blaw final pt 2

the termination process

1. dissociation 2. winding down 3. dissolution

requirements of a partnership

2 or more people who intend to do business together, share profits and losses, and share management duties

partnership agreements generally include

Basic structure of the business Capital contributions Sharing of profits and losses Management and control provisions Dissociation and Dissolution provisions

When a partner ceases to be associated in the carrying on of the partnership business

Dissociation

rights of partners

Management rights Interest in the partnership (portion of the profits and losses) Compensation (but not for time/skill/energy) Inspection of the books Accounting of assets/profits Property rights

Partnership by estoppel applies if:

Participants tell other people that they are partners (even though they are not), or they allow other people to say, without contradiction, that they are partners; A third party relies on this assertion; and The third party suffers harm.

Two parties incur the liability of a partnership without actually being partners.

Partnership by Estoppel

what is the liability of the partner?

Personal liability for the debts of the partnership Joint and Several Liability: The partnership and the partners are all individually liable for the full amount of the debt, but the creditor cannot collect more than the total amount he is owed. Indemnification (for tort liability) New partners not personally liable for the obligations incurred before the person became a partner

Adoption of the Bylaws

Pre Incorporation

death of a corporation consists of

Voluntary Termination by the Shareholders Termination by the State

all of the debts of the partnership are paid and the remaining proceeds are distributed to the partners

Winding Up phase

to meet the standard for the duty of care a person must

act in good faith and with judgement of an ordinarily prudent person

what authority is ended with the termination of an agency relationship?

actual authority

when the agent has been expressly granted authority by the principal

actual authority

a relationship between two parties in which one party agrees to represent or act for the other

agency

manage the business and long-term affairs of the corporation

board of directors

partners must contribute capital needs of the business, bc the business cannot sell shares as a corporation does

capital contribution duty

Partners have which of the following duties? Select 3 answers.

capital contribution, fiduciary duties, and record keeping

After dissolution a partnerships assets are distributed first:

for the payment of debts to partner and non-partner creditors

A corporation operating outside of its home state

foreign corporation

an incorporation that was created in a different state

foreign corporation

Kelly lives in Arkansas and works in the data division of Acx. Corp. Acx. has its headquarters in Conway Arkansas. Acx. is incorporated in Delaware, however, bc of the corporate friendly laws in that state. Kelly works in a

foreign corporation bc Acx. is incorporated in a different state than the division where kelly works

honest effort to meet both the spirit and letter of the contract

good faith

a sole proprietorship differs from a corporation in

how stock is sold

when is an agent liable on a contract that the agent entered into in the business of the agents principal

if the agent entered into the contract in a personable capacity, when the principal is undisclosed, and when the agent is acting without authority

authority that is created not by an explicit oral or written agreement but by implication

implied authority

if a partner wrongfully dissociates, do they get a vote on whether the partnership should continue?

no, wrongfully dissociating partners do not get to vote on the matter

what is required to create a sole proprietorship?

nothing

the substitution, by agreement, of a new contract for an old one, with the rights under the old one being terminated

novation

What are fiduciary duties of an agent to her principal

obedience, accounting, and loyalty

help implement the goals and manage day-to-day affairs

officers

the person for whom an agent is acting

principals

Mk and Mindy create a fore-profit corporation, Mks house, to provide shelter to homeless and abused women and children. Mk and mindy are shareholders. Zada is also along with five others. Doug manages the day-to-day operations. the bylaws provide the corporation is established for the sole purpose of providing shelter,food, and care for homeless and abused women and children and for no other purpose. When the fridge in Mk's house stops working, Doug purchases a new one from home depot and charges it to the corporation. If Zada challenges the purchase as being ultra vires:

she will lose bc purchasing a fridge is an act reasonably necessary to accomplish the goals

An unincorporated business owned by one person

sole proprietorship

who is liable for contracts entered into on behalf of the corporation before the corporation is formed?

the promoter

In determining whether a partnership exists the court will look at what factors

the sharing of profits and losses and the sharing of management responsibilities

a partner generally does not have a right to compensation

true

any partner may act as an agent who binds the partnership

true

each partner has a right to inspect the books, use the property, and to act as an agent

true

an operation agreement for a limited liability company

typically includes provisions about choosing the LLC's management

A rightful dissociation occurs if:

A partner in a partnership at will serves notice that he intends to withdraw. The partners agree in advance on an event that causes dissociation. A partner dies or becomes incompetent. A partner is expelled by the other partners

what is the authority of the partner?

All partners are personally liable for all debts of the partnership. Can bind a partnership in a contract Can subject the partnership to tort liability Authority can be limited in a partnership agreement

which of the following is a requirement for the initial formation of a corporation?

Articles of incorporation/charter

a corporation that is formed in one state but does business in another state is referred to in the second state as:

a foreign corporation

Which of the following results in a rightful dissociation of a partner?

a partner provides the partnership with notice of intent to withdraw or a partner dies

a written agreement outlining the roles of partners and their rights and their duties are called

a partnership agreement

what does the ratification of an agency relationship include

a party affirms the contract another person made with a thrid party

essential elements of a partnership

all members have equal right to be involved in the management of the business; profits and losses are shared among members

which of the following is required for the formation of an LLC

articles (certificate) of organization

the policy-setting body of the corporations

board of directors

two types of corporation managers

board of directors and officers

who is liable to third parties for damage caused by an agents tortious conduct if the principal had directed the agent to take said action

both the agent and the principal

how do agency relationships affect businesses and the business world

businesses can grow by hiring employees and workers can specialize and become experts

what are three ways in which a partnership can be dissolved?

by an act of the partners, a court decree and by operation of law

the rules and regulations that are adopted by a corporation to govern its procedures

bylaws

when the partners agree to terminate the business

dissolution

officers and directors owe which of the following duties to a corporation

duty of loyalty and duty of care

An organization that does not pay income tax on its profits but instead passes them through to its owners who pay personal income tax on all business profits; also called pass-through

flow-through tax entity

Most LLC statutes provide that unless the articles of organization specify otherwise a LLC is managed by

its members

the action of the court to disregard the corporate entity and hold the shareholders personably liable for corporate debts and obligations

piercing the corporate veil

corporation formed for private benefit

private corporation

someone who organizes a corporation

promoter

corporation formed by the government

public corporation

example of a business world without agency relationships

the owner prepares the tax returns

what does indemnification mean?

the principal must reimburse the agent for expenses the agent incurred before the ending of the agency

Which of the following is required in the articles of organization for an LLC

the principal place of business and the name of business

what is the key factor in apparent authority

the principals actions

Which of the following provisions are typically in an opporation agreement for a LLC

whether the dissociation will trigger this solution by the LLC, how membership interest may be transferred

Collection of assets, discharging of liabilities, paying partner's shares Partners cannot create new obligation on behalf of the partnership Fiduciary duties to each other continue

winding up

where should the Articles of Incorporation be filed?

with the state

If a partner violates the partnership agreement, withdraws before the end of a term, becomes bankrupt, or a court expels a partner for wrongful behavior: this describes what type of dissociation?

wrongful dissociation

is a principal liable for the tortious actions of the principals agent

yes but the agent must reimburse the principal

is a principal under a duty to compensate an agent that works on the principals behalf

yes, if the contract requires compensation

the document that is filed to organize corporation; contains the structure and basic information about the corporation

Articles of Incorporation

at what point in dissolution does a partner's liability cease?

after the winding up is complete and the partnership is dissolved

for what terminations does a principal NOT have a duty to notify third parties

agencies terminated by operation of law

a principal- agency relationship that arises not by express or implied contracts but by perceptions of third parties

agency by estoppel

A corporation which originates in another country but does business in the U.S.

alien corporation

under the Model Act, a corporation is required to have at least one director unless:

all shareholders sign an agreement that eliminates the board or the corporation has fewer than 50 shareholders

partnership agreements can include

almost any term unless illegal or contrary to public policy

a rule under which courts will not hold corporate officers and directors liable for honest mistakes of judgement and bad business decisions that were made in good faith

business judgement rule

Under Delaware law, who has the right to amend the bylaws?

directors if permitted by the charter and shareholders

Liability: if the business cannot pay damages, the owner is personally liable

disadvantage of a sole proprietorship

Partnership is dissolved Partners must exercise good faith in the dissolution

dissolution

termination of a partnership includes what three phases?

dissolution, winding up, and termination

Ends right to participate in management Requires a buyout from the remaining partners Liability will continue for up to two years

effects of dissociation

When one or more partners dissociate, the partnership can

either buy out the departing partner(s) and continue in business or wind up the business and terminate the partnership.

who can terminate an agency relationship

either the agent or principal

how can the court pierce the corporate veil?

if the corporation is undercapitalized, if the assets of the corporation are mingled with those of the shareholders, or if the shareholders use the corporate entity to engage in fraud or illegal activity

a doctrine under which a plaintiff may sue and collect a judgement from, all of the partners together or one or more of the partners separately

joint and several liability

what will terminate an agency relationship

lapse of a prespecified time. achievement of the purpose of the agency, and mutual agreement between agent and principal

a partner who contributes capital to the partnership but has no right to participate in its management and has no liability for partnership debts beyond the amount of her or his investment

limited partner

Corporations require substantial expense and effort to create and operate

logistics

all partners have an equal right to participate in the management of the business, unless a partnership agreement states otherwise

management rights

an appointed decision making power is granted to a manager who may or may not be members of the LLC

manager managed

if harm is done by an agent, and is discovered that the agent has been convicted of the same harm before at a previous job, what might a principal be liable for

negligent hiring

In which of these situations might a court pierce the corporate veil?

personal and corporate money is mixed in one account or the corporation does not have sufficient capital to operate and meet its debts

If a corporate entity is used to perpetrate fraud, circumvent the law, or accomplish an illegitimate objective, the courts can pierce the corporate veil.

piercing the corporate veil

the act of accepting and giving legal force to an obligation that previously was not enforceable

ratification

partners have a duty to provide information to the business for the purpose of record keeping and accounting

record keeping duty

If the partner gives notice of their intent to withdraw, partners agree in advance on an event that will cause dissociation, a partner dies or becomes incapacitated, a partner is properly expelled by the remaining partners : this describes what type of dissociation?

rightful dissociation

what is the name of the document which establishes the processes for selling stock, should the need arise?

shareholder agreement

the formation of a partnership without a partnership agreement requires which of the following?

sharing of profits and losses, sharing of management duties

each of the partners has a right to equally share in the profits and losses, unless a different agreement has been made in a partnership agreement

sharing profits and losses right

what must a principal do to terminate an agency at will

simply notify the agent of the termination

does not require partnerships to make a formal filing or prepare a written agreement. However, it does permit a partnership to file a statement with the local secretary of state that contains basic information about the partnership.

the UPA

at the first meeting of corporate shareholders, what business is normally conducted?

the adoption of corporate bylaws and the election of the board directors

a partnership by estoppel is one in which

the parties aren't actually partners but are held liable as if they were

what does agency by ratification require

the principal affirms the agents entire act, not just a portion; the principal must have the legal capacity to contract

the incorporation process:

1. the state of incorporation is selected 2. the appropriate business name is secured 3. the Articles of Incorporation are filed with the state

A corporation with a small number of shareholders whose stock is not publicly traded and whose shareholders play an active role in management; it is entitled to special treatment under some state laws.

close corporations

A corporation owned and opporating in the same state

domestic corporation

duty of loyalty and care are

fiduciary duties

each partner owes to the partnership and other partners the duty of care and the duty of loyalty

fiduciary duties

directors and officers must act in the best interest of the corporation and the shareholders

fiduciary duty

which statement is true about creating a sole proprietorship

no documentation is required to create

what document spells out the rights and duties of its members of a LLC

operating agreement

an association of two or more persons who carry on as co-owners of a business for profit,

partnership

after dissolution, partners still have authority to do which of the following actions on behalf of the partnership?

pay the debts of the partnership; complete transactions that were started before dissolution

the number of members of a decision making body that must be present before business may be transacted

quorum

A corporation that provides limited liability to its owners and the tax status of a flow-through entity

s corporations

who is the corporate personnel:

shareholders, board of directors, and corporate officers

In ordinary circumstances when the corporate veil has not been pierced, a shareholder may be liable up to:

the amount of their investment

the board of directors manage

the business and affairs of the corporation

what documents spell out the powers of a corporation?

the bylaws and the charter/ articles of incorporation

The formation of an LLC is governed by

the laws of the state in which the LLC is created

which of the following provisions are typically in a charter for a corporation?

the name and address of corporation's agent and the intended business purpose of the corporation

how does a principal become liable to third parties in contracts

the principals agent has the authority to bind the principal in a contract with the third party

until liability is assumed by the corporation, any activity on behalf of the business is under whose liability?

the promoter

the person who acts on behalf of a principals

agents

when the principal causes a third party to believe that the agent has authority, even though they do not

apparent authority

dominant form of organization

corporation

what are the two types of actual authority?

express and implied authority

a partner always has the power to leave a partnership but

may not have the right.

all members take part in the management and operation of the business and all members have an equal vote to determine majority opinion

member managed

are written agreements required to form partnerships?

no

the board of directors may conduct business as long as a quorum is present at...

regular meetings and special meetings

the simplest form of business to establish

sole proprietorship

once the winding up phase is finished, this happens automatically

termination

When a third person has reasonably and detrimentally relied on the representation that a non-partner was part of a partnership, a court may conclude

that a promissory estoppel exists

a sole proprietorship differs from an LLC in

the documentation required for formation

a sole proprietorship differs from a partnership in

the number of owners

A wrongful dissociation occurs if:

A partner violates the partnership agreement. A partner in a term partnership withdraws before the end of the term. A court expels a partner in a term partnership because her behavior is harmful. A court has the right to expel a partner who engages in wrongful conduct that harms the partnership or violates the partnership agreement in a serious way. A partner in a term partnership becomes bankrupt.

qualities of a nonprofit organization

does not provide dividends to shareholders and its goal is to earn a profit

directors and officers must be faithful to the corporation and while performing their duties and put the interests of the business first

duty of loyalty

both parties agree, orally or in writing, that an agency relationship exists in which the agent has the power to act in the place of, and on behalf of, the principal

express authority

which of the following happens when a partner dissociates

the partnership may remain liable for acts of the dissociated partner for two years after the dissociation; the dissociated partners interest in the partnership must be purchased by the partnership