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
