BLAW

Partnership Property

Property belongs to the partnership if the property is transferred 1) To the partnership in its name 2) To any partner acting as a partner by a transfer document that names the partnership 3) To any partner by a transfer document indicating the partner's status as a partner or that a partnership exist

LLP Creation

Unlike an ordinary partnership, a LLP may not be created merely by partners conducting a business together. the partners must expressly agree to create an LLP by complying with a limited liability partnership statute. -Requires filing a form with the secretary of state, paying an annual fee, and adding the words RLLP or LLP to the partnership name. -Some states require an LLP to maintain a minimum level of professional liability insurance or net worth.

RUPA Section 308(e)

states that "persons who are not partners as to each other are not liable as partners to other persons" Must meet 3 Elements: 1) A person purports to be or consents to being represented as a partner of another person or partnership. 2) A third party relies on the representation 3) The third party transacts with the actual or purported partnership

Debentures

-Are long-term, unsecured debt securities -Has a term of 10-30 years -Usually have indentures

Notes

-Have shorter duration than debentures or bonds. -Seldom have terms exceeding 5 years -May be secured or unsecured

Winding up

-liquidation, and termination of a partnership

Contents of the Bylaws

1. The authority of the officers and the directors, specifying what they may or may not do. 2. The time and place at which the annual shareholders' meetings will be held. 3. The procedure for calling special meetings of shareholders. 4. The procedures for shareholders' and directors' meetings, including whether more than a majority is required for approval of specified actions. 5. Provisions for special committees of the board, defining their membership and the scope of their activities. 6.The procedures for the maintenance of share records. 7.The machinery for the transfer of shares. 8. The procedures and standards for the declaration and payment of dividends.

RUPA (Partnerships)

-"association of two or more persons to carry on as co-owners of a business for profit" -May meet the definition of partnership even when a person does not believe he is a partner, and occasionally even if the parties agree that they are not partners. -co-ownership of assets does not establish a partnership -Exceptions of payments: of a debt, of wages to an employee or services to an independent contractor, of rent, of an annuity or other retirement or health benefit to a beneficiary or representative of a deceased partner, interest on a loan, for the sale of the goodwill of a business or other property

Professional Corporation

-A corporation formed by professionals such as accountants, physicians, and dentists. -Is almost identical to a business corporation -Is formed only by filing with the secretary of stated and is managed by a board of directors, unless a statute permits it to be managed like a partnership. -The rigid management structure makes the professional corporation inappropriate for some smaller professional practices. -PSH have no personal liability for the obligations of the professional corporation, such as a building lease, they retain unlimited liability to their clients for their professional malpractice. -A professional will have no personal liability, however, for the malpractice of a fellow shareholder or associate. -Typically, only professionals holding the same type of license to practice a profession may be shareholders of a professional corporation. -May elect for the corporation to be taxed like a corporation or an S Corporation

Limited Liability Partnership

-A partnership whose partners have elected limited liability status -Identical to a partnership except that an LLP partner has no liability for most LLP obligations; however, an LLP partner retains unlimited liability for his own wrongful acts, such as their malpractice liability to a client. -Partners may elect to have the LLP taxed like a partnership or a corporation. -If taxed like a corporation, it pays federal income tax on its income, but the partners pay federal income tax only on the compensation paid and the partnership profits distributed to the partners. -Requires filing a form with the secretary of state; some states require LLPs to maintain adequate professional insurance or have a high net worth. -Only the LLP is liable on a contractual obligation, and only the LLP may be sued on such a claim. -For tort obligations, the LLP is liable as well as the partner who committed the tort.

Purporting to Be a Partner

-A person may purport to be a partner by referring to himself as another person's partner. -Mere knowledge that one is being held out as a partner is not consent -A persons silence in response to a statement that the person is another partner is consent -A purported partner is liable only to those persons who rely on the representation and enter into a transaction with the actual or purported partnership.

Charging Order

-An order charging all or part of the partner's transferable partnership interest with payment of the unsatisfied amount of the judgement. -Is obtained without the partners consent

Bonds

-Are long-term, secured debt securities that usually have indentures -Are identical to debentures except that bonds are secured by collateral -Collateral for bonds may be real property, personal property

Authorized Shares

-Are shares that a corp is permitted to issue by its articles of incorporation.

Outstanding Shares

-Are shares that are currently held by shareholders. -Only outstanding shares may be voted at a SH meeting

Issued Shares

-Are shares that have been sold to SH

Articles of incorporation(charter)

-Are similar to a constitution. -They state many of the rights and responsibilities of the corporation, its management, and its shareholders. -Additional provisions may include procedures for electing directors, the quorum requirements for shareholders' and directors' meetings, and the dividend right of shareholders -Must be delivered to the office of the secretary of state, and filing fee must be paid. -MUST include: 1)The name of the corporation 2)Number of shares that the corporation has authority to issue 3) The address of the initial registered office of the corporation and the name of its registered agent. 4) The name and address of each incorporator

Debt Securities

-Create a debtor-creditor relationship between the corporation and the security holder

Duty of Care

-Each partner owes a duty of care -Partner is not liable for losses resulting from honest errors in judgement -Is liable for losses resulting from her gross negligence, reckless conduct, intentional misconduct, or knowing violation of the law Duties 1) A partner must make an investigation before making a decision so that she has an adequate basis for making a decision so that she has an adequate basis for making the decision. 2) the decision she makes must be one she has grounds to believe is in the best interest of the partnership. -In partnership agreement, the partners may reduce or increase the duty of care owned to the partnership. -They may not eliminate the duty of care owed to the partnership

Board of Directors

-Has had the authority and the duty to manage the corp -In large corporations it is impossible for the board to manage the corporations day-to-day business -MBCA permits a corporation to be managed under the direction of the BOD -Delegates major responsibility for management to committees of the board such as an executive committee, to individual board members such as the chairman of the board, and to the officers of the corporation, especially the CEO

Mandatory Dividend Right

-Have been held illegal as unduly restricting the powers of the BOD

Preferred Shares

-Have preferences with regard to assets or dividends over other classes of shares -PSH are customarily given liquidation and dividend preferences over CSH - A corp may have several classes of preferred shares. -Under MBCA the preferences of preferred shareholders must be set out in the articles of incorporation -the liquidation preference of preferred shares is usually a stated dollar amount. -during liquidation this amount must be paid to each preferred shareholder before any common shareholder or other shareholder subordinated to the preferred class. -Dividend preferences may be cumulative or noncumulative

Participating Preferred Shares

-Have priority up to a stated amount or percentage of the dividends to be paid by the corporation. -Then the preferred SH participate with the common shareholders in additional dividends paid

Cumulative preferred shares

-If not paid in any year, accumulate until paid -The entire accumulation must be paid before any dividends may be paid to common shareholders

Indenture

-Is a contract that states the right of the debenture holders

Limited Liability Limited Partnership

-Is a limited partnership whose partners have elected limited liability status for all the partners. -Created by making a filing with the secretary of state -Is designed to give the same limited liability advantages to general partners in a limited partnerhsip as have been granted to partners who manage an LLP or a limited liability company. -Is identical to a LP in its management and the rights and duties of its partners. -Both the limited partners and the general partners in a limited partnership will have no liability for most obligations of the LLLP. -The GP will have unlimited liability for any torts he commits while acting for the LLLP.

Dissociation

-Is defined by RUPA as a change in the relation of the partners caused by any partners ceasing to be associated in the carrying on of the business. - May be caused by a partner's retirement, death, expulsion, or bankruptcy filing.

Corporation

-Is owned by shareholders who elect a board of directors to manage the business. -The BOD often selects officers to run the day-to-day affairs of the business -Ownership and management of a corporation may be completely separate: No shareholder has the right to manage, and no officer or director needs to be a shareholder. -SH have limited liability for the obligations of the corporation, even if a shareholder is elected as a director or selected as an officer. -Directors and officers have no liability for the contracts they or the corporations employees sign only in the name of the corporation. -Managers have liability for their own misconduct, they have no liability for corporate torts committed by other corporate managers or employees. -The corporation pays taxes on its profits -SH do not report their shares of corporation profits on their individual federal income tax returns. -SH only report income on their individual tax returns when the corporation distributes its profits to the shareholders in the form of dividends or the SH sell their investments at a profit -SH do not deduct corporate losses on their individual returns. -SH may deduct their investment losses after they have sold their shares of the corporation -Has a life separate from its owners and its managers. -SH may sell his shares of the corporation to other persons without limitation unless there is a contrary agreement. -No human has unlimited liability for the debts of the business. -Investors may contribute capital to the business, avoid unlimited liability, escape the obligation to manage the business, and easily liquidate their investments by selling their shares, the corporation has the ability to attract large amounts of capital.

Joint ventures

-May be found when a court is reluctant to call an arrangement a partnership because the purpose of the arrangement is not to establish an ongoing business involving many transactions; instead it is limited to a single project.

Noncumulative Preferred Shares

-Only the current year's dividends must be paid to preferred SH prior to the payment of dividends to CSH

Warrants

-Options evidenced by certificates -Are sometimes part of a package of securities sold as a unit

Options

-Options permit their holders to purchase a specific number of shares at a specified price during a specified time period, usually beginning months or years after the option is issued. -Are often issued to top level managers as an incentive to increase the profitability of the corporation.

Sole proprietor

-Owner is personally liable for all the obligations of the business. -A SP may lose all his assets including money from his bank account, proceeds form the sale of his house etc. if his business becomes insolvent. -SP are formed very easily and inexpensively, no formalities are necessary. -few people consider the business form decision. -SP is merely an extension of its owner, it has no life apart from its owner. -Can be freely sold to someone else, cannot be transferred to another person. -The buyer of the business must create his own form of business to continue the business. -Not a legal entity, cannot sue or be sued. -Can only be sued or sue in the owners name. -Not a tax-paying entity for federal income tax purposes. -All of the income of a sole proprietorship is income to its owner and must be reported on the sole proprietor's individual federal income tax return. -This loss-deduction advantage explains why some wealthier taxpayers use this form of business. -Many sole proprietorships have trade names.

Common Shares(equity security)

-Owners called common shareholders--have the exclusive right to elect the directors who manage the corporation -Often occupy a position inferior to that of other investors, notably creditors and preferred shareholders. -The claims of CSH are subordinate to the claims of creditors and other classes of shareholders when liabilities and dividends are paid and when assets are distributed upon liquidation. -Bear the major risks of the corporate venture, yet stand to profit the most if it is successful

Duties of Partners

-Partners owe to the partnership and each other the highest degree of loyalty - Must act consistently with the obligation of good faith and fair dealing.

Convertible

-Preferred shares may be converted into another class of shares usually common shares. -A conversion right, the conversion rate or price is stated in the articles

Redemtion/Call

-Provision in the article allows a corporation at its option to repurchase preferred shareholders' shares at a price stated in the articles, despite the SH unwillingness to sell. -Some statutes permit the articles to give the shareholders the right to force the corporation to redeem preferred shares.

Securities

-Shares, debentures, bonds, and long-term notes payable.

Canceled Shares

-Sometimes a corp will purchase its own shares -May cancel repurchased shares -Canceled shares do not exist -Cannot be reissued

Equity Securities

-Stock or shares -The issuance of shares creates an ownership relationship: the holders of the shares--called stockholders/shareholders--are the owners of the corporation. -Shareholders' rights are a matter of contract and appear in the articles of incorporation, in the bylaws, in a shareholder agreement, and on the share certificates.

S Corporation

-The corporation and its shareholders are taxed nearly entirely like a partnership: Income and losses of the business are reported on the shareholders individual federal income tax returns. -May have no more than 100 shareholders -Have only one class of shares -Owned only by individuals and trusts -SH may be unable to find investors willing to buy their shares or may be restricted from selling their shares pursuant to an agreement between the shareholders.

Transferable interest

-The partners share of profits and losses and his right to receive partnership distributions. The transferable interest may be transferred or sold to any other person. -It may also be used as collateral to secure a partners debt. -The sale or transfer of a partners transferable interest is voluntary act of the partner. -The transferee does not become a partner of the partnership. -The transferee has no right to inspect the partnerships books and records or to manage the partnership. -By itself the partners transfer of his transferable interest does not dissociate the partner from the partnership or effect a dissolution

Partnership

-Two or more owners called partners -Partners have the right to make all the management decisions for the business -All profits of the business are shared equally by the partners -Parters assume personal liability for all the obligations of the business. -All the debts of the business by their partners or by partnership employee. -Creditors may require one or more of the partners to pay the claims using their individual, nonbusiness assets. -Thus, a partner may have to pay more than his share of partnership liabilities. -Not a tax-paying entity for federal income tax purposes. -All of the income of the partnership is income to its partners and must be reported on the individual partners' federal income tax returns whether or not it is distributed to the partners. -Any business losses are deductible without limit on the partners individual tax return -Partnership has a life apart from its owners -When a partner dies or otherwise leaves the business, the partnership usually continues. -A partner's ownership interest in a partnership is not freely transferable: A purchaser of the partner's interest is not a partner of the partnership, unless the other partners agree to admit the purchaser as a partner. -Formation of a partnership requires no formalities and may be formed by default. -If partners conduct business under a trade name, they must file the name with the secretary of state in compliance with state statutes requiring the registration of fictitious business names. -When partners do not define their relationship as partners, the default rules of the RUPA determine the rights of the partners vis-a-vis each other.

Voting Rights

-Usually most voting rights are taken from preferred shares, except for important matters such as voting for a merger or a change in preferred SH dividend rights. -Rarely are preferred shareholders given the right to vote for directors, except in the event of a corporations default in the payment of dividends.

Treasury Shares

-When repurchased shares are neither canceled nor restored to unissued status -Are authorized and issued but not outstanding -May be sold at a later time

Limited Partnership

-has one or more general partners and one or more limited partner -General partners have rights and liabilities similar to partners in a partnership. -GP manage the business of the limited partnership and have unlimited liability for the obligations of the limited partnership. -Typically however, the only general partner is a corporation, thereby protecting the human managers from unlimited liability -LP usually have no liability for the obligations of the limited partnership once they have paid their capital contributions to the limited partnership. -LP have no right to manage the business, but if they do manage, they nonetheless retain their limited liability. -May elect to be taxed either as a partnership or as a corporation. -If taxed like a partnership, GP report their shares of the limited partnership's income and losses on their individual federal income tax returns. For GP, losses of the business are deductible without limit. -A limited partner must pay federal income tax on his share of the profits of the business, but he may deduct his share of losses only to the extent of his investment in the business. -If taxed like a corporation, the limited partnership pays federal income tax only on compensation paid and profits distributed to them. -May have a life apart from its owners. -Is dissolved when there is no remaining general partner or no remaining limited partner. -A GP or LP rights may not be wholly transferred to another person unless the other partners agree to admit the new person as a partner. -Created only by complying with a state statute permitting limited partnerships. -By using a corporate general partner, no human will have unlimited liability for the debts of the business. -If taxed like a partnership, losses of the business are deductible on the owners' federal income tax returns. -Investors may contribute capital to the business yet avoid unlimited liability and the obligation to manage the business. Has the ability to attracts large amounts of capital

Nonwrongful Dissociation

1) Death of a partner 2) withdrawal of a partner at any time from a partnership at will. A partnership at will is a partnership whose partnership agreement does not specify any term or undertaking to be accomplished 3) In a partnership for a term or completion of an undertaking, withdrawal of a partner within 90 days after another partner's death, adjudicated incapacity, appointment of custodian over his property or wrongful dissociation. 4) Withdrawal of a partner in accordance with the partnership agreement. 5) Automatic dissociation by the occurrence of an event agreed to in the partnership agreement.

Partner's Partnership Interest

1) Partners transferable interest 2) The partners management and other rights

Steps in Incorporation

1) Preparation of articles of incorporation 2) Signing and authenticating the articles by one or more incorporators 3) Filing the articles with the secretary of state, accompanied by the payment of specified fees 4) Receipt of a copy of the articles of incorporation stamped "Filed" by the secretary of state, accompanied by a free receipt 5) Holding an organization meeting for the purpose of adopting bylaws, electing officers, and transacting other business.

Mining Parnterships

1) joint ownership of a mineral interest 2) joint operation of the property 3) sharing of profits and losses

Limited Liability Company

• Intended to combine the nontax advantages of corporations with the favorable tax treatment of partnerships. • Is owned by members who may manage the LLC themselves or elect the manager or managers who will operate the business. • Members have limited liability for the obligations of the LLC • All states except CA permit professionals to organize as LLCs • Professionals in a professional LLC have unlimited liability except for their own malpractice. • May be taxed like a partnership or a corporation • There is limited free transferability of the LLC members' ownership interests. • Transfer of a membership interest entitles the transferee to receive only the member's distributions from the LLC, unless all members or the LLC agreement permits the transferee to become a member. • The death, retirement, or bankruptcy of any member usually does not dissolve or cause the liquidation of the LLC. • Has the limited liability advantage and if manager-managed, the management advantage of the corporation. • Its members may elect to receive federal tax treatment similar to the S Corporation and its shareholders, yet the LLC has no limit on the number or type of owners, as an S Corporation