blaw test 4

What is the controlling document in an LLC?

(the operating agreement)

What are the Board of Directors responsibilities we covered?

- are the ultimate authority in corporate government - they hire/fire corporate officers and evaluate the performance and compensation of them - also in charge of financial health/help?

What are bylaws and what do/should you know about them?

- internal rules and regulations adopted by the shareholders and can only be amended or changed by shareholders - 2/3 vote to change, must include board of directors term length, qualifications, and how many members

What are the disadvantages of corporate?

- operation is expensive and reporting requirements are cumbersome - taxation

We listed 4 corporate characteristics/advantages. What are they?

- ownership is easily transferred - perpetual existence (as long as business is profitable it can continue operations) - centralized management - shareholders have limited liability

What are the rights of partners in a general partnership?

- participate in management - share in profits - contribution and indemnity - return of loans - return of capital - right to be informed - property

What factors do we look at to imply a partnership (Essential Elements - sharing space, dividing responsibility, sharing profits)?

A sharing of profits or losses, a joint ownership of the business, and an equal right to be involved in management of the business

In choosing a form of business what are the considerations we covered? Which are the most important?

Ability to raise capital, how easy it is to form, tax considerations, and liability

What is a "pass-through" entity?

All profits pass through business to owner, then, they pay taxes on said profits Corporation with a shield of liability with single taxation (pass through)

What are the advantages and disadvantages of a general partnership?

An advantage of a general partnership is taxation. A disadvantage of a general partnership is liability

How is an LLC formed?

Articles of Organization must be filed through the central state agency

What is the primary benefit of corporate existence?

As long as the business is profitable it can continue operations

Why is the name important? I said this in several places during our discussion of these chapters.

Because we are putting the public on notice of the type of business that it is dealing with

What is the basic structure of all corporations?

Board of directors, officers, and shareholders

What is the book value of stock important to whom?

Book value: look at value of corporation (assets-liabilities=net worth/# of shares of stock)

How is an LLC managed? (2 ways)

Can be member managed Can be manager managed Can either choose members to be managers or we can hire outside managers

What are the two types of private corporations we covered that pre-date LLC's?

Close corporation: small corporation (maybe family owned); can be owned by one individual; can have a single shareholder ; not subject to double taxation Sub-chapter S corporation: form if you have diverse owners, but still want to be a corporation with a shield of liability with single taxation (pass through)

What are the advantages of a sole proprietorship?

Complete autonomy Easy to form and not expensive to form All profits belong to the owner Taxation: pass through entity--the business does not pay taxes on its earnings--pass through to the owner

What is a LLP's purpose?

Designed to protect the partners from any malpractice action of a fellow partner

What does fiduciary mean?

Duty of utmost loyalty, trust, confidence, and integrity; a trustee

What kind of liability do partners have?

In tort - joint and several liability; in contract - basic joint liability

What are the negotiable instruments that we covered?

Instruments that can be transferred; serve as a substitute for cash Ex. check, bonds, debenture(5-10yrs)

What is an LLP (PLLP)?

Limited Liability Partnership (PLLP: professional limited liability partnership): limited partnership for professionals (doctors, accountants, lawyers, etc.)

What are the disadvantages of a sole proprietorship?

Limited life (when the owner dies, the business dies) Limited ability to raise capital Limited liability: unlimited personal liability

What is a limited partnership?

Limited partnership: limited partners have no management authority and no liability for the obligations of the business

What are the newer forms of business?

Limited partnerships Limited liability partnerships Limited liability companies (LLCs)

What is a limited partner?

Limited: liability is limited to the amount invested; business is separate from its owners

Name all the characteristics we covered. If a corporation has only one, which one? Why?

Must have common stock to have preferred stock-- common stock is voting stock

From this point forward the name of the business is important. Know what "magic words", if any, must be in the name of the business.

Name must include "limited partnership" or "LP"

We classified corporations as private, non-profit, public/governmental and by location. What do/should you know about each?

Non-profits: are formed for charitable research or religious purposes and vary in size (can be as large as american cancer society or as small as starkville baseball association) public/governmental: - formed for governmental purposes; ex: post office, banks Location: there are 3 types: domestic, foreign, and alien Domestic: doing business in its state of incorporation Foreign: does business outside its state of incorporation Alien: formed outside of the US but does business inside the US

What are the two ways debt financing is accomplished in a corporation?

Ordinary debt: borrowing money

What are the issues that should be contained in a partnership agreement?

Ownership interest/capital contributions; management/control; limits on authority; division of profits/losses; accounting; termination

How are general partnerships taxed?

Pass-through taxation (advantage)

Who has title to the real property in a partnership?

Property belongs to partnership, not individual partners

What is a registered agent for service of process?

Registered agent for service of process: the official recipient of all legal notice

What are the rights of shareholders that we covered?

Right to attend and participate in the annual meeting Right to transfer your ownership, unless restricted in the bylaws If there is a restriction, it must be shown on the face of the stock document Pre-emptive rights: current shareholders have the right to purchase newly issued shares of stock before they are offered to the public Right to receive dividends IF they are authorized Right to inspect corporate records Excluded: personnel records

What do you know about corporate liability in tort and criminal law? (just the corporation itself and/or directors/officers?)

Separate legal entity (subject to criminal laws) Fines are by a percentage of the corporation's earnings

What are the basic points we covered about each - the Board of Directors, the Officers and the Shareholders?

Shareholders (owners): elect the board of directors; management is indirect Board of directors: long-range planning body; hires corporate officers Corporate officers: responsible for day-to-day operations of the corporation

Historically, what are the 3 principal forms of business?

Sole proprietorship General partnership Corporation

What is and where do we find the authority for the existence of a corporation?

Source of law

Remember that a general partnership can be formed expressly or can be implied.

T or F

What is a general partnership?

Two or more persons, expressed or implied, carrying on business for a profit

What about the duty of loyalty?

absolute, undivided loyalty (can't serve two masters); you have to avoid conflicts of interest

(to whom or to what) What about the duty of care?

acting as a reasonable, prudent person; using skills, knowledge, and expertise

What is common stock?

active, voting stock; can receive dividends

What do/should you know about the duty of obedience?

responsibility to follow bylaws, state law, and prior board resolutions

What is equity financing?

shares of stock (equity ownership)

Limited Liability Companies have a broad scope of powers. Some of them include -

the LLC exists separate from its owners (members)/ it can sue and be sued/ it can enter contracts/ it can own and transfer property/ all in addition to the day-to-day operations of the business. An LLC is considered to be an artificial person with almost all the rights and privileges of individuals, including constitutional protections.

Remember with LP's and LLP's:

there must be a document filed with the Secretary of State's office to create these entities. The basic information that must be contained in these documents filed with the Secretary of State includes the same general information for every filing - name of the business [with proper designation, LP, LLP, etc]; type of business (activity); principal place of business; mailing address; registered agent for service of process)

What is the market value of stock important to whom?

value to the shareholders Value of stocks in the marketplace What a buyer purchases for and what a seller sells for

What are the responsibilities of the Officers of a corporation?

what happens day to day - must carry out and implement the directions of the board of directors

What is the Business Judgment Rule?

- acting in good faith - taking steps to be informed - avoiding conflicts of interest - having a rational basis for the decisions that you make

What are the duties of partners in a general partnership?

- duty of loyalty and good faith towards the partnership - duty of care - duty of information - duty of obedience

Because of the similarity of the responsibility of officers and directors they are both charged with the same duties of care.

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Remember - Corporate powers are very broad.....a corporation is considered to be an artificial being. A corporation can do almost anything an individual can do and some things that an individual can't do.

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Remember the duties and liabilities of officers and directors are very similar because they are in fiduciary positions. Also, positions of control of corporate activities and making decisions for the corporation that affect shareholders.

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Remember the name of each business entity becomes important because we are putting the public on notice of the type of business that it is dealing with.

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What is a general partner?

General partner: general partner has full management authority and unlimited liability for the obligations of the business

What is treasury stock?

inactive (because it is in the hands of the corporation) stock that has been reacquired by the corporation

What are the 3 advantages of an LLC?

limited liability; flexibility in management and flexibility in taxation - an LLC is allowed the flexibility to choose its method of taxation - as a general partnership {pass-through} or as a corporation) - liability goes to company, not owners (limited liability) - taxation is flexible (taxed as a partnership) - flexibility in management

What is preferred stock?

non-voting stock; receives dividends first; receive preference in other ways