the principals in an LLC and LLP.
-LLC: -Although LLC members are insulated from personal liability for any business debt or liability, creditors often require LLC members to sign personal guarantees and, in cases of fundamental unfairness, a court may disregard the LLC protections. -Limited partners typically have liability, but general partners have unlimited liability. -LLP: -All partners have liability protection for debts and liabilities of the partnership, but there may be conditions on these limits. -In cases where a partner has engages in misconduct or tortious conduct (such a negligence), the LLP acts to shield the personal of assets of other partners-never the partner who committed the misconduct or negligence.
Distinguish between the formation and management of an LLC and of an LLP.
-LLC: -Formation: Formed by filing articles of organization -Management: Usually agreed upon in a management agreement; Most states distinguish between: -A member-managed LLC (Management structure is similar to a GP. All members have authority to bind the business.) -A manager-managed LLC (A named manager has the day-to-day operational responsibilities while the non-managing members are investors with little input. Non-managing members do not have authority to act on behalf of the business). -LLP: -Formation: Formed when a General Partner files a statement of qualification. Conversion of partnership must be approved by a majority of ownership -Management: -The day-to-day operations and powers of the partners are spelled out in the partnership agreement -The election procedures, qualifications, compensation, meeting times, and other organizational matters are typically addressed in the partnership agreement. (Default agreement is the RUPA provision).
Distinguish between the formation and management of an LLC and the formation and management of an LLP.
-LLC: -Formation: Formed by filing articles of organization -Management: Usually agreed upon in a management agreement; Most states distinguish between: -A member-managed LLC (Management structure is similar to a GP. All members have authority to bind the business.) -A manager-managed LLC (A named manager has the day-to-day operational responsibilities while the non-managing members are investors with little input. Non-managing members do not have authority to act on behalf of the business). -LLP: -Formation: Formed when a General Partner files a statement of qualification. Conversion of partnership must be approved by a majority of ownership -Management: -The day-to-day operations and powers of the partners are spelled out in the partnership agreement -The election procedures, qualifications, compensation, meeting times, and other organizational matters are typically addressed in the partnership agreement. (Default agreement is the RUPA provision).
Provide the primary methods for capitalizing limited liability entities.
-LLCs are capitalized primarily through debt via private lenders or commercial lenders, or by selling equity ownership in the LLC itself. -LLPs are capitalized in the same way as a partnership: through debt via private or commercial lenders or by a sale of partnership equity for ownership in the LLP itself.
How capitalize a GP, LP, LLP, sole proprietorship and corporations
-Sole Proprietorship: -Capitalized using a proprietor's personal resources or through a private or commercial loan that is secured by the proprietor's personal assets. -Consequences: -All debts and all liabilities of the business are also personal debts and liabilities of the principal. -Entity may not sell off ownership interests -General Partnerships: -Generally funded through: -debt (borrowing money) -Selling of equity (selling a percentage of ownership rights in the partnership) -Consequences: Partnerships may not, however, sell ownership rights (stock) through the public markets -Limited Partnerships: -Generally funded though: -debt (borrowing money) -Selling of equity (selling a percentage of ownership rights in the partnership) -Consequences: Limited partnerships may not, however, sell ownership rights through the public markets such as the New York Stock Exchange.
What are the factors used in choosing a business entity?
-The owner of a business is known as the principle. In choosing a business entity, principals should consider at least the following factors: -Formation: How easy is the entity to form and maintain? Must there be more than one principal? What annual filings or fees are required, and what formalities need to be followed? -Liability: To what extent are the principals personally liable for debts and other contract or tort liabilities of the business entity itself? -Capitalization: How will the business entity fund its operations? May the principal(s) sell ownership rights in the business to raise capital? -Taxation of Income: How will tax authorities treat the entity? Will the entity itself pay taxes, or are the taxes passed through to the principals? -Management and Operation: How, and by whom, will the business venture be operated? Will the principals be involved in day-to-day operations of the business? What duties fo the principals owe to the business and to each other? How will the profits and losses be split? If a principal decides to leave the business entity, may the remaining principals continue to operate?
Distinguish between a sublease and an assignment and explain how each can be used in business planning objectives
Assignment: tenant transfers interest to third party(asignee) for ENTIRE remaining length of lease Sublease: Tenant transfers to third party (subleasee) for anything less than the remaining term - in both cases the original tenant remains bound to the original lease and is liable of the third party does not pay.
List the elements required to form a general partnership and the statutory requirements for forming a limited partnership
GP: -Elements for Formation: No formal document or filing necessary and no intent is needed for implied partnership. Thought of as: -Association of 2 or more people or entities -Who are co-owners or co-managers of the business -And share in profits of an ongoing business operation -Consequences: You can be in a partnership if you can like you are even if you don't want to be- implied partnership. Can give rise to a potential liability. LP: --Statutory Requirements for Formation: Formed by the general partner filing a certificate of limited partnership within the state of government authority. -It requires routine information such as the name, address, and capital contribution of each partner. -A partnership agreement is not required by RULPA (Revised Uniform Limited Partnership Act) but most have one. -The agreement details to rights, obligations, and relationships between partners.
Describe the liability in regards to a GP, LP a LLP
GP: -GP: Each general partner is jointly and severally liable for debts and liabilities of the partnership. All personal assets of a general partner are at risk. LP: Personal assets of the limited partners are not at risk for debts and liabilities of the entity LLP: partners are generally not liable for the debts of the partnership or the liabilities of the other partners. -Partners are personally liable for their own negligence.
Identify the sources and level of laws that govern LLC and LLP entities
LLC: -Formation: -Formed by filing articles of organization (aka certificates of organization). -LLC's are frequently governed by agreement of the parties in the form of an operating agreement. -Same type of information as included on a corporation's articles of organization. -Benefits of LLCs= flexibility in the rights and responsibilities of members including: -Structure of governance and responsibility of members. -This agreement will typically set forth a structure for managing the entity through a single member or a board of "managing members", and the agreement will define their responsibilities in terms of day-to-day operations of the entity. -Death, incapacity, and dissolution. -"What if" agreements. (Members often agree to a series of "what ifs" of managing an LLC through their operating agreement.) LLP: -Formation: Formed when a General Partner files a statement of qualification. -Conversion of partnership must be approved by a majority of ownership. -Internal Matters: -LLP statutes provide general partnerships with the right to convert their entity and gain the protective shield ordinarily only afforded to limited partners or corporate shareholders.
How are LLCs and LLPs formed? How are a sole proprietorship, or a partnership formed?
LLP - Limited liability partnership: two or more principles that agree to share profits and losses in an ongoing business venture. The principals have heightened liability protection from debts and liabilities of the partnership. - Advantages - allowed in all states, partners are generally not liable for the debts of the partnership and this entity can be treated as a pass through entity so that no tax is paid on income to the entity but when it distributes dividends tax is paid on the individual partner's individual tax rate- Disadvantages - limited by state regulations, can be asked to pay more money to the partnership or possibly have to sell your interest, members may also have to pay miscellaneous state and local taxes to operate business LLC - Limited liability company: two or more principles in an ongoing business venture with potentially favorable tax treatment and limited liability for the principles.- Advantages- tax flexibility, less paperwork, more protection from liability, can be treated as a pass-through entity or as a corporation depending on what the owners want- Disadvantages- self employment taxes, limited life, depending on the state may have to pay miscellaneous taxes Sole Proprietorship - Sole proprietorship: one-person entity in which the debts and liabilities of the business are also personal debts and liabilities of the principle. - Advantages - Some advantages of having a sole proprietorship is that it is the easiest single person entity to form and maintain. It requires only a minimum fee, it uses straightforward filing requirement with state government and does not have annual filing. Also, they are not subject to a corporate income tax and they are not limited to the amount of employees that they can have and they can operate in as many places as the principal desires . - Disadvantages - They are limited in their options for raising capital. Sole proprietorships are highly liable and have personal assets at risk. Lack of financial controls because financial statements are not required. Sole proprietorships are limited in their options for raising money and are typically capitalized through a proprietor's personal resources or through private/commercial loans that are secured by the principal's personal assets. General Partnership - General limited partnership: Two or more principles that agree to share profits and losses in an ongoing business venture. Debts and liabilities of the business are also personal debts and liabilities of the general partners. Limited partners have limited liability. - Advantages - simplest multi person entity and start up cost are low, do not have to pay an income tax, easy to change legal structure later if situation changes, business affairs remain private between partners. Unlike most business entities, you don't have to fill out a form with the government. - Disadvantages - the liabilities are unlimited for both partners also each partner is 'jointly and severally' liable for the partnership's debts, sharing profits or losses, need consent from partners before making any major decisions, liable for actions of the other partner
How are general partnerships formed
No formal document or filing necessary and no intent is needed for implied partnership. Thought of as: -Association of 2 or more people or entities -Who are co-owners or co-managers of the business -And share in profits of an ongoing business operation
Which entities may be formed with only one participant? Many participants?
One participant: -sole proprietorship -corporation
Describe the benefits and disadvantages of a sole proprietorship, GP, LP, LLP
SP:
The principals in an LLC are referred to as ___________.
Shareholders
Give examples of two types of laws that regulate the use of real property by its owners. What is eminent domain
Source of law that primarily governs real property is state statue, although some common law principles apply. _statutes that regulate residential landlords and tenants are governed by Uniform Residential Landlord-Tenant Act (URLTA) -does NOT apply when leasing to a business.
Articulate and give examples of the duties, rights, and remedies of landlords and tenants in an agreement to lease real property
Tenant rights & remedies -Possession: landlord must deliver legal right to possess the property to the tenant * remedy: terminate lease and sue landlord for damages or continue lease and sue for recovery. -Quiet enjoyment: tenant right to enjoy the property without interface from the landlord -habitability: tenant right to have the leased space in reasonable condition. *remedy: terminate lease and or sue for damages. Tenant duties: Pay rent as agreed upon and act reasonably in care and use of property reasonableness includes: not disturbing other tenants, obeying reasonable landlord rules, obeying health and safety rules, and notifying the landlord when repairs are necessary. Landlord Rights & Remedies -if tenant violates duty to pay rent or act reasonably, the landlord may keep any security deposit or may evict the tenant from the premises.
What are riparian rights
The right of landowners to use the water that flows through or near their property
Explain the concepts of title, bundle of rights, and ownership by possession.
Title: legal term for ownership rights in property Bundle or rights: titleholder is permitted exclusive rights to property. Has rights to sell, lease, or prohibit others from using property. ownership by possession: property that is found and in possession of someone who is not the owner
Identify the individual rights that landowners have in real property.
Use and enjoyment of land: right to use and enjoy their property w/o interference from others. This interference is a nuisance and occurs when one party creates unreasonable conditions that affect the landowners enjoyment. Subsurface rights: rights to soil and any mineral, oil, or natural gas within the soil Water rights: also known as riparian rights, landowners have rights to reasonably use any streams, lakes, or groundwater that are fully or partially on their property. Airspace rights: law contemplates this by drawing imaginary lines emanating from the borders of their property into the sky. May NOT prevent airplanes from flying over the property.
The RUPA imposes ___________ liability on general partners for debts and liabilities of the partnership
joint and several
Articulate the legal protections from personal liability afforded to the principals in a sole proprietorship, a general partnership, an LLC, an LLP and corporations.
sole proprietorship: -All debts and liabilities of the business are the personal liabilities of the sole proprietor. -All of the proprietor's assets are at risk to satisfy business debts and liabilities. general partnership: -GP: Each general partner is jointly and severally liable for debts and liabilities of the partnership. All personal assets of a general partner are at risk. -LP: Personal assets of the limited partners are not at risk for debts and liabilities of the entity. LLC: members and managers are not personally liable for any debts or liabilities of the LLC so long as state law conditions are met. LLP: partners are generally not liable for the debts of the partnership or the liabilities of the other partners. -Partners are personally liable for their own negligence. Corporations: Corporations exist as a separate legal "person". -Officers, directors, and shareholders are not personally liable for any debts or liabilities of the corporation (absent fraud). -Corporate veil protection.
Describe the taxation of a sole proprietorship, a partnership, an LLP, an LLC
sole proprietorship: -All income taxes of the business are paid at the proprietor's individual tax rate and reported on the proprietor's individual income tax return -Miscellaneous state and local taxes to operate business partnership: -No taxation at the partnership entity level. -All income tax of the business passes through the partnership, is distributed to the partners, and is paid at the individual tax rate of the receiving partner. -Partnership files information return to inform IRS of profits or losses. -Miscellaneous state and local taxes to operate business. LLP: -Pass-through taxation treatment (no tax is paid on income to the entity, but when the entity distributes dividends, tax is paid at the individual partner's individual tax rate). -May also have to pay miscellaneous state an local taxes to operate business. LLC: -Option of being treated as a corporation or as a pass-through entity. -May also have to pay miscellaneous state and local taxes to operate business
