BLAW 3

C Corporation

"An association of persons operating as an artificial legal being with authority to act and assume liabilities separate from its owners" -Every state has their own version of corporate law -Artificial legal being -creature of statute - cannot exist unless a state confirms

Action for an accounting

**cannot sue the partnership or others partners** A formal judicial proceeding in which the court is authorized to (1) review the partnership and the partners' transactions and (2) award each partner his or her share of the partnership assets.

Shareholder meetings

- must occur at least annually - Quorum (majority) of shareholders owning more than 50% of shares must be present to conduct business - Shareholders may appoint a "proxy", or enter into a voting trust agreement

General Partnership Name

-Can operate under name of any one or all of partners, or -May use fictitious name. -Must file fictitious business name certificate. (d.b.a) -Publish notice. -Cannot use Inc. -Cannot be similar to name used by another business.

Disadvantages of Sole Proprietorship

-Capital is limited to personal funds and loans -responsible for all torts and contracts

Taxation of Sole Proprietorship

-Earnings and losses are reported on proprietor's Personal income tax return -Form 1040 -Schedule C Self Employment Tax attached

Tort Liability of General Partnerships

-GP is liable if the act is committed while the person is acting within the ordinary course of partnership -Joint and several liability (even if partner did not partake in action. permits a third party to sue on or more of general partners separately)

Piercing the Corporate Veil

-The action of a court to disregard the corporate entity and hold the shareholders personally liable for corporate debts and obligations.→ taking away the limited liability of a shareholder -Thinly capitalized corporation - so little assets can't really grow -Alter ego - sign in official capacity (Brayden Tarolli CEO not Brayden Tarolli)

Advantages of Sole Proprietorship

-easy to start -right to make all decisions -owns all business and right to profits -can transfer and only needs OWNERS approval

Formation of Limited Partnership

-formal and requires public disclosure -two or more persons must sign the Certificate of limited partnership -must be filed with secretary of state

S Corporation

-gets name from "s" sub chapter of the tax code -tax choice (taxed as a partnership→ flowed to individuals pass through) -has to meet criteria

Liability of General Partners

-must include third parties -personal liability for contracts and torts

Gen. Partnership Agreement

-oral, written or implied -partnerships operating for more than one year in real estate must be in writing cause of Statute of Frauds

General Partnership Taxation

-pass-through -income and losses flow onto and have to be reported on individuals personal income tax form -have to file with the govt.

Operating agreement

-regulates affairs of the company and conduct of its business -usually written

Incorporation Procedure

1. Select state of incorporation 2. Secure corporate name 3. Prepare articles of incorporation 4. File the articles with secretary of state

No inference of the existence of a general partnership is drawn if payments are made by

1. a debt owed to a creditor 2. wages owed to an employee 3. rent owed to a landlord 4. an annuity owed on a loan 5. interest owed 6. consideration for the sale of goodwill of a business

Actions that cannot be authorized by managers include

1. amending the articles of organization 2. amending the operating agreement 3. admitting new members 4. consenting the dissolve the LLC 5. consenting to merge the LLC 6. selling, leasing or disposing of all or substantially all of the LLC's

Formation of a General Partnership

1. an association of two or more persons 2. carrying on a business- trade, occupation, profession 3. as co-owners 4. for profit (motive not even if you are making profit **person cannot be forced

Partners that believe they mistakenly have become limited partnership can escape liability by

1. causing the appropriate certificate of limited partnership to be filed. 2. withdrawing from any future equity participation in the enterprise and causing a certificate showing withdrawal

defective formation

1. certificate of limited partnership 2. there are defects in a certificate that is filed 3. other statutory requirement for the creation of limited partnership

Piercing the Corporate Veil happens if

1. corporation has been formed without sufficient capital (thin capitalization) 2. separateness has not maintained between the corporation and its shareholders

Breaches of duty of loyalty

1. unsurping a corporate opportunity (taking a corporate opportunity for one self) 2. undisclosed and unauthorized competing with the corporation 3. undisclosed and unauthorized self-dealing (selling property to the corp) 4. making a secret profit (bribe) *** MAKES THEM PERSONALLY LIABLE****

Contract Liability

A general partner who is made to pay more than his or her proportionate share of contract liability may seek indemnification from the partnership and from those partners who have not paid their share of the loss.

Sarbanes-Oxley Act

A law passed by Congress that requires the CEO and CFO to certify that their firm's financial statements are accurate.

distributional interest

A member's ownership interest in an LLC that entitles the member to receive distributions of money and property from the LLC. **a transfer of an interest in an LLC does not entitle the transferee to become a member of the LLC or exercise any right as a member**

inside director

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

Business Judgement 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.

General Partnership

Association of two or more persons in an unincorporated entity to do business and share profits and losses. -Certain rights and duties are created among partners

Managers are appointed

By majority vote of the members and can be removed by vote of members

Miku and Arnold are interested in starting a catering business. Which of the following is an advantage to incorporating the business? a. The Personal Holding Company Tax b. Flexibility in the management structure c. Ease of formation d. Limited liability

D. limited liability

Corporate existence

FOREVER

Incoming partners

Newly-admitted partners are liable for debts and obligations incurred before they joined the partnership only to the extent of their capital contribution. ANTECENDENT DEBTS *not personally liable just the capital contribution is*

Formation of LLC

Organized in only one state even if they plan to conduct business in many states

Duty of loyalty

Subordination of personal interests to the welfare of the corporation

Shareholders can sue to recover declared but unpaid dividends

TRUE

Taxation of LLC

Taxed as partnership unless it elects to be taxed as a corporation not taxed at entity level PASS THROUGH

Articles of Organization

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

General Partnership Liability

Unlimited liability as the partners jointly and severally liable for the losses of the business no matter when enter the partnership

Dissolution of Corporation

Voluntary dissolution- vote of majority of directors- effective when articles of dissolution are filed with the secretary of state Administrative dissolution- secretary of state can obtain if 1. failed to file annual report 2. failed for 60 days to maintain a registered agent in the state 3. it failed for 60 days after a change of its registered agent to file a statement of such change 4. did not pay franchise fee 5. period of duration stated in the corporation's articles has expired Judicial dissolution- can be involuntarily dissolved by a judicial proceeding 1. procured its articles of incorporation through fraud 2. exceeded or abused the authority conferred on it by law

No Fiduciary Duty Owed

a manager who is not a manager owes no fiduciary duty or care to the LLC- -a non-manager member of a manager-managed LLC is treated equally to a shareholder in a corporation

Joint liability means: a. a partner may be responsible for the entire amount of a judgment. b. a partner is liable for only a proportionate share of a judgment. c. only partnership assets can be taken to satisfy a claim against the partnership. d. None of the above.

a. a partner may be responsible for the entire amount of judgement

Uniform Partnership Act

act ordering common ownership interests, profit and loss sharing, and shared management responsibilities in a partnership

certificate of interest

acts the same as a stock certificate issued by a corporation

Member-managed LLC

all of the members participate in management, and decisions are made by majority vote

Joint Venture

arrangement of two or more business entities combine their resources to pursue a single project or transaction

All partnership agreements must be in writing to be enforceable. a. True b. False

b. False

New partners are personally liable for all partnership debts and obligations regardless of whether the debts and obligations arose before or after they became partners. a. True b. False

b. False

Martha, Matt, and Mabel operated Three M Discount Plumbing Supplies as a general partnership. On July 1, Matt exercised his right to properly withdraw from the partnership. Which of the following best describes Matt's potential liability to third parties after his withdrawal? a. Matt has no further liability for any partnership obligations. b. Matt is liable for past obligations, but is not liable for new obligations if proper notice is given. c. Matt is liable for all partnership liabilities, regardless of when they arise. d. Matt's liability is limited to his withdrawal of assets.

b. Matt is liable for past obligations, but not liable for new obligations if proper notice is given

Kurt, Tanya, and Poltak are members of an LLC. If the LLC fails with unpaid debt, what is their liability? a. The members are personally liable for the unpaid debt. b. The members are not personally liable for the unpaid debt beyond their capital contribution. c. The members are jointly liable for the unpaid debt. d. The members are proportionately liable for the unpaid debt.

b. The members are not personally liable for the unpaid debt beyond their capital contribution.

Officers in a corporation are: a. appointed by the shareholders. b. appointed by the board of directors. c. elected by the shareholders. d. elected by the board of directors.

b. appointed by the board of directors.

The UPA: a. had a goal to allow each state to have its own form of partnership law. b. attempts to codify partnership law. c. has been adopted in whole by all the states. d. deals with state corporate law.

b. attempts to codify partnership law.

Mabel operates a retail muffler shop. All of her business is conducted in Iowa. If Mabel wants to incorporate the business, she: a. must file for incorporation with the Federal Government. b. may file for incorporation in any state. c. must file for incorporation in Iowa. d. cannot incorporate an existing business.

b. may file for incorporation in any state.

Milt, Mort, and Myrna formed MMM, a general partnership, as equal partners. Each invested $100,000. When the business ended, debts exceed assets by $600,000. Milt could be liable to creditors for: a. $100,000, the amount of his original investment. b. the entire $600,000. c. $200,000, one-third of the debts. d. nothing, unless he was actively involved in the management of the business.

b. the entire $600,000.

With respect to limited liability companies: a. Owners are called stockholders. b. Very few states have approved them. c. It is taxed as a partnership. d. Forming one is similar to forming a partnership.

c. It is taxed as a partnership.

. Alice, Raul, and Artis form a limited partnership to operate a delivery service. Alice is the general partner and runs the business. Raul and Artis are limited partners and not involved in the management of the business. Which statement best describes the potential liability of the partners? a. Alice, Raul, and Artis are personally liable for any partnership debts and obligations. b. Alice, Raul, and Artis are liable to the extent of their capital contributions to the partnership. c. Raul and Artis are liable to the extent of their capital contribution, and Alice has unlimited liability. d. Alice is liable to the extent of her capital contribution, and Raul and Artis have unlimited liability.

c. Raul and Artis are liable to the extent of their capital contribution, and Alice has unlimited liability.

Directors in a corporation are: a. appointed by the shareholders b. appointed by the officers c. elected by the shareholders. d. elected by the officers.

c. elected by the shareholders.

Carmen and Adelle were accomplished musicians. After a performance at a local restaurant, they were inundated with requests to play at various functions. Together, Carmen and Adelle decided where and when they would play. The fees they earned were equally divided between themselves. When the need for additional equipment arose, they bought it from the money they earned. Carmen and Adelle did not think about their music as a business. Which of the following forms of business organization is their music business? a. Franchise b. Limited liability partnership c. General partnership d. Limited proprietorship

c. general partnership

Arnold, Armand, and Amanda are shareholders in AAA, Inc., a retail greenhouse. All three shareholders are actively involved in the operation of AAA, Inc. If a customer is injured at the greenhouse and sues to recover damages against the shareholders personally, the customer would have to establish that: a. the corporation was undercapitalized AND the corporation was not operated as a separate legal entity. b. there was an intentional attempt to conceal assets. c. the corporation was undercapitalized OR the corporation was not operated as a separate legal entity. d. the corporation was formed to avoid taxes.

c. the corporation was undercapitalized OR the corporation was not operated as a separate legal entity.

Aretha operates a beauty salon as a sole proprietorship. If a customer is injured while in her business, the extent of Aretha's potential liability could best be described as: a. limited to the assets of the business. b. limited to the amount of business insurance she carries. c. unlimited, most of her business and personal assets could be taken. d. limited by federal law to $100,000.

c. unlimited, most of her business and personal assets could be taken

Limitied-Liability Company (LLC)

creatures of state law not federal law owners are called members separate legal entity

In a general partnership, if one partner negligently injures someone while doing partnership business, who may be liable? a. The partnership b. The partner causing the injury c. The partners not involved in the injury d. All of the above

d. All of the above

Lavay decided to use corporate form for her business. Cymber, Inc. was chosen as the business name. An organizational meeting was held and stock certificates were issued. Articles of incorporation, however, were not filed with the secretary of state. Cymber, Inc. entered into a contract with Denny. If Cymber fails to perform the contract, which statement is correct? a. Lavay cannot be held liable on the contract because the contract was in Cymber's name. b. Lavay cannot be held liable on the contract because stock certificates were issued. c. Lavay can be held liable because she is the sole shareholder. d. Lavay can be held liable because articles of incorporation were not filed.

d. Lavay can be held liable because articles of incorporation were not filed.

Miku and Arnold are interested in starting a catering business. Which of the following is an advantage to incorporating the business? a. The Personal Holding Company Tax b. Flexibility in the management structure c. Ease of formation d. Limited liability

d. Limited liability

Manager-managed LLC

designate a manger or managers to manage the LLC and by doing so they delegate their management rights to the manager nonmanagers have no right to manage unless stated by operating agreement

outside directors

directors who are not company employees

Preferred stock

dividend preference- right to receive a fixed dividend at set periods during the year Liquidation preference- right to be paid before common stockholders when company is liquidated cumulative dividend right- must pay preferred dividend right to participate in profits- allows them to participate in the profits of an organization along with the common stockholders -conversion right- permits the preferred stockholders to convert their shares into common stock. conversion right- permits preferred stockholders to convert their shares into common stock.

Limited Liability of Partners

does not have to be a general partner who is personally liable Instead, all partners are limited partners who have limited liability and stand to lose only their capital contribution

domestic LLC vs foreign LLC

domestic- state where it is organized foreign- if you plan to conduct business in other states, register as foreign LLC

right to participate in management (GP)

each partner has one vote for management (regardless of anything)

Joint Ventur Partnership

each venturer is liable for the debts and obligations of the joint venture partnership

winding up and liquidation

either done by board of directors or a court appointed receiver

Board of directors

elected by the shareholders to represent their interests; its audit committee is responsible for maintaining the integrity of the company's financial reports

Common stock

equity security that represents that residual value of a corporation does not have a fixed maturity date

Uniform Limited Liability Company Act (ULLCA)

establish comprehensive LLC law that is uniform throughout U.S.

Limited Liability Partnership Taxation

flow-through tax benefit of other types

Public Corporation

for-profit corporations that have many shareholders

Private Corporation

formed to conduct privately owned business

General Partnership agreement in writing

general partnership agreement or articles of partnership -if an agreement fails the provisions of UPA apply

corporate bylaws

govern the internal management structure of a corporation -shareholders and board of directors can amend the bylaws

Limited Liability Partnership

in most states, the law restricts the use of LLPs- accountants, lawyers and doctors *nonprofessionals cannot use the LLP form of partnership*

Joint Venture Corporation

joint ventures are shareholders of the joint venture corporation. they are liable for its debts and obligations. the joint ventures are liable for the debts and obls. of the joint venture corporation only up to their capital contribution

Liability of LLC

liable for any loss or injury caused to anyone in result of a wrongful act while acting in the course of business.

Liability of Limited Partners (limited partnership)

limited liability of debts and obligations only up to their capital contribution

Duty of loyalty

must act honestly in their dealings with the LLC. -not to unsurp the LLC's opportunites, make secret profits, deal with the LLC secretly, compete with the LLC

organization meeting

must be held after the articles of incorporation are filed. must adopt the bylaws, elect officers and transact such other business

Limited Partnership

must have one or more general partners and one or more limited partners 1. general partner- invest capital, manage business, personally liable 2. limited partner- invest capital but do not participate in management and are not personally liable A person may be both

UPA's definition of a person

natural persons, partnerships, corporations and other association

Manager's Liability

not personally liable for debts, obligations, and liabilities

Member's Limited Liability

not personally liable to third party for the debts, obligations and liabilities of the LLC beyond capital contribution

Lincensing

occurs when one business or party that owns trademarks, service marks, trade names, and other intellectual property.

Limited Liability of Shareholders

only liable to the extent of their capital contributions

Shareholders

only management duty they have is the right to vote on matters such as the election of directors and the approval of changes in corp

Sole Prioprietorship

owned and operated by one person

Termination

paid in the order of 1. expenses of liquidation and creditors according to their respective liens and contract rights 2. preferred shareholders according to their liquidation preference 3. common stockholders

Tortfeasers

personally liable to persons he or she injures and to the heirs of persons who die (applies to members and managers)

Receipt of a share of business profits

prima facie

closely held corporation

private-for-profit organization whose shares are owned by a few shareholders who are often relatives, family members or friends.

Right to Share in Profits (General Partnership)

right to equal share of partnerships profits

limited partnership agreement

rights and duties of the general and limited partners - terms and conditions of everything -

decree of disolution

specifies a date of dissolution that specifies the date of dissolution

Articles of Incorporation

the basic governing document of a corporation MUST INCLUDE -name of corporation -number of shares they are authorized to issue -address the corporation's initial registered office and the name of the initial registered agent -name and address of each incorporator

Uniform Limited Partnership Act

uniform set of provisions for the formation, operation, and dissolution of limited partnerships

Sole Proprietorship Liability

unlimited

Liability of General partners (limited partnership)

unlimited liability of debts and obligations

Shareholder

→right to vote and elect for the Board of Directors →Board of Directors hires corporate officers to carry out day-day big picture "strategies" ***Corporations have to run this way***